| Text of the audit report | Private Enterprise "Audit Agency "Chernihiv-Audit", acting on the basis of the certificate of inclusion in the Register of Audit Firms and Auditors No. 2990 of the Audit Chamber of Ukraine issued on September 26, 2002 and valid until July 20, 2012, as well as the certificate of inclusion in the Register of Auditors and Audit Firms that can conduct audits of financial institutions, operating in the securities market No. 424 issued by the State Commission on Securities and Stock Market dated April 17, 2007 and valid until July 20, 2012, we have audited the financial statements and analyzed the financial position of Ichnianskyi Dairy and Cannery Open Joint Stock Company as of December 31, 2007. The auditor is Veronika Rudenok, certificate of A series No. 004721, valid until June 22, 2010. The audit was conducted for the period from January 1, 2007 to December 31, 2007, in compliance with the requirements of the current legislation of Ukraine, established audit standards, national accounting regulations (standards) and international accounting standards (IAS). Using the method of random inspection, the indicators of financial statements were checked, the principles of valuation of balance sheet items of Ichnianskyi Dairy and Cannery OJSC were identified. The financial statements for the reporting periods of 2007, the General Ledger, the Balance Sheet, the Cash Book, the Registers of Analytical and Synthetic Accounting, and the constituent documents were used for the audit. In accordance with Article 30 of the Law of Ukraine "On Audit Activity" and the Audit Services Agreement No. 70 dated 28.03.2008, the management of Ichnianskyi Dairy and Cannery OJSC is fully responsible for the accuracy and completeness of the documents submitted to the auditor for verification. The auditor did not observe the inventory of the Company's inventories as of December 31, 2007, since this date preceded the date of the audit contract conclusion. Due to the nature of the Company's inventories, the auditor was not able to confirm the quantity of inventories by means of other audit procedures. The audit started on April 03, 2008 and ended on April 07, 2008. The information collected during the audit is sufficient to provide a basis for the audit opinion. Open Joint Stock Company "Ichnyansky Dairy and Cannery" (USREOU code: 00381152) is located and registered at the following legal address: 4, Vyshneva str., Ichnia, Chernihiv region, 16703. Open Joint Stock Company "Ichnia Dairy and Cannery" (hereinafter referred to as the Company) was founded in accordance with the Order of the Regional Department of the State Property Fund of Ukraine in Chernihiv Region No. 24 dated 24.05.1995 and the minutes of the founders' meeting dated 13.10.1995. by reorganizing the state enterprise Ichnia Food Product Plant into an open joint-stock company, which was registered by the Ichnia District State Administration of Chernihiv Region on December 6, 1995, under Resolution No. 157, as Ichnia Food Product Plant Open Joint Stock Company. State registration of the Company took place on 13.12.2000, as recorded in the Unified State Register of Legal Entities No. 10451050002000282 and Certificate of State Registration of a Legal Entity, series AOO No. 236588, was issued by the Ichniansk District State Administration of Chernihiv Region. The new (latest) version of the Company's charter was adopted on the basis of the general meeting of shareholders, according to the Minutes No. 1 dated 07.08.2007. State registration of the amendments to the constituent documents was carried out by the Ichnianskyi District State Administration of Chernihiv Region on 04.09.2007 under No. 10451050005000282. The Company was established with the aim of carrying out entrepreneurial (production, economic, commercial and other) activities aimed at generating profits and its subsequent distribution among the Company's Shareholders to meet their material and other needs, as well as economic and social interests of the labor collective in accordance with and on the terms and conditions determined by the current legislation of Ukraine and the Charter. The register of registered securities holders is maintained by LLC "Center for Registers and Consulting" (hereinafter referred to as the Registrar), USREOU code 24554476, license AB No. 189705 of 24.10.2006, address: 14000, Chernihiv, Ukraine. Chernihiv, 38-A Mstyslavska St., building 1. The number of the Company's shareholders, according to the "Register of Holders of Registered Securities" (taking into account the latest amendments to the constituent documents), as of December 31, 2007, is as follows: - 2 legal entities (holders of 95.1504 % of the authorized capital (fund)); - 29 individuals (holders of 4.8496 % of the authorized capital (fund)). During the reporting year 2007, there were no changes in the amount of the Company's authorized capital (fund). The list of owners who own more than 10% of the authorized capital (fund): 1. Proviant LLC - 94.6452 %. The last meeting of the Company's shareholders was held on August 07, 2007. Dividends were not accrued and paid in the reporting year 20007 due to the losses incurred in the previous reporting period, namely in 2006. The accounting records of Open Joint Stock Company "Ichnyansky Dairy and Cannery" are maintained in accordance with the requirements of the Law of Ukraine "On Accounting and Financial Reporting in Ukraine" No. 996 dated 16.07.1999, approved accounting standards and other regulatory documents on the organization of accounting. The Company maintains accounting records of its business transactions in respect of property and results of its activities in natural units and in generalized monetary terms by means of continuous documentary and interrelated recording. Business transactions are accounted for using the double entry method in accordance with the Chart of Accounts in the relevant journals and analytical statements. Statistical, financial