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Chairman's Report

Deat Shareholders

On behalf of the Board of Directors, I am pleased to present the eighteenth annual report of GulfMushroom Products Co. (SAOG) fot the financial year ended 31 December 2015

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Preview of Results

During the year thete was increased competition in the regional market due to cheaper importsfaciltated by a weak Euro. Also &e company had to continue to depend on outsoutced comPostat much higher cost due to the closure of its compost plant in 2013.

Yout Company stdved hard in the face of these challenges and by adopting new marketing and

production sftategies your Company was successful in maintaining its market share at all odds and

also improved its gross profitability by crossing new milestones in production effrciency.

Expotts during the year 2075 weteRO5.515 million (89% of total sales) compated to RO 5.500

million (90% of total sales) during 2014 . The Company is very ptoud of its contribution to thecountry's non oil revenues.

The tevenues of the company for the year ended 31 Decembet 2015 were RO 6.192 millioncompared to RO 6.139 mrllion in 2014 , an inctease of 7o/0.

The gtoss profit in 2015 was RO 2.361 million compared to RO 2.752 mil\on ln 2014 ,inctease of 107o .

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Net ptofit after tax for the year ended 31 December 2015 was RO 314,000 compared to RO326,000 n 2014, a dectease of 4% mainly due to incteased selling and distribudon expenses.

The net assets of the company (including land revaluation teserve) as at 31 December 2015 were

RO 5.717 million compated to RO 5.403 million as at 31 Decembet 2014 .

The company achieved a total production of 3,747 metric tons of different vatieties of fresh

mushrooms in 2015 compared to 3,358 metdc tons tfl 2014 , an inctease of 12ok d:ue to strategic

production management.

Technical Expertise

company believes in staying abreast with advancing mushroom industry technology and

hamessing it to futhet imptove its operational and cost efEciencies. Company has a very

experienced production team which is regulady interacting with Dutch exPerts.

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PO.Box: 383, Postal Code: 320, Barka, Sultanate of Oman, Tel : (+968) 26884255, 26883522, Fax : (+968) 26883955, C R No : 1/57338/1

E-mail : info@gullnushroom com, Website : www.gullTnushloom'com

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Dunng the year Company has invested in new technology of automated computetized wateringsystem on a trial basis to further improve the production efFrciency and quality and yelds of freshmushrooms. Company is always seeking ways to further improve the quality and l,ields of freshmushroom and to make optimum use of its capacity.

Capacity Expansion

As announced eadier company is constructing a new compost manufacturing plant in Thumtait,Salalah and also plans to construct new mushroom growing rooms in the present location so as

to increase the total mushroom production capacity by 1007o. Consruction of the compost planthas started in September 2015 and it is expected to be commissioned in the last quarter of 2016.Construction of the new growing rooms is in planning stage and is also expected to be completedbefore the end of 2016.

Dividends Policy

Company has been drstributing dividends and/or bonus every year since 2009. Company has apolicy of providing consistent returns to its shateholders and at the same time to inctease itscapital base for futute expansion and growth. Since 2013 Company has been distributing onlybonus shares in order to invest its cash reserves in the ongoing expansion projects.

Share price and dividend history for the last seven years is shown in the table below-

2009 2011 2012 2013 2014 20't 5

Share price at year end ( RO) 0.400 0.520 0.478 0.s10 0.4 30 0.426 0.386Cash Dividend 20vo 4ovo 250/0

Bonus shares 30% 100/o 100/o 20./o 10% 15%-

+For the year ended 31 December 2015 the board is again pleased to propose bonus shares at

1570 of Company's paid up share capital which is subiect to approval of shareholdets.

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PO.8ox 383, Postal Code: 320, Barka, Sulhnate of Oman, T€l : (+968) 26884255, 26883522' Fax : (+968) 26883955' C R No : 1/573:|8/1

E-mail: [email protected], web5iteiwww'gullmushtoom'com9.ffi,

Quality and safety certifications

Assurance of ptoduct quality and safety is a key focus area of the Company. Company has a welltrained and experienced quaLity contol team which manages company's quality control programand ensures compliance with adopted quality control and safety standards and best practices.Company is holding HACCP certification given by TUY SUD Managemenr Service GmbH,Germaoy, for having established and app\ing an internationally recognized food safetymanagemeflt system. Company is also undergoing HACCP internal audit and externa.lsurveillance audit at regular intervals.

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Colporate Govemance

Company is committed to following best standards in t corporate govemance. Company alwaysendeavors to fully comply with the corpotate govemance tegulations and management criteriaissued by the Capital Market Authority. The interests of all stakeholders is safeguatded by prudentrisk management, developing sound intemal controls and by adopting best corporate practices.Company has intemal systems, policies and procedures to assist the management in dischargrngtheir functions in line with corpotate govetnance regulations and best practices. The auditcommittee is regulady reviewing the effectiveness of intemal cofltrols. Refetence may be made tothe Management Discussion and Analysis Report and Report on Corporate Govemance whichreflect Company's commitment to the pdnciples of sound corporate govemance.

Human fesourccs

Corporate Social Responsibility

Company is aware of the contribution of the community towards its success and gowth andbelieves in giving back to the community in the spirit of corpotate social responsibility. Companyhas a policy of supporting regional schools, sports activities, municipal and otlet social causes.

Outlook

Fall in oil prices has adversely affected the regional economies however the futue outlook of the

Company is positive due to the vision of regional govemments to promote tourism as a driver ofsustainable economic growti and altemate source of revenue. Major investments are being made

rn the aviation, food and hospitality sectors in Oman and surrounding tegion which will boost

both tourism and demand for fresh mushtooms in the neat futute. Increasing health awareness

and exposure to intemational cuisine is also expected to increase consumption of fresh

mushrooms over the yeats.

Your company is confident of achieving consistent growth in its hrmover and ptofits in the years

to come. .

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Company believes that success of the Company depends on tlle success of its people. Companyendeavots to enhance the employee potential and well-berng through regular performanceappraisals and rewards, welfare and taimng. Company is fully compliant with Omani laborregulations. Company is proud to maintain a high percentage of Omanization in line with the

directives of the govemment of His Majestv's Sultan Qaboos bin Said for increasing theemployment opportunities fot Omani people. As at 31 December 2015 your Company has

employed 130 Omani employees out of total 367 employees amoundng to 35.4ok Orr.a;nization.

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E mail : [email protected], Website : t$Nw gulfmushroom com

Gttlt llhtshroom Products Co. 1s.r,oc.1 t.t.rd ,Ailt etjJ| i++lill is.$ll

Acknowledgements

On behalf of the Board of Directots, I take this opportunity to exptess our deep gratitude to HisMaiesty Sultan Qaboos Bin Said for leading the country along the road of growth and ptospenq'by his wise leadership and progressive vision. S0e thank his wise govemment for its strongsupport and assistance to the private sector. The Boatd of Directors would like to express its deep

gratitude for the Ministry of Commerce and Industry, the Ministry of Finance, the Ministry ofAgriculture and Fishedes, the Ministry of Environment and Climate Affairs, the Ministry ofHousing, the Capital Market Authority and the Higher Council for Planning & Development fortheir guidance and support extended to the Company. I thank the respectable shareholders fortheir steady confidence in the Company. I would also like to thank the management team and thestaff of the Company for their dedication and sincere effotts towards achieving the goals of theCompany.

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Eng, Khamis Bin Mubarak Al KiyumiChairman

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E'mail : [email protected], Website : www'gulfinushloom'com

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Report on Corporate Governance

This statement describes how the principles of good governance and the provisions of the Code ofCorporate Governance, issued by the Capital Market Authority for IISM listed companies byCircular No. 1112002 on 3 June 2002, are applied by Gulf [ilushroom Products Company SAOG(hereafter referred to as the "Company")

Company's Philosophy

Company is committed to achieving the highest standards of corporate governance in all itsactivities. Company's philosophy on the code of corporate governance is to ensure transparency,timely disclosure of quality financial information as per regulations, establish and maintain a legaland ethical environment in the Company, with the objective to preserve the interests of allstakeholders, maximize the long-term value to the shareholders and protect the core values of theCompany.

