ANNEX
Basis of qualified opinion a)
As mentioned in Note (11) to the consolidated financial statements, although seven of the subsidiary companies “SEKEM Holding for Investment Company, SEKEM Laboratories for Organic Products, NATURETEX for Clothes Company, ATOS Company for Herbal Medicine Manufacturing, LIBRA Organic Cultivation, ISIS for Food Processing, and LOTUS for Organic Products Company” provided for claim provisions by L.E. 7,842,810 as of 31 December 2010 (2009: 3,365,225), however we do not have sufficient information to determine the nature of the provision for and whether it is adequate or not.
b)
As mentioned in Note (17) to the consolidated financial statements, four of the subsidiary companies “ISIS for Food Processing, and LOTUS for Organic Products Company, NATURETEX for Clothes Company, ATOS Company for Herbal Medicine Manufacturing” account for the sale and lease-back arrangements in accordance with the International Accounting Standard No. 17 Leases, which constitutes a departure from the Egyptian Accounting Standard No. 20 “Accounting for Finance Leases”, which require that all lease arrangements to be accounts for, by the lessee, as operating leases. As such had EAS 20 been applied from the date those arrangements were entered into, net profits for the year ended 31. December 2010 would have been reduces by L.E. 1.8 million (2009: L.E. 2.4 million) while the beginning balance of retained earnings would have been reduced by L.E. 4.3 million (2009: L.E. 1.8 million).
Qualified Opinion In our opinion, except for the effect of the matters referred to in the preceding paragraph on the consolidated financial statements, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of SEKEM Holding for Investment Company – S.A.E. as of 31. December 2010, and its consolidated financial performance and its cash flows for the year then ended in accordance with Egyptian Accoundint Standards and the light of relevant Egyptian laws and regulations. Emphasis of Matter Without qualifying our opinion, we draw attention that two subsidiaries of the Group “LOTUS Upper Egypt for Organic Products Co., and Organic & More Egypt Co.” had accumulated losses amounting to L.E 4.5 million as of 31. December 2010 which exceeded 50% of their paid up capital resulting in a deficiency of assets amounting to L.E. 2.8 million, which indicates that these subsidiaries will not be able to meet their liabilities as they fall due. However, the financial statements have been prepared under the going concern concept. According to Article No. 69 of the Companies Law No. 159 of 1981, an Extraordinary General Assembly Meeting is required to be held to decide on the continuity of the two subsidiary companies.
Taha M. Khaled Chartered Accountant R.A.A. 5136
Cairo, 20 June 2011
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