and tax reports are prepared and submitted to the relevant governmental authorities in a timely manner. The Company's accounting policies have not been changed for the period under review. To ensure the reliability of the accounting data for the preparation of the annual financial statements, an inventory of all inventories was carried out in accordance with the Order No. 56 dated 27.12.2007 "On Conducting an Inventory as of January 1, 2008". Responsibility for the untimely preparation of primary documents and accounting registers and the inaccuracy of the data reflected in them is borne by the persons who prepared and signed these documents (Article 9, paragraph 8 of the Law of Ukraine "On Accounting and Financial Reporting in Ukraine" of July 16, 1999, No. 996-XIV). The Company's property, plant and equipment are accounted for in accordance with the requirements of UAS 7 "Property, Plant and Equipment" and IAS 16 "Property, Plant and Equipment". According to the accounting policy, fixed assets include tangible assets with an estimated useful life of more than one year, regardless of their original cost. A unit of accounting is a separate item of property, plant and equipment and other tangible assets. The Company does not distinguish between fixed assets and low-value non-current tangible assets, therefore, the Company does not use account 112 "Low-value non-current tangible assets". Transactions of receipt, sale, liquidation and other disposal, inventory and revaluation of fixed assets are accounted for in accordance with the requirements of UAS 7 "Property, Plant and Equipment" and IAS 16 "Property, Plant and Equipment". Depreciation in the reporting period on property, plant and equipment was calculated based on the rates set forth in Article 8 of the Law of Ukraine "On Corporate Profit Taxation" No. 283/97-ВР dated 22.05.1997, as amended. The chosen method of amortization remained unchanged during the reporting year. The Company did not use intangible assets in the reporting period. The Company accounts for its financial investments in accordance with the requirements of Ukrainian Accounting Standard 12 "Financial Investments". The value of long-term financial investments is reflected in line 040 of Form 1 Balance Sheet and is accounted for in account 141 Investments to related parties using the equity method of accounting. In the reporting year 2007, the Company's shareholders decided, in accordance with the Minutes of the General Shareholders Meeting No. 1 dated 07.08.2007, to act as a founder of the newly established Limited Liability Company "Trading House "Natalka" with a share of 100% for the purpose of selling finished products manufactured at OJSC "Ichniansky Dairy and Cannery". In September 2007, a part of the authorized capital (fund) of the newly established Limited Liability Company "Trading House "Natalka" was contributed, namely UAH 22.0 thousand. Based on the above, it should be determined that at the end of the reporting period the amount of long-term financial investments of the Company is UAH 22.0 thousand. Recognition and initial measurement of inventories in the accounting records is carried out in accordance with the requirements of Ukrainian Accounting Standard 9 "Inventories" and International Accounting Standard 2 "Inventories". In accordance with the company's accounting policy, each item of inventory is defined as a unit of inventory. Inventories are valued on a first-in, first-out basis, where inventories are used in the order in which they are received by the company, i.e. inventories that are first released for production (sale and other disposal) are valued at the cost of first-in, first-out inventories. Tangible assets used for a period of not more than 1 year are classified as low-value perishable items. In accordance with the requirements of clause 23 of NAS 9 "Inventories", the cost of low-value and wearing items transferred for use is excluded from the assets (written off the balance sheet) with the subsequent organization of operational accounting of such items by place of use and responsible persons during the period of their actual use. Accounts receivable are recognized in accordance with the requirements of UAS 10 "Accounts Receivable". The Company does not determine and form a provision for doubtful debts on accounts receivable due to their absence. The Company keeps cash records in accordance with the requirements of the current legislation of Ukraine. The limit of cash balance in the Company's cash desk was determined in accordance with the Order No. 1-n dated January 03, 2007 "On setting the cash desk limit" and is equal to UAH 100 (one hundred). 00 kopecks. The sample audit did not reveal any excess of the cash limit in the Company's cash desk. The amount of cash at the end of the reporting period in 2007 was UAH 0.2 thousand. The Company's liabilities are recognized, accounted for and measured in accordance with NAS 11 "Liabilities". In accordance with the Company's accounting policy, current liabilities are recognized and reported in the balance sheet at their maturity date. During the reporting period, the Company used long-term and short-term loans from financial institutions in the course of its business activities. Accounts payable as of the end of the reporting period 2007 amounted to UAH 11,919.0 thousand, which is divided by maturity, namely: - long-term liabilities - UAH 5,480.0 thousand; - current liabilities - UAH 6,439.0 thousand. The authorized capital of the Company is formed from the value of contributions made by the Shareholders as a result of their purchase of shares. It determines the minimum amount of the Company's property that guarantees the interests of its creditors and cannot be less than the amount established by law. The authorized capital of the Company amounts to UAH 109,851.00 (109.8 thousand), which is divided into 439,404 ordinary registered shares with a nominal value of 25 kopecks each. According