Board of Directors

The Articles of Association of the Company provides for a Board of Directors to be composed ofseven members. During most part of the year the board consisted of seven directors live of whomwere appointed in the annual general meeting held on 25 March 2013. il/s. Al Hosn lnvestmentCompany SAOC (AHIC) represented by Mr.Abdulla lvlohamed Al Ansari was appointed as atemporary director in February 2015 and later elected as a director in the AGM held on '1 'l March2015 along with Mr. lvlukhtar M. Hasan. During the year Al Hosn lnvestment Company SAOCreplaced [Ir.Abdulla Mohamed Al Ansari with Faisal Amur Shuwain Al Hosni as theirrepresentative on the board. All seven directors are non-executive directors. The Chairman of theCompany is an independent director. Out of the total seven directors, flve are lndependentDirectors.

No Name of Board member Position Representing Category Oirector/chairmanin other SAOGCompanies inOman

1 Khamis Mubarak AlKiyumi

Chairman lndividual lndependent Director-2

2 ViceChairman

l\/ uscatOverseasCompany LLC

Notlndependent

Director-1

3 Musallam Salim MuslimAl Shukairy

Director lndividual lndependent None

4 Omar Salim Al Shanfari Director lndividual lndependent None

5 Ali MohammedZaabanoot

lnd ivid ual lndependent Director-'l

Director lndivid ual Chairman -'l

7 Faisal Amur Shuwain AlHosni

Director Al HosnlnvestmentCom panySAOC

Notlndependent

None

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E-mail: info@gulfmushroom,(om, Website:www.gulfmu5hroom.com 9ffi

Abdul Wahab Bin NasserAl Mantheri

Director

6 Mukhtar M. Hasan lndependent

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Meetings of the Board of Directors

The Board of Directors normally meets at least once in a Quarter. At these meetings, the Boardreviews the monthly financial statements of the company, the management report andperformance of the company and any other important issues. The Board also approves theannual/quarterly audited/unaudited financial results prior to their publication, and any other item, asthe business operations of the company require. During 2015 the Board of Directors met six timeson '17 February, 22 Aptil,27 May, 9 August, 21 October and 29 December. The members attendedthe Board Meetings as follows -

N/A"=NotApplicable

Procedure for directors' election

Audit Committee

Sl.No. Name of Board member/Meeting date17Feb

22Apr

27May

9Aug

2',1

Oct29Dec

1Khamis Mubarak Al Kiyumi, Chairman Yes Yes Yes

Abdul Wahab Bin Nasser Al Mantheri, Vicechairman (representing Muscat Overseas)

Yes Yes Yes

3lvlusallam Salim lvluslim Al Shukairy Yes Yes Yes Yes Yes

4Omar Salim Al Shanfari Yes Yes Yes Yes Yes Yes

Ali l\4ohammed Zaabanoot Yes Yes Yes Yes

6Abdulla l\ilohamed Al Ansari (representingAHrC)

Yes Yes Yes N/A N/A N/A

7Faisal Amur Shuwain Al Hosni / RamziSchumann (representinq AHIC)

N/A N/A Yes Yes Yes

8 l\,4ukhtar M. Hasan N/A Yes Yes Yes Yes Yes

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There have been no materially significant related party transactions, pecuniary transactions orrelationships between the Company and its Directors that may have potential conflict of interest ofthe Company at large. During the year the Company has entered into transactions with relatedparties in the ordinary course of business. These transactions are described in note 25 to theaudited financial statements. These related party transactions are disclosed to the shareholders atthe ordinary annual general meeting.

The members of the Board of directors are elected in the annual general meeting for a term ofthree years subject to the Commercial Companies Law No. 4 I 1974 and rules made there under.The members are elected either from among the shareholders or others, provided that if thecandidate is representing a juristic person or company then such juristic person or company holdsminimum 20,000 shares of the Company.

The Audit Committee is a sub-committee of the Board of directors and it consists of four members.All four members are non-executive and three are lndependent directors. The audit committee wasunanimously appointed by the newly elected board on 25 March 2013. l/r.Abdul Wahab BinNasser Al lvlantheri was appointed as the fourth member subsequently during 2013. The role,responsibility and power of the Audit Committee has been approved by the Board of Directors. Thefunctions of the Committee are to:

Yes Yes

Yes Yes Yes

Yes

Yes

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E-mail: info@gulf mushroom.com, Website:www.gulf mushroom<om

Qttlt Mushro om P r o ducts Co. /s.e. o, c./ e.e.r.,j JLiJl qf) +$tl as J..iirl

r Review the adequacy of internal control systems, and lnternal Audit Reports, and theircompliance;

r Oversee the Company's financial reporting process and the disclosure of its financialinformation to ensure the accuracy, sufficiency and credibility of the financial statements.

r Recommend the appointment of auditors and flxing of audit fees.r Review with the management, the financial statements before submitting to the Board.r Review with the management external and internal auditors, the adequacy of internal control

systems

During the year 20'15 the Audit Committee met flve times, on 11 February, 17 Febtuaty,22 Aptll,I August and 21 October, and the meetings were attended as follows :-

Sl.No.Name of Committee member /Meetinq date 1'l Feb 17 Feb 22 Apt 9 Aug 21 Ocl

1Omar Salim Al Shanfari , Chairmanof Audit Committee

Yes Yes Yes Yes Yes

2Musallam Salim l\iluslim AlShukairy

Yes Yes Yes Yes Yes

3 Yes Yes Yes Yes Yes

4Abdul Wahab Bin Nasser AlMantheri

Yes Yes Yes Yes Yes

ln December 2014 Mls. Abu Timam Grant Thornton Chartered Certified Accountants, wereappointed as Company's lnternal Auditors for the years 2015 and 2016. Mis. Abu Timam GrantThornton have conducted a detailed review of the internal controls over the accounting andoperational systems. They have carried out two half-yearly audits for the year ended 31 December2015. Audit Committee reviewed the internal control system and found it to be effective.

Details of Remuneration and allowances paid to the Directors during the Year.

Sitting fees paid to the members of the board were as follows -

Details of Remuneration and allowances paid to top five officers for the year.

The total remuneration of the top ,ive officers of the company, including salary, leave salary,benefits, bonuses, gratuities, social security etc. for the year 201 5 was RO 370,195.

Sl.No. Name of Board memberfYear endinq 31 December 2015 20141 Khamis Mubarak Al Kiyumi, Chairman 6,000 7,0002 Abdul Wahab Bin Nasser Al lvlantheri, Vice chairman 10,000 10,0003 Musallam Salim l\iluslim Al Shukairy 10,000 1 0,0 00

4 Omar Salim Al Shanfari 10,000 10,0005 Ali lilohammed Zaabanoot 10,000 10,000

6 Mukhtar M. Hasan 5,000 7,0007 Fahad Khamis Al Balushi 6,0008 Abdulla Mohamed Al Ansari (representing AHIC) 2,000I Faisal Amur Shuwain Al Hosni (representing AHIC) 2,00010 Ramzi Schumann (representing AHIC) 1,000

Total 56,000 60,000

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E-mail: info@gulf mushroom.com, website:www.gulf mushtoom<om 9ffi

AIi Mohammed Zaabanoot

&tlt lrtnshroom Products Co. 6.e,0.c,/ t.t.r.,i *att qf,fl g::JiJl as J,irl

Means of Communication

The Company has been dispatching Annual Audited Reports to all the shareholders of theCompany. The annual audited and the quarterly unaudited financial results are published in oneArabic and one English daily newspaper. The quarterly unaudited financial statements anddirectors' report, annual initial unaudited results and any material information are also flled throughthe electronic transmission system of l\iluscat Securities lVIarket. l\,4anagement's Discussion andAnalysis Report forms part of this Annual Report.

Disclosures

There was no non-compliance by the Company in respect of filing the requisite forms, returns anddocuments with CMA, MSIVI or other statutory authorities. Therefore no penalties were imposed orno strictures made against the Company by Capital lvlarket Authority.

