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Note 4 - Investment in Wanchun Pharma | 12 Months Ended
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Dec. 31, 2016
Notes to Financial Statements |
Equity Method Investments and Joint Ventures Disclosure [Text Block] |
4. | Investment in Wanchun Pharma
In December 2012, Wanchun Biotech and Shanghai Fosun entered into a shareholders’ agreement, and formed Wanchun Pharma. Wanchun Biotech contributed the patent of Plinabulin in the territories of the PRC and Hong Kong with an appraised value of $16,042 (RMB100,000) in exchange for 90.91% equity interest in Wanchun Pharma. Shanghai Fosun contributed $1,604 (RMB10,000) in cash for 9.09% equity interest in Wanchun Pharma. Each of Wanchun Biotech and Shanghai Fosun were required to contribute additional capital of $3,212 (RMB20,000) in cash by December 2014 pursuant to the shareholders’ agreement, among which Shanghai Fosun had the option to transfer its capital contribution obligation of $3,212 (RMB20,000) to Wanchun Biotech, if the phase two clinical trial of the proposed immune-oncology drugs for the treatment of cancer could not be completed to Shanghai Fosun’s satisfaction. Up to the date of completion of liquidation of Wanchun Pharma in August 2015, there was no capital contributed other than the initial investments contributed by the investors. In addition, based on the articles of association and the shareholders’ agreement, among others, the selection, termination and determination of the compensation of the directors and the general manager, who were responsible for determining and implementing Wanchun Pharma’s policies and procedures, required consents of both investors. The annual business plan, including the budget, was also subject to approval by both investors. In preparing these consolidated financial statements, the Company considered the rights of Shanghai Fosun under ASC 810 - 10 - 25, Consolidation, Overall, Recognition , and concluded that they were substantive participating in nature. Thus Wanchun Biotech did not have controlling financial interests and only had significant influence over Wanchun Pharma. The 90.91% equity interest in Wanchun Pharma held by Wanchun Biotech, based on the actual relative contribution by the investors, was accounted for under the equity method. The initial investment was recorded at cost in accordance with ASC 323 - 10 - 30, Investments—Equity Method and Joint Ventures, Overall, Initial Measurement . As the initial contribution by Wanchun Biotech in exchange for the equity interest in Wanchun Pharma was intellectual properties which did not constitute a business, the Company used the carryover basis of the intellectual properties, which was nil as they were expensed when first acquired by Wanchun Biotech under ASC 730, to record the cost of investment.
Since incorporation, Wanchun Pharma had been generating losses. ASC 323 - 10 - 35, Investments—Equity Method and Joint Ventures , Overall, Subsequent Measurement, requires an equity method investor to continue to report losses up to the investor’s investment carrying amount, including any additional financial support made or committed to by the investor. As Wanchun Biotech was committed providing additional capital as disclosed above, the Company continued to record losses resulting in a negative equity method investment. As the Company’s equity investment had a negative balance of $196 and a loan receivable of $960 from Wanchun Pharma as at December 31, 2014, such liability of $196 was presented as a credit against the loan granted to the equity investee. On March 30, 2015, Wanchun Biotech entered into a share transfer agreement with Shanghai Fosun, a wholly-owned subsidiary of Fosun International Limited, to acquire the 9.09% equity interest in Wanchun Pharma for a cash consideration of $1,611 (RMB10,000) such that Wanchun Pharma became wholly owned by Wanchun Biotech after the acquisition. The acquisition was completed on April 14, 2015. On July 20, 2015, Fosun Hong Kong, also a wholly-owned subsidiary of Fosun International Limited, purchased 240,000 shares of the Company from Wanchun Biotech at a cash consideration of $1,611 (RMB10,000). As these two transactions were negotiated and entered into in contemplation of each other, the transactions were accounted for as an exchange of the equity interest in the Company for the equity interest in the Wanchun Pharma. The Company considered ASC 505, Equity (‘‘ASC 505’’), and concluded that the fair value of the equity interest of the Company to be more readily determinable. Hence the cost of acquisition of 9.09% equity interest in Wanchun Pharma was determined based on the fair value of the equity interest of the Company to be issued to Fosun Hong Kong. The measurement date was determined to be the date when the equity interest of Wanchun Pharma was acquired as there was no performance commitment by the counterparty. The fair value of the 240,000 ordinary shares of the Company was determined to be $10 per share, totaling $2,400, based on the recent price per ordinary share issued to various independent third party investors (Note 1). As Wanchun Pharma did not obtain the related approvals by the China Food & Drug Authority (‘‘CDFA’’) prior to the completion of the Internal Restructuring to conduct any research and development activities, Wanchun Pharma had been inactive since incorporation. Apart from the annual fees for the patent of Plinabulin registered in the PRC and Hong Kong, Wanchun Pharma only incurred general and administrative and financial expenses. The Company concluded that a market participant would not be capable of creating the intended outputs by acquiring Wanchun Pharma without such CDFA approval and thus accounted for the acquisition of Wanchun Pharma as an acquisition of assets rather than business. The Company allocated the cost of the acquisition to individual assets acquired and liabilities assumed on the relative fair value basis pursuant to ASC 805, Business Combination . However, as the net assets of Wanchun Pharma amounting to $1,347 (included cash of $1,256) as of acquisition date were substantially all financial assets, the Company did not assign a value above the fair value for the individual items included in the above net assets. The excess of cost over the fair value of such net assets and the carrying amount of the equity investment as of the acquisition date was subject to the allocation to the patent of Plinabulin since no other noncurrent assets were identified, and was thus recorded as research and development expenses as of acquisition date under ASC 730. A reconciliation of the cost of acquisition and the then carrying value of the equity investment and the allocation to various assets is as follows:
|  |  | $ |
Acquisition cost |  |  | 2,400 |
Less: negative equity investment in Wanchun Pharma |  |  | (239 | )
Less: net assets of Wanchun Pharma (including cash of $1,256) |  |  | (1,347 | )
Excess cost allocated to patent of Plinabulin and charged to expenses |  |  | 814 |
Upon completion of the above acquisition on April 14, 2015, Wanchun Pharma became a wholly owned subsidiary of Wanchun Biotech. Wanchun Pharma was subject to consolidation since April 14, 2015 up to the completion of the Internal Restructuring on July 20, 2015. Wanchun Pharma initiated the liquidation procedures on June 1, 2015 and all the assets and liabilities were disposed of, transferred to the Group or distributed to Wanchun Biotech before the completion of liquidation on August 26, 2015. The patent of Plinabulin registered in the PRC and Hong Kong, the principal asset held by Wanchun Pharma before the initiation of liquidation, was transferred to the Group pursuant to the Internal Restructuring (Note 1). Revenues and net losses of Wanchun Pharma when it was accounted for as an equity investee from January 1, 2015 to April 14, 2015, the acquisition date, were nil and $48, respectively. Revenues and net losses of Wanchun Pharma included in the Company’s consolidated statements of comprehensive loss for the period from the April 14, 2015 through 20 July, 2015, the Internal Restructuring date, were nil and $49, respectively.

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- Definition The entire disclosure for equity method investments and joint ventures. Equity method investments are investments that give the investor the ability to exercise significant influence over the operating and financial policies of an investee. Joint ventures are entities owned and operated by a small group of businesses as a separate and specific business or project for the mutual benefit of the members of the group. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 323 -URI http://asc.fasb.org/topic&trid=2196965 + Details
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