to the "Certificate of Registration of Shares Issue" issued by the Chernihiv Territorial Department of the State Commission on Securities and Stock Market on February 19, 2001 under registration number 10/24/1/01, the issue of shares for the total amount of UAH 109,851 (one hundred nine thousand eight hundred and fifty-one) with a nominal value of UAH 0.25 (twenty-five kopecks) each was registered. The Company's shares are issued in documentary form. All shares are distributed among the Company's shareholders. The Company's shares are a security without a fixed term of circulation, which certifies the Shareholder's equity participation in the Company's authorized capital. There is no value of the state property in the authorized capital of the Company. The authorized capital of the Company determines the minimum amount of the Company's property that guarantees the interests of its creditors. Pursuant to Article 155, paragraph 3 of the Civil Code of Ukraine No. 435-IV dated 16.01.2003 (as amended), if the value of the Company's net assets is less than the authorized capital, the Company is obliged to announce the reduction of its authorized capital and register the relevant amendments to the Charter in the prescribed manner. If the value of the Company's net assets becomes less than the minimum amount of the authorized capital established by law, the Company shall be subject to liquidation. The value of the Company's net assets as of December 31, 2007 (according to Form 1 "Balance Sheet" line 380) amounted to UAH 6,097.1 thousand, which is higher than the amount of the authorized capital (UAH 109.8 thousand), which complies with the requirements of the current legislation of Ukraine. The authorized capital of the Company is paid in full. According to the Company's Charter, the Company creates a reserve fund (capital) in the amount of not less than 25 percent of the Company's authorized capital. The reserve fund (capital) is used to cover expenses related to compensation for losses and unplanned expenses. The reserve fund (capital) is formed by annual deductions in the amount of not less than 5 percent of the Company's net profit until it reaches the specified amount. The decision on the use of the fund's resources is made by the general meeting of shareholders. During the reporting year 2007, the Company did not accrue any reserve fund due to losses incurred in the previous reporting period. In the reporting period, the Company included in "Other additional paid-in capital" the amount of revaluation of assets, namely revaluation of property, plant and equipment in the amount of UAH 4,975.8 thousand. The Company's profit is generated from revenues from business activities after covering material and similar expenses and labor costs. The Company shall pay taxes and other payments to the budget as required by the legislation of Ukraine from the balance sheet profit. Net profit received after the above calculations remains at the full disposal of the Company. The procedure for distribution of net profit and compensation of losses is determined by the General Meeting of Shareholders in accordance with the Charter and the current legislation of Ukraine. Revenue is recognized and measured by the Company in accordance with the requirements of UAS 15 "Revenue" and IAS 18 "Revenue", and expenses in accordance with UAS 16 "Expenses". The Company recognizes income and expenses on the basis of primary documents provided for in Article 9 of the Law of Ukraine "On Accounting and Financial Reporting" No. 996. The Company determines the amount of balance sheet and taxable profit in accordance with the requirements of the applicable law. The results of the audit allow us to conclude that the Company's financial statements as of December 31, 2007 comply with the requirements of the applicable laws of Ukraine, the Company's accounting records and accounting policies. The data of the separate reporting forms correspond to each other. The Company's assets, liabilities, and equity are reported in accordance with the established regulations, including national accounting standards and International Financial Reporting Standards. As of December 31, 2007, the Company had, according to the accounting records: - fixed assets (at cost) - UAH 6,630.3 thousand - accrued depreciation amounted to UAH 606.3 thousand. The degree of depreciation of fixed assets is equal to 9 %. The Company accounts for its financial investments in accordance with the requirements of the Ukrainian Accounting Standard 12 "Financial Investments". Long-term financial investments include financial investments using the equity method of accounting for equity in other companies, the amount of which as of December 31, 2007 was UAH 22.0 thousand. Accounts receivable at the end of 2007 amounted to UAH 9,868.3 thousand, Accounts payable (including received long-term and short-term loans) amounted to UAH 11,919.0 thousand, which is equal to UAH 66,% of the total amount of the Company's balance sheet, of which the amount of funds raised (under received loans) is UAH 5,549.7 thousand (which is equal to UAH 31% of the amount of accounts payable). Compared to the previous year, the Company's financial position has improved. In the reporting year 2007, the Company received a profit of UAH 1,429.3 thousand based on the results of its activities. The majority of the Company's financial position indicators have improved and correspond to the normative values. The presence of indicators whose values are less or more than the normative ones is not critical for determining the financial stability of the Company. The estimated value of the Company's net assets as of December 31, 2007 amounted to UAH 6,097.1 thousand and exceeded the authorized capital (UAH 109.8 thousand) by UAH 5,987.3 thousand. Based on the above, the value of the Company's net assets meets the requirements of the current legislation. |
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