Stock Market Oata for the year 2015

The following is the monthly summary of all transactions in Company's shares during the yearended 31 Decembet 2015 -

Distribution of Shareholding as on 31 December 2015

Month ExecutionsNumber of

Shares

TotalValue(RO)

HighPrice(RO)

LowPrice(RO)

MSM Closinglndex

Jan uarv 0.426 0.426 5,558.460

February 0.426 0.426 6,559.3 20

l\ilarch 2 33,715 14,295 0.424 0.424 5,238.000

April 0.424 0.424 6,322.500

Nilay 0.424 0.424 6,387.850

June 0.424 0.424 6,424.600

July 0.424 0.424 6,558.180

August I 39 15 0.386 0.386 5,871.600

September 0.386 0.386 5,787.690

October 1 18,897 7 ,294 0.386 0.386 5,928.150

November 0.386 0.386 5,547.850

December 0.386 0.386 5,406.220

S. No. Category No. of Shareholders No. of Shares % Shareholding

1 Less than 5% 194 20.81

2 5% to less than 10% 1 2,079,264 6.95

3 1 3,114,540

4 20% to less than 50% 61.82

Total 198 29,899,584 100.00

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E-mail: info@gulf mushroom.(om, Website:www.gulf mushroom.com 9,ffi"

6,220,987

10% to less than 20% 10.42

1,8,484,793

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Details of non-compliance

There were no instances of non-compliance with the Code of Corporate Governance

Professional Profile of the Statutory Auditors

The shareholders of the Company appointed KPMG as the Company's auditors for the year 2015KPMG is a leading Aud it, Tax and Advisory firm in Oman and is a part of KPMG Lower Gulf thatwas established in 1974. KPMG in Oman employs more than 180 people, amongst whom are 4Partners, 7 Directors and 21 Managers, including Omaninationals. KPMG is a global network ofprofessionalfirms providing Audit, Tax and Advisory services. KPMG operates in over 150

countries and has around 174,000 people working in memberfirms around the world. The

independent member firms of the KPMG network are affiliated with KPMG lnternationalCooperative ("KPMG lnte rnationa l" ), a Swiss entity.

KPMG in Oman is accredited by the Capital Market Authority (CMA) to audit joint stockcompanies (SAOGs).

Audit fees

During the year 2015, KPMG billed an amount of RO 5,850 towards professional services

rendered to the Company (RO 6,850 for audit and RO NIL for tax and other services).

Acknowledgement by the board of directors

The board of directors of the company have confirmed that -it is liable for the preparation of the linancial statements in accordance with the applicableslandards and rules

there is no material things that affects the continuation of the company and its ability tocontinue its production operations during the next financial year.

ChairmanAudit Committee

4

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E-mail: inro@gulf mushroom.com, website:www.gul{mushrcom.com

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through the audit committee it has reviewed the efflciency and adequacy of internal controlsystems of the company and that it complies with internal rules and regulations

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Management Discussion & Analysis Report

This section of the Annual Report for the year ended 31 December 2015 has been included inadherence to the spirit enunciated in the code of corporate Governance issued by the capitalMarkets Authority for l\rSM listed companies.

shareholders and readers are cautioned that no representation is made on the accuracy orcomprehensiveness of data and information external to the company, though they are based onsources believed to be reliable. Further, though utmost care has been taken to ensure that opinionsexpressed by the management herein contain lheir perceptions on most of the important trendshaving material impact on the company's operations, no representations is made thai the followingpresents an exhaustive coverage on and of all issues related to the same.

Further, the discussion following herein reflects the perceptions on major issues as on date and theopinions expressed here are subject to change without notice. The company undertakes noobligation to publicly update or revise any of the opinions or forward looking statements expressed inthis report, consequent to new information, future events, or otherwise.

lndustry structure and development

Government has a vision to diversify oman's economy and reduce its dependence on oil revenues byincreasing Oman's non-oil GDP and boosting non-oil exports and tourism revenues. Th!Government has also attached prime importance to creation of new employment opportunities for itspeople and shifting investment from the public to the private sector.

Government's vision statement and encouraging policies prompted the formation of this agro-industrial project for growing mushrooms for the local, regional and export markets.

Main objects and business

Gulf Mushroom Producls Company SAOG (cMPC) is a public joint stock company incorporated inOman and floated on the Muscat Securities Market. GMPC was established in 1997 and is located inBarka. The Company is primarily engaged in the cultivation and marketing of fresh mushrooms. lt isthe largest hi-tech mushroom farm in the Middle East region.

Key Strengths

The management believes that the company enjoys the following competitive strengths:

Production capacity

Being the largest hi-tech mushroom farm in the middle-east Company is consistenfly producingabout 9000-10000 kg of export quality fresh mushrooms everyday throughout the year thusassuring the market of adequate and ready availability of premium quality fresh mushrooms.

Market logistics

Company enjoys the logistical advantage of quick access to the regional market by both road andair. Company's farm in Barka is situated within few hours'drive from the UAE and less than anhour from l\ruscat lnternational Airport. Company owns a large fleet of well serviced refrizeratedtrucks with trained drivers to supply the nearby markets by road. Exports to distant markets aredone by air from both Oman and Dubai airports.

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E-mail: [email protected], Website:www.gulf mushroom.mm

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Catff lfitllihroom Products Co. ts.e.o.o/

Qttlf ilIrchroom Products Co. /s,r.0.c., s.t.t.,j.rultl elll i|iiliJl isr,all

. Quality and safety certifications

Assurance of product quality and safety is a key focus area of the company. company has a welltrained and experienced quality control team which manages company's quality control program andensures compliance with adopted quality control and safety standards and best practices. company isholding HACCP certification given by TUV SUD Management Service GmbH, cermany, for havingestablished and applying an internationally recognized food safety management system. company iialso undergoing HACCP internal audit and external surveillance audit at regular iniervals.

company believes in staying abreast with advancing mushroom industry technology and harnessing itto further improve its operational and cost efficiencies. company has a very experienced productionteam which is regularly interacting with Dutch experts. During the year company has invested in newtechnology of automated computerized watering system on a trial basis to further improve theproduction efficiency and quality and yields of fresh mushrooms. Company is always seeking ways tofurther improve the quality and yields of fresh mushroom and to make optimum use of its capacity.

Well established customer base

Company has a dedicated customer base consisting of wholesale business houses, airtinecatering kitchens, fresh food-processing companies, ship-chandlers and retail-ouflet chains in themiddle-east and Asia-pacific markets. company draws its strength from its satisfied customerswho have been with the Company for more than a decade. Company works 24-7 to ensure lhatfreshly picked top quality mushrooms are delivered to its customers on time by road or air.

Technical Expertise

Human resource

Company believes that success of the Company depends on the success of ats people. Companyendeavors to enhance the employee potential and wellbeing through regular performanceappraisals and rewards, welfare and training. Company is fully compliant with Omani laborregulations. Company is proud to maintain a high percentage of Omanization in line with thedirectives of the government of His Nlajesty's Sultan Qaboos bin Said for increasing theemployment opportunities for Omani people. As at 31 December 2015 your Company hasemployed 130 Omani employees out of total 367 employees amounting to 3S.4% Omanization.Majority of the Omani employees are female workers. .

Threats

Competition

Due to weak Euro imports of fresh mushrooms from Europe have increased in the regionalmarkets. There is also increasing competition from lran and local UAE farms. Company ismaintaining its competitive edge by strategic management of its production and market and givinga greater value and service to its dedicated customers. Company is also exploring new markets.

Yield Ratio

lvlushroom being an agricultural product the yield and raw material ratio has a direct impact on thecost of production and profitability. Company has a healthy yield ratio in line with industrystandards and is continuously working to further improve it by strategic production managementand adopting new technology and best practices.

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PO. Box: 383, Postal Code : 320, Barka, Sultanate of Oman, Tel.: (+968) 26884255, 26883522,Fax : (+968) 26883955, C.R.No.: 1/57338/1

E-mail: info@gulf mushroom.mm, Website:www.gulfmushroom.mm

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High air freight costs

High air freight costs protect the company from excessive competition from mushroom farms inEurope and other geographies. .

lncreasing health awareness across the world, growing international tourism and exposure tointernational cuisine is encouraging increased consumption of fresh mushrooms. Mushroomsbeing highly nutritious and delicious are increasingly becoming a part of regular diet.. Company isengaged in publishing information about the nutrition and health benefits of fresh mushrooms.

Healthy food

Rise in tourism

The regional economies are making huge investments to promote tourism as a driver ofsustainable economic groMh and alternate source of revenue in view of limited oil resources. .

Middle East region is leading the world's air traffic and tourism groMh. Major investments arebeing made in the aviation, food & hospitality sectors and integrated tourism projects in Omanand the surrounding region. The scheduling of few mega global events in the region in the nextfew years has also brought in long term fresh investmenls and groMh in the hospitality sector.Tourism industry comprising hotels and airlines -catering business is a major driver of demand forfresh mushrooms.

Risks & Concerns

Dependence on outsourced compost

Company has been depending on outsourced compost at a much higher cost for the cultivation offresh mushrooms ever since its own compost plant was shut down by the government in 20.13.However over the past two years Company has fully established the commercial viability ofproducing mushrooms based on outsourced compost. Company's new compost plant is nowunder construction and is expected to be commissioned during the last quarter of 2016.

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E-mail: [email protected], Website:www.gulfmushroom.mm

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Opportunities

lnternal control systems and their adequacy

company has established an adequate internal control system and there are well documentedpolicies and procedures across all functions in line with corporate governance regulations and bestpractices. The organization structure, goals and lines of authority and responsibility are clearlydefined. The lnternal audit function is outsourced. The internal audits are carried out by a reputed flrmof auditors according to CMA regulations and the internal audit reports are disiussed in auditcommittee meetings. All systems are reviewed and updated on an ongoing basis. The board ofdirectors approves the revenue and capital budgets every year and actual performance is monitoredagainst the budget at regular intervals.

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Corporate Social Responsibility

As a good corporate citizen company is aware of its responsibility towards the community andbelieves in giving back to the community in the spirit of corporate sociil responsibility. company hasa policy of supporting regional schools, sports activities, municipal and other social c;uses.

Analysis of segment and product wise performance

company is producing a popular variety of fresh mushrooms. The main product is the white buttonmushroom also known as champignon de parls which is the most popular variety of mushroomsconsumed worldwide. Fresh mushrooms produced in company's farm in Barka match internationalstandards of quality and taste. company also produces giant white mushrooms, brown buttonmushrooms, portabella mushrooms and baby white button mushrooms.

About 90% of company's products are being exported to countries in the Middle-east and the Asia-pacific region. During the year the company achieved a total production of 3,747 metric tons ofdifferent varieties of fresh mushrooms compared to 3,359 metric tons in the previous year, anincrease of 12%. Company is operating at full capacity.

Waste compost is also sold to the local fertilizer industry generating additional revenues.

Capacity Expansion

As. announced earlier company is constructing a new compost manufacturing plant in Thumrait,salalah and also plans to construct new mushroom growing rooms in the pres6ni location so as toincrease the total mushroom production capacity by 1oo%. construction of the compost plant hasstarted in september 2015 and it is expected to be commissioned in the tast quarter of 2016.construction of th€ new growing rooms is in planning stage and is also expected io be completedbefore the end of 2016. The new compost plant wilr bring to an end company's dependence onoutsourced compost and will improve its profitability. New growing rooms will increase mushroomproduction capacity and efficiency and help the company to establish better consistency in exports.

Discussion of financial and operational performance

During the year there was increased competition in the regional market due to cheaper importsfacilitated by a weak Euro. Also the company continued to depend on outsourced compost at a muchhigher cost due to the closure of its compost plant in 20.13.

company strived hard in the face of these challenges and adopted new marketing and productionstrategies to overcome them. company was successful in maintaining its market ahare against allodds and also improved its gross prolltability by achaeving new milestones in production effici6ncy.The revenues of the company for the year ended 31 December 2015 were Ro 6.192 millioncompared to RO 6.139 million in 2014 , an increase of .1olo. The gross profit in 2O.l S was RO 2.36imillion compared to RO 2.152 million in 2014 , an increase of .l0o/o

.

Netprofit after tax for the year ended 31 December 2015 was Ro 314,ooo compared to Ro 326,oooin 20'14 , a decrease of4% mainly due to increased selling and distribution expenses.

Exports during the year 20'15 were Ro s.sl5 milion (89% of total sales) compared to Ro 5.s00million (90% of total sales) during 20'14 . The company is very proud of its contribution to thecountry's non-oil revenues.

The net assets of the company (including land revaluation reserve) as at 31 December 20i5 wereRO 5.717 million compared to RO 5.403 million as at 3'l Oecember io14 .

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E-mail: [email protected], Website:www.gulfmushroom.com

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company's realized profits and losses, dividends and net equity for the past seven years is asfollows -

*proposed and subject to approval of shareholders

Conclusion

company is optimistic about continuing to achieve higher levels of production and sales of premiumquality fresh mushrooms in the future. company is also hopeful of achieving greater ievels ofefficiency and profitability in future after the new compost plant becomes operational.

/Chief Executive Officer

\

Year 2009 2010 2011 2012 20'13 2014 2015

Share price at yearend ( RO) 0.400 0.520 0.478 0.51 0 0.430 0.426 0.386

Cash Oividend 2QYo 40% 25%

Bonus shares 3lyo 100/o 100/.100/o 150/d

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Statement of profit or loss and other comprehensive income for the year ended 31 December 2015 2014 Notes RO RO Sales 19.1 6,192,114 6,139,071 Cost of sales 19.2 (3,830,677) (3,986,738) Gross profit 2,361,437 2,152,333 Selling and distribution expenses 20 (542,947) (369,792) Administrative expenses 21 (903,816) (872,052) Other (loss) /income 22 (3,206) 22,884 Profit before depreciation and finance costs 911,468 933,373 Depreciation of property, plant and equipment 6 (526,959) (518,291) Operating profit 384,509 415,082 Finance costs net of government grant (33,281) (48,867) Profit before tax 351,228 366,215 Income tax 23 (37,185) (39,883) Profit for the year 314,043 326,332 Earnings per share – basic and diluted 24 0.011 0.011 The notes on pages 8 to 31 are an integral part of these financial statements. The report of the Independent Auditors’ is set forth on page 3.

GULF MUSHROOM PRODUCTS CO. SAOG

1

Statement of changes in equity for the year ended 31 December Share

capital Legal

reserve Special reserve

Revaluation reserve

Retained earnings

Total

RO RO RO RO RO RO At 1 January 2014 2,265,120 551,780 12,405 1,099,316 784,620 4,713,241 Profit for the year - - - - 326,332 326,332 Transfer to legal reserve - 32,633 - - (32,633) - Revaluation of land – net of tax - - - 363,440 - 363,440 Bonus shares issued during the year 453,024 - - - (453,024) - 453,024 32,633 - 363,440 (159,325) 689,772 At 31 December 2014 2,718,144 584,413 12,405 1,462,756 625,295 5,403,013 At 1 January 2015 2,718,144 584,413 12,405 1,462,756 625,295 5,403,013 Profit for the year - - - - 314,043 314,043 Transfer to legal reserve - 31,404 - - (31,404) - Bonus shares issued during the year 271,814 - - - (271,814) - 271,814 31,404 - - 10,825 314,043 At 31 December 2015 2,989,958 615,817 12,405 1,462,756 636,120 5,717,056

The notes on pages 8 to 31 are an integral part of these financial statements. The report of the Independent Auditors’ is set forth on page 3.

Statement of cash flows for the year ended 31 December 2015 2014 RO RO Operating activities Cash receipts from customers 6,326,701 5,947,984 Cash paid to suppliers and employees (4,815,160) (5,105,717) Cash from operating activities 1,511,541 842,267 Income tax paid (58,752) (89,754) Net cash from operating activities 1,452,789 752,513 Investing activities Acquisition of property, plant and equipment (1,706,760) (1,113,985) Proceeds from disposal of property, plant and equipment 27,097 60,201

Cash used in investing activities (1,679,663) (1,053,784) Financing activities Repayment of Government soft loan Commercial term loan

(565,000) 569,642

(565,000) 737,390

Finance cost paid (33,281) (48,867)

Cash (used in)/from financing activities (28,639) 123,523 Net change in cash and cash equivalents (255,513) (177,748) Cash and cash equivalents at beginning of the year 291,183 468,931 Cash and cash equivalents at end of the year (Note 9) 35,670 291,183

The notes on pages 8 to 31 are an integral part of these financial statements. The report of the Independent Auditors’ is set forth on page 3.

GULF MUSHROOM PRODUCTS CO. SAOG 1

Notes to the financial statements (forming part of these financial statements) 1. Legal status and principal activities

Gulf Mushroom Products Co. SAOG ("the Company") is registered in the Sultanate of Oman as a joint stock company and commenced commercial operations from 1 October 1999. The registered office and the manufacturing facility is located at Saqsook, Barka, Sultanate of Oman. The Company is primarily engaged in the cultivation, processing and marketing of mushrooms. These financial statements are presented in Rials Omani (RO) since that is the currency in which majority of the Company’s transactions are denominated.

2. Compost plant The Company’s compost plant was shut down by the Ministry of Environmental and Climate Affairs in 2013 and since then the Company is using outsourced compost for cultivation of mushrooms. The Company has made adequate supply and storage arrangements for compost to ensure uninterrupted production of mushrooms. In September 2015 the Company has started construction of a new compost plant in Thumrait, Salalah for which it has obtained all necessary government approvals and signed contracts with reputed vendors and contractors. The new compost plant is expected to be commissioned in the last quarter of 2016.

3. New standards, amendments and interpretations

New standards, amendments and interpretations effective from 1 January 2015 The following standards, amendments and interpretations, which became effective as of 1 January 2015, and are relevant to the Company: Annual Improvements to IFRSs 2010 - 2012 Cycle that includes amendments to IFRS 2,

IFRS 3, IFRS 8, IFRS 13, IAS 16, IAS 38 and IAS 24. Annual Improvements to IFRSs 2011 - 2013 Cycle that includes amendments to IFRS 1,

IFRS 3, IFRS 13 and IAS 40. Amendments to IAS 19 Employee Benefits clarify the requirements that relate to how

contributions from employees or third parties that are linked to service should be attributed to periods of service

The application of these amendments at the Company level had no material impact on the disclosures in the Company's financial statements.


Notes to the financial statements (forming part of these financial statements) 3. New standards, amendments and interpretations (continued)

New standards, amendments and interpretations issued but not yet effective

A number of new standards, amendments to standards and interpretations are effective for annual periods beginning on or after 1 January 2016, and have not been applied in preparing these financial statements. Those which are relevant to the Company are set out below. The Company has no plan to early adopt these standards.

IFRS 9 - Financial Instruments

IFRS 15 – Revenue from Contracts with Customers

Amendments to IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and amortisation

Amendments to IAS 19 Defined Benefit Plans: Employee Contributions

Annual Improvements to IFRSs 2012 - 2014 Cycle that include amendments to IFRS 5, IFRS 7, IAS 19 and IAS 34.

Amendments to IFRS 7 Financial Instruments: Disclosures relating to disclosures about the initial application of IFRS 9.

Amendments to IAS 16 and IAS 38 to clarify the acceptable methods of depreciation and amortization.

The Company is assessing the potential impact of the above stated new standards, amendments and the improvements.

4. Summary of significant accounting policies

Statement of compliance

The financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as promulgated by the International Accounting Standards Board (IASB) and the interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) of the IASB. The financial statements comply with the disclosure requirements set out in the Rules and Guidelines on disclosure issued by the Capital Market Authority and the requirements of the Commercial Companies Law of 1974, as amended.

Basis of preparation

These financial statements are prepared on the historical cost basis except for land and certain inventories and financial instruments, which are stated at their revalued amounts or fair values.

A summary of significant accounting policies, which have been consistently applied by the Company and are consistent with those used in the previous year, unless otherwise stated, is set out below: Property, plant and equipment

Property, plant and equipment are initially recorded at cost and carried at cost less accumulated depreciation and impairment losses, except for land which is carried at revalued amount. The cost of property, plant and equipment is their purchase cost, together with any incidental expenses of acquisition. Expenditure incurred to replace a component of an item of property, plant and equipment that is accounted for separately is capitalized. Subsequent expenditure is capitalized


Notes to the financial statements (forming part of these financial statements) 4. Summary of significant accounting policies (continued)

Property, plant and equipment (continued) only when it increases the future economic benefits embodied in the item of property, plant and equipment and can be measured reliably. Any revaluation increase arising on the revaluation of land is credited to the revaluation reserve, except to the extent that it reverses a revaluation decrease for the same asset previously recognised in profit or loss, in which case the increase is credited to profit or loss to the extent of the decrease previously charged. A decrease in carrying amount arising on the revaluation of property, plant and equipment is charged to profit or loss to the extent that it exceeds the balance, if any, held in the revaluation reserve relating to a previous revaluation of that asset. Revaluations are carried out by a registered independent valuer having an appropriate experience in the location and category of the properties being valued. Revaluations take place regularly. The cost of property, plant and equipment is written down to residual value in equal installments over the estimated useful lives of the assets. The assets’ residual values and useful lives are reviewed and adjusted, if appropriate, at each reporting date. The estimated useful lives are as follow: Years Buildings 10 - 25 Plant and machinery 5 - 20 Furniture and fixtures 5 Computers and Office equipment 3 – 5 Motor vehicles 5 The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss. Capital work-in-progress is not depreciated until it is transferred into one of the above categories, at the time when it is brought into use. Inventories Finished goods inventories comprise fresh mushrooms at the point of harvest. Inventories of fresh mushrooms at the point of harvest are measured at their fair value less estimated point-of-sale costs. Fair value is determined by reference to the latest selling price. The carrying amount of the inventories of fresh mushrooms at the reporting date is not materially different from the value at point of harvest. Inventories of raw materials are measured at the lower of cost or net realizable value. Cost of inventories is determined on a First-in-First-Out (FIFO) basis. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. Inventory of work-in-process is measured at their fair value less estimated point-of-sale costs.



Financial instruments Financial assets and financial liabilities are recognized when the Company has become a party to the contractual provisions of the instrument. The principal financial instruments are trade and other receivables, cash and bank balances, Government soft loan and trade and other payables. Trade and other receivables Trade and other receivables are initially measured at their fair value and subsequently measured at amortised cost, using the effective interest method. An allowance for impairment of trade receivables is established when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of receivables. Significant financial difficulties of the debtor, probability that the debtor will enter into bankruptcy or financial reorganization, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the allowance is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the allowance is recognised in the profit or loss. Trade and other payables Liabilities are recognized for amounts to be paid for goods and services received, whether or not billed to the Company. Trade and other payables are initially measured at their fair value and subsequently measured at amortised cost, using the effective interest method. Share capital is recorded at the net proceeds received. Borrowings Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortized cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the profit or loss over the period of the borrowings using the effective interest method. Deferred Government grant Interest subsidy is recognised in the statement of financial position initially as a deferred Government grant when there is a reasonable assurance that it will be received and that the Company will comply with the conditions attached to it. This deferred Government grant is amortised over the life of the loan to which it relates on a systematic basis in the same periods in which the interest expense is incurred. Amortisation of the deferred Government grant is recognised in the profit or loss. Impairment Financial assets At each reporting date, the Company assesses if there is any objective evidence indicating impairment of financial assets carried at cost or non-collectability of receivables. An impairment loss, if any, arrived at as a difference between the carrying amount and the recoverable amount, is recognised in the profit or loss. The recoverable amount represents the present value of expected future cash flows discounted at the original effective interest rate. Cash flows relating to short term receivables are not discounted.



Impairment (continued) Non-financial assets At each reporting date, the Company assesses if there is any indication of impairment of non- financial assets. If an indication exists, the Company estimates the recoverable amount of the asset and recognizes an impairment loss in the profit or loss. The Company also assesses if there is any indication that an impairment loss recognized in prior years no longer exists or has reduced. The resultant impairment loss or reversals are recognised immediately in the profit or loss. Employees’ benefits End of service benefits are accrued in accordance with the terms of employment of the Company’s employees at the reporting date, having regard to the requirements of the Oman Labour Law of 2003. Employee entitlements to annual leave are recognized when they accrue to employees and an accrual is made for the estimated liability for annual leave as a result of services up to the reporting date. The accrual relating to annual leave and leave passage is disclosed as a current liability, while that relating to end of service benefits is disclosed as a non-current liability. Contributions to a defined contribution retirement plan for Omani employees in accordance with the Omani Social Insurance Scheme are recognised as an expense in the profit or loss as incurred. Provisions Provisions are recognised when the Company has a present obligation as a result of a past event, and it is probable that the Company will be required to settle that obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. Revenue Revenue comprises the fair value of the consideration received or receivable for the sale of goods in the ordinary course of the Company’s activities. Revenue is shown net of returns. Revenue from sale of goods is recognised in the statement of income when the significant risks and rewards of ownership have been transferred to the buyer. No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due, associated costs or the possible return of goods.



Other income Interest and other income is accounted for under the accrual basis of accounting. Interest expense Interest expense is accounted on the accrual basis. Foreign currencies Items included in the financial statements of the Company are measured and presented in Rials Omani being the currency of the primary economic environment in which the Company operates. Foreign currency transactions are translated into Rials Omani at the exchange rate prevailing on the transaction date. Foreign currency assets and liabilities are translated into Rials Omani at the exchange rate prevailing at the reporting date. Differences on exchange are dealt with in the profit or loss as they arise. Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in profit or loss in the period in which they are incurred. Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. Current tax The tax currently payable is calculated as per the fiscal regulations of the Sultanate of Oman, based on taxable profits for the year. Taxable profits differ from profit as reported in the statement of comprehensive income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Company’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.



Taxation (continued) Deferred tax Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Cash and cash equivalents For the purpose of the statement of cash flows, all bank balances, including deposits with a maturity of three months or less from the date of placement, are considered to be cash equivalents.

5. Critical accounting estimates and judgments In the application of the Company’s accounting policies, which are described in Note 4, management is required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. Key sources of estimation uncertainty The following is the key assumption concerning the future, and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. Useful lives of property, plant and equipment Depreciation is charged so as to write off the cost of assets over their estimated useful lives. The calculation of useful lives is based on management’s assessment of various factors such as the operating cycles, the maintenance programs, and normal wear and tear using its best estimates. Allowance for impaired debts Allowance for impaired debts is booked when there is doubt on recovery of the amount from the debtors. The calculation of allowance against impaired debts is based on management’s assessment of various factors such as the financial position of the debtors, overdue amounts and other factors using its best estimates. Allowance for slow moving inventories Allowance for slow moving inventories is based on management’s assessment of various factors such as the usability, maintenance programs, and normal wear and tear using best estimates.


Notes to the financial statements (forming part of the financial statements) 6 Property, plant and equipment

Freehold

land Buildings

Plant and

machinery

Furniture and

fixtures

Computer and Office equipment

Motor vehicles

Capital work-in-progress Total

RO RO RO RO RO RO RO RO Cost / valuation note 6(c)

At 1 January 2014 1,450,000 2,885,357 4,501,313 96,244 66,251 551,449 - 9,550,614

Additions - 1,075 83,825 17,540 8,267 - 1,007,466 1,118,173 Transfer - 22,681 1,462 - - 26,600 (50,743) - Revaluation 413,000 - - - - - - 413,000 Disposals - - (1,193) (8,170) (4,346) (86,450) - (100,159) At 1 January 2015 1,863,000 2,909,113 4,585,407 105,614 70,172 491,599 956,723 10,981,628

Additions - - 50,518 12,025 8,642 23,250 1,728,168 1,822,603 Transfer - 23,500 116,047 - - 51,900 (191,447) - Disposals/written-off - (104,058) (54,264) (5,233) (4,782) (42,935) - (211,272) At 31 December 2015 1,863,000 2,828,555 4,697,708 112,406 74,032 523,814 2,493,444 12,592,959


Notes to the financial statements (forming part of the financial statements) 6 Property, plant and equipment (continued)

Freehold

land Buildings

Plant and

machinery

Furniture and

fixtures

Computer and Office equipment

Motor vehicles

Capital work-in-progress Total

RO RO RO RO RO RO RO RO Depreciation and impairment At 1 January 2014 - 1,349,939 2,608,175 75,078 49,277 242,389 - 4,324,858 Charge for the year - 123,679 289,115 9,955 7,837 87,705 - 518,291 Disposals - - (1,193) (8,170) (4,346) (34,599) - (48,308)

At 1 January 2015 - 1,473,618 2,896,097 76,863 52,768 295,495 - 4,794,841 Charge for the year - 128,467 297,920 10,855 8,495 81,222 - 526,959 Disposals/written-off - (47,183) (43,096) (5,233) (4,782) (42,935) - (143,229) At 31 December 2015 - 1,554,902 3,150,921 82,485 56,481 333,782 - 5,178,571 Carrying value At 31 December 2015 1,863,000 1,273,653 1,546,787 29,921 17,551 190,032 2,493,444 7,414,388 At 31 December 2014 1,863,000 1,435,495 1,689,310 28,751 17,404 196,104 956,723 6,186,787


Notes to the financial statements (forming part of the financial statements) 6 Property, plant and equipment (continued)

(a) Property, plant and equipment are mortgaged as security for borrowings (Note 15). (b) Land was revalued at its open market value by an independent professional valuer in February

2014 (previously revalued in 2010). There has been no change to the valuation technique. The surplus arising on revaluation has been taken to revaluation reserve (net of deferred tax) included as a separate component of equity. If the land had been carried at historical cost, the carrying amount at 31 December 2015 would have been RO 200,777 (2014: RO 200,777).

(c) Capital work in progress includes advances to supplier in the amount of RO 1,225,741 (2014:

RO 564,663) against purchase of compost plant. 7. Inventories

2015 2014 RO RO Finished goods 14,427 7,384 Work-in-process 205,401 214,818 Raw materials 217,922 248,823 Packing materials 67,154 62,663 Spare parts 151,304 156,221 656,208 689,909 Less: allowance for slow moving raw material inventory (10,032) (44,013) 646,176 645,896

Finished goods are measured at their fair value less estimated point-of-sale costs (Level 2 fair value hierarchy).

8. Trade and other receivables Trade receivables 1,054,564 1,151,410 Advances to suppliers 16,377 11,648 Prepayments and other receivables 41,336 26,798 1,112,277 1,189,856

At the reporting date 70% of the trade debtors are receivable from four customers (2014 - 78% from four customers) based in other GCC countries. The Company has been dealing with them for more than ten years.


Notes to the financial statements (forming part of the financial statements) 9. Cash and bank balances

2015 2014 RO RO Balances with banks - current and call accounts 27,116 279,892 Cash in hand 8,554 11,291 Cash and cash equivalents 35,670 291,183

Cash at bank in local currency carries interest at the rate of 0.0% to 0.25% per annum (2014 – 0.0% to 0.25% per annum) and in foreign currency carries interest in the range of 0.0% to 0.5% per annum (2014 - 0.0% to 0.5% per annum).

10. Share capital

Authorized capital (RO) 5,000,000 5,000,000

Issued and fully paid up capital (RO) 2,989,958 2,718,144

Issued and fully paid up capital (Number of shares) 29,899,584 27,181,440

The Company has one class of ordinary shares of 100 Baisa each, which carry no right to fixed rate of dividend. Company has issued 10% bonus shares (2,718,144 shares) during the year (2014: 20%). Shareholders who own 10% or more of the Company’s share capital are: 2015 2014 % % Muscat Overseas Company LLC Al Hosn Investment Co. SAOC

41.32 20.50

41.32 20.50

Ajitsinh Gokaldas khimji 10.42 - Bank Muscat Trust - 10.46

11. Legal reserve In accordance with the Commercial Companies Law of Oman 1974, annual appropriations of 10% of the profit for the year are made to this reserve until the accumulated balance of the reserve is equal to one third of the value of the Company’s paid-up share capital. This reserve is not available for distribution.


Notes to the financial statements (forming part of the financial statements) 12. Special reserve

The excess of share issue expenses received from public subscription over expenses incurred has been transferred to a special reserve in accordance with the Company’s Articles of Association.

13. Revaluation reserve The revaluation reserve represents the surplus on the revaluation of land net of deferred tax and is not available for distribution.

14. Dividend - proposed and paid The Board of Directors have recommended bonus shares at 15% or fifteen shares for every hundred shares held (2014 - 10% or one share for every ten shares held). No cash dividend has been recommended for the year (2014: Nil). The proposed issue of bonus shares is subject to approval of the shareholders.

15. Loans 15.1 Government soft loan

2015 2014 RO RO Non-current Government soft loan - 602,740 Deferred government grant - (33,092) - 569,648 Current portion Government soft loan 602,740 565,000 602,740 1,134,648

The soft loan from Government of the Sultanate of Oman was disbursed through a commercial bank in Oman and carries a subsidized interest rate of 3% per annum. This loan is repayable in yearly installments and the last installment will be paid during 2016. The loan is secured by a legal mortgage of the Company’s land and building and a commercial mortgage on the plant and machinery including civil works and hypothecation of the other assets registered with the Ministry of Commerce and Industry.


Notes to the financial statements (forming part of the financial statements) 15. Loans (continued) 15.1 Government soft loan (continued)

In accordance with the Oman Capital Market Authority (CMA) Circular 1 of 2002 and IAS 39, the difference between the carrying value and fair value of the loan is shown as “deferred government grant” and is released to the statement of income each year over the loan period as necessary to match with the related costs, which it is intended to compensate on a systematic basis. The current market weighted average interest rate has been considered for this calculation. However, the current portion of the recognized deferred government income is equivalent to the related interest cost. Hence, there is no impact on the net profit of the Company. The maturity profile of the loans is as follows: 2015 Under 1 - 2 2 - 5 5-10 Total 1 year years years Years RO RO RO RO RO Government soft loan 602,740 602,740 - - -

2014 Government soft loan 1,167,740 565,000 602,740 - -

15.2 Commercial term loan

Company has availed commercial term loan facility (diminishing musharaka) of RO 6.8 million from the Islamic banking division of a bank in Oman (2014: RO 5 million) which carries a competitive profit rate as per prevailing market conditions. This loan is repayable over a maximum period of six years after the initial moratorium period of 2 years. The loan is secured by a usufruct legal mortgage of Company’s leased land in Thumrait and pari-passu charge over Company’s own land and building in Barka which has been mortgaged against government soft loan as mentioned in note 15.1. The maturity profile of the carrying amount of commercial term loan (diminishing musharaka) is as follows: 2015 Under 1 - 2 2 - 5 5-10 Total 1 year years years years RO RO RO RO RO Commercial term loan 1,307,032 61,449 170,369 653,516 421,698

2014 Commercial term loan 737,390 - 61,449 368,695 307,246


Notes to the financial statements (forming part of the financial statements) 16. End of service benefits

2015 2014 RO RO At 1 January 167,530 141,373 Charge for the year 44,957 32,637 Payments during the year (1,082) (6,480) At 31 December 211,405 167,530

17. Trade and other payables Trade payables 472,248 212,047 Due to related parties (Note 25) 4,683 4,023 Other payables and accruals 483,531 190,596 960,462 406,666

18. Net assets per share Net assets per share is calculated by dividing the net assets or net equity as at the reporting date by the number of shares outstanding as follows: 2015 2014

Net assets or net equity at 31 December (RO) 5,717,056 5,403,013 Total number of ordinary shares 29,899,584 27,181,440 Net assets per share (RO) 0.191 0.199

19.1 Sales

Sales have been shown as net of discount in the amount of RO 643,906 (2014: RO 304,026).

19.2 Cost of sales 2015 2014 RO RO Cost of raw materials 2,355,493 2,573,928 Salary and related costs 1,183,996 1,079,793 Repairs and maintenance – plant 134,779 130,695 Provision for slow moving raw material inventory (Note 7) (25,000) - Utilities 179,035 168,968 Change in stock of finished goods (7,043) 35,291 Change in stock of work-in-process 9,417 (1,937) 3,830,677 3,986,738


Notes to the financial statements (forming part of the financial statements) 20. Selling and distribution expenses

2015 2014 RO RO Freight and transportation expenses 534,446 369,042 Sales promotion expenses 8,501 750 542,947 369,792

21. Administrative expenses Salary and related costs 685,731 657,166 Director sitting fees 56,000 60,000 Repairs and maintenance 9,443 11,011 Travelling 34,820 30,491 Legal and professional charges 27,210 32,521 Communication costs 19,422 18,215 Insurance 42,481 36,207 Others 28,709 26,441 903,816 872,052

22. Other (loss) /income (Loss) /gain on sale/written off of fixed assets – net (40,947) 8,350 Exchange gain - net 16,906 1,042 Miscellaneous 20,835 13,492 (3,206) 22,884

23. Taxation Statement of comprehensive income:

Current year 60,616 57,649 Prior year - (193) Deferred tax (23,431) (17,573) 37,185 39,883 Non-current liability: Deferred tax 347,476 370,907 Current liability: Current year 60,616 57,649 Prior years 1,724 2,827 62,340 60,476


Notes to the financial statements (forming part of the financial statements) 23. Taxation (continued)

(a) The total charge for the year can be reconciled to the accounting profits as follows: 2015 2014 RO RO

Profit before tax 351,228 366,215

Tax @ 12% (after deducting the basic exemption of RO 30,000) 38,547 40,346 Tax effect of items disallowed (1,362) (270) Prior year tax - (193)

Tax charge for the year 37,185 39,883 (b) Recognised deferred tax (liabilities) / asset are attributable to the following items:

At 1 January 2015

Change

At 31 December 2015

RO RO RO Changes recognized in equity Land revaluation reserve (Note 13) (199,467) - (199,467) Changes recognized in statement of income

Provision 5,475 (4,078) 1,397 Property, plant and equipment (176,915) 27,509 (149,406) Net deferred tax liability (370,907) 23,431 (347,476)

(c) The Company was exempted from income tax for a period of 5 years from 1 August 1999 to

1 August 2004 vide Ministerial Decision 116/2000. The exemption was renewed for a further period of 5 years from 1 August 2004 to 1 August 2009 vide Ministerial Decision 35/2008.

In the assessment orders for the years 2006 to 2008, the tax losses pertaining to the first exempted period were adjusted with the profits earned during the second exempted period and accordingly a tax liability arose in the prior year which has been accounted for by the Company. The Company had filed an appeal against the above assessments before the tax committee by taking the view that losses of the first exempted period can be adjusted only with the profits earned after the second exempted period, however the appeal was not successful and the company filed an appeal in the Primary court and later in the Appeal court and the Supreme court which were also not successful. The appeal was rejected by the Supreme Court in its judgement dated 2 April 2015.

(d) Tax assessments of the Company have been completed up to the year 2008. The Management is of the opinion that, additional taxes, if any, which may become payable on the completion of assessments of the open years, would not be significant to the financial position of the Company at the reporting date. With effect from 1 January 2016 the Company will be subject to income tax at a rate of 15% (2015: 12%). This will have impact on income tax expense, as well as the amounts of recognised deferred tax assets and liabilities.


Notes to the financial statements (forming part of the financial statements) 24. Earnings per share - basic and diluted

For the purpose of calculation of earnings per share, the Company restated the previous year weighted average number of shares outstanding to include 10% bonus shares (2,718,144 shares) issued in March 2015. The calculation of basic earnings per share is based on net profit attributable to ordinary shareholders and the weighted average ordinary number of shares outstanding during the year as follows: 2015 2014 Net profit for the year (RO) 314,043 326,332 Weighted average number of ordinary shares 29,899,584 29,899,584 Earnings per share – basic (RO) 0.011 0.011

As the Company has not issued any instruments which would have a dilution impact on earnings per share accordingly the earnings per share – basic and diluted are the same.

25. Related parties Related parties comprise of shareholders, key business persons and business entities in which they have the ability to control or exercise significant influence in financial and operating decisions. The Company maintains balances with these related parties which arise in the normal course of business from the commercial transactions, and are entered into at terms and condition which the management consider to be comparable with those adopted for arm’s length transactions with third parties.

(a) Balances with related parties 2015 2014 RO RO Due to related parties Majan International Agencies Travel & Tourism LLC 2,840 1,696 AON Majan LLC 346 1,854 Trade Max LLC 914 - Muscat Overseas Ind. & Marine Equipment Trading Co. LLC 583 473 4,683 4,023

The amounts due to related parties are interest free and repayable on demand. (b) Transactions with related parties

Purchase of goods and services 51,300 49,116


Notes to the financial statements (forming part of the financial statements) 25. Related parties (continued)

(c) Key management compensation 2015 2014 RO RO Short term employment benefits 359,307 343,814 Social security costs 6,117 3,960 End of service benefits 4,771 4,357 370,195 352,131 Sitting fees paid to the Directors 56,000 60,000

26. Capital commitments At 31 December 2015 the Company’s capital commitments in respect of capital work-in-progress were RO 3,217,439 (2014 - RO 1,232,558).

27. Contingent liabilities

At 31 December 2015 the Company had contingent liabilities amounting to RO 23,000 (2014 - RO 32,113) in respect of bank guarantees and acceptances entered into in the normal course of business.

28. Segment information The Company has only one reportable segment comprising of cultivation, processing and marketing of mushrooms. The General Manager reviews different internal management reports on at least a monthly basis. All the relevant information relating to the assets, liabilities, revenue and expenses is disclosed in the statements of financial position, comprehensive income, cash flows and notes to the financial statements. The Company’s total sales to customers are analysed as under: Local sales 677,578 638,732 Exports 5,514,536 5,500,339 6,192,114 6,139,071


Notes to the financial statements (forming part of the financial statements) 28. Segment information (continued)

During the year, sales have been made which amount to 10% or more of the Company’s total sales for each of the following customers: 2015 2014 RO RO Customer A 1,958,053 2,210,291 Customer B 312,190 862,313 Customer C 529,937 707,707 2,800,180 3,780,311

Geographical information The Company’s exports are to the following geographical regions: Middle East 5,430,684 5,462,899

Asia Pacific 83,852 37,440 5,514,536 5,500,339

Revenues from customers are attributed to geographical regions on the basis of destination of shipments verified by invoices and other export documents.

29. Financial instruments and financial risk management

The Company’s Board of Directors has the overall responsibility for the management of Company’s exposure to financial risk. It has constituted an Audit Committee within the Board of the Company who are required to review and assess the risk management process. It ensures that internal risk management framework is effective and that a sound system of risk management is in place to safeguard shareholder’s interests. Financial instruments carried on the statement of financial position comprise cash and bank balances, trade and other receivables, bank borrowings and trade and other payables. The Company has exposure to the following risks from its use of financial instruments: (i) Credit risk (ii) Liquidity risk (iii) Market risk


Notes to the financial statements (forming part of the financial statements) 29. Financial instruments and financial risk management (continued)

(i) Credit risk Credit risk is the risk of financial loss to the Company if a customer fails to meet its contractual obligations and arises principally from the Company’s receivables. Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Most of the Company’s sales are on credit terms ranging from 15 days to 45 days from date of invoice. Credit evaluations are performed on all customers requiring credit. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the statement of financial position. The Company has significant concentrations of credit risk, details of which are provided below. The Company manages concentration of its credit risk by monitoring collections within the credit period. The Company’s bank accounts are placed with reputed financial institutions. Exposure to credit risk The carrying amount of financial assets represents the maximum credit exposure. The exposure to credit risk at the reporting date is on account of: 2015 2014 RO RO

Trade receivables 1,054,564 1,151,410 Other receivables 32,809 16,507 Bank balances 27,116 279,892

1,114,489 1,447,809

Trade and other receivables 70% of accounts receivables are due from four customers at the reporting date (2014 - 78% due from four customers). About 79% (2014 - 81%) of the Company’s customers have been transacting with the Company for more than five years. Cash is placed with reputable banks and the risk of default is considered remote. The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk for trade receivables at the reporting date by geographic region was as follows: Domestic 145,863 139,801 Middle East 901,761 1,011,609 Asia Pacific 6,940 - 1,054,564 1,151,410



(i) Credit risk (continued) Exposure to credit risk (continued) Age analysis of trade receivables is as under:

2015 2014 Gross

RO Impairment

RO Gross

RO Impairment

RO 1 to 30 days 531,268 - 522,547 - 31 to 60 days 451,798 - 403,962 - 61 to 90 days 71,498 - 216,361 - 91 to 120 days - - 8,540 - 1,054,564 - 1,151,410 -

Receivables past due but not impaired are expected, on the basis of past experience, to be fully recoverable. It is not the practice of the Company to obtain collateral over receivables. (ii) Liquidity risk Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company’s approach to managing liquidity is to ensure, in so far as it is reasonably possible, that it will always have sufficient liquidity to meet its liabilities when they become due without incurring unacceptable losses or risking damage to the Company’s reputation. The Company’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans and credit facilities.

The following are the contractual maturities of the Company’s financial liabilities:

Carrying

Gross contractual

6 months

6 - 12

1 - 2

2 - 5

5-10 31 December 2015 amount cash flows or less months years years years RO RO RO RO RO RO RO Government soft loan 602,740 612,153 612,153 - - - - Commercial loan 1,307,032 1,553,437 27,774 89,224 223,306 762,831 450,302 Trade payables 472,248 472,248 472,248 - - - - Due to related parties 4,683 4,683 4,683 - - - - Other payables and accruals 483,531 483,531 224,091 259,440 - - - Total 2,870,234 3,126,052 1,340,949 348,664 223,306 762,831 450,302



(ii) Liquidity risk (continued)

Carrying

Gross contractual

6 months

6 - 12

1 - 2

2 - 5

5-10 31 December 2014 amount cash flows or less months years years years RO RO RO RO RO RO RO Government soft loan 1,167,740 1,204,108 582,372 9,534 612,202 - - Commercial loan 737,390 921,738 18,435 18,435 36,870 395,030 452,968 Trade payables 212,047 212,047 212,047 - - - - Due to related parties 4,023 4,023 4,023 - - - - Other payables and accruals 190,596 190,596 39,590 151,006 - - - Total 2,311,796 2,532,512 856,467 178,975 649,072 395,030 452,968

(iii) Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return. Foreign currency risk The Company is exposed to foreign currency risk on purchases denominated in foreign currencies Foreign currency trade payables The Company has foreign currency trade and other payables as follows: 2015 2014 RO RO U.S. Dollars - 644 Euro 262,760 110,305 UAE Dirham 42,905 27,542 Saudi Riyal 26,985 - 332,650 138,491

Foreign currency bank balances The Company has foreign currency bank balances as mentioned below: 2015 2014 Foreign currency U.S. Dollars 31,145 25,429 Euro 30,019 4,786 UAE Dirhams 661,100 1,391,777



(iii) Market risk (continued) The above have been placed with reputable banks. The following significant exchange rates were applied during the year: Average rate Reporting date mid-spot rate 2015 2014 2015 2014 RO RO RO RO U.S. Dollars (USD 1) 0.3846 0.3846 0.3846 0.3846 Euro (Euro 1) 0.4274 0.5139 0.4207 0.4684 UAE Dirhams (AED 1) 0.1048 0.1048 0.1048 0.1049 Interest rate risk The Company places deposits at commercial rates of interest with a commercial bank and has Government soft loans bearing a subsidized interest rate and commercial loan at market interest rate. The Company manages the risk by maintaining an approximate mix between fixed and floating interest rates balances at the start of the financial year. Interest rates used for determining fair value: The fair value of the non-current borrowings has been derived by discounting the repayment cash flows using a discount rate based upon the borrowing rate which the management expects would be available to the Company at the reporting date.

30. Fair value of financial instruments The fair value of the financial assets and liabilities approximates their carrying value as stated in the statement of financial position. Estimation of fair values

The Company measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements: Level 1: Quoted market price (unadjusted) in an active market for an identical instrument. Level 2: Valuation techniques based on observable inputs. This category includes

instruments valued using quoted market prices in the active market for similar instruments, quoted market prices for identical or similar instruments in markets that are considered less than active, or other valuation techniques where all significant inputs are directly or indirectly observable from market data.

Level 3: Valuation techniques using significant unobservable inputs. This category includes instruments that are valued based on quoted prices of similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments. Level 3 investments are carried at cost less impairment losses due to the unpredictable nature of future cash flows and the lack of other suitable methods for determining a reliable fair value.


Notes to the financial statements (forming part of the financial statements) 31. Capital management

The Company’s capital consists of share capital, legal reserve, special reserve, revaluation reserve and retained earnings. The primary objective of the Company’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support future development of the business and maximize shareholder value. Minimum capital requirement is prescribed by Commercial Companies Law of 1974, as amended.

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