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12. Touchwood Investments Limited Auditors: K.P.M.G Ford, Rhodes, Thornton & Co.

1st media release on 26th April 2006 The Sri Lanka Accounting and Auditing Standards Monitoring Board has determined that the estimates of fair value of biological assets used by Touchwood Investments Limited in its financial statements for the years ended 31 March 2005 and 31 March 2006 are clearly unreliable. The Company has also not been able to provide the Board with any other estimates which are reliable. Further, the method of valuation used for the year ended 31 March 2005 was not in accordance with International Accounting Standard, IAS 41 Agriculture, which the company has purportedly adopted. As the company has purportedly adopted International Accounting Standard, IAS 41 Agriculture, the Board has concluded that the biological assets should have been valued at a value which approximates cost in accordance with paragraph 24 (b) of IAS 41 or at cost less accumulated impairment in accordance with paragraph 30 of IAS 41. Based on such valuation the company would not show a net profit for the relevant financial periods. As the impact on the financial statements is substantial the Board has decided to refer the non-compliance to the Attorney General. The Board has also decided to investigate the compliance with auditing standards by the auditors in relation to the audit of the financial statements of the Company. 2nd media release 19th March 2007 Sri Lanka Accounting and Auditing Standards Monitoring Board (SLAASMB) has noted a media release reported to have been issued by Touchwood Investments Limited. SLAASMB has also observed an article titled SLAASMBs ruling on Touchwood challenged. SLAASMB has also received inquiries from stakeholders relating to the level of unreliability of the valuations. In response, SLAASMB clarifies that the method of valuation used by Touchwood Investments Limited for the year ended 31 March 2005 was not in accordance with International Accounting Standard, IAS 41 Agriculture. The model used for valuation in respect of the year ended 31 March 2006 gives a valuation in excess of Rs.5,000 per plant at the time of planting, whereas the replacement cost is likely to be around Rs 500. The standard indicates that cost may approximate fair value, particularly when the impact of the biological transformation on price is not expected to be material. In this connection IAS 41 provides the example of the initial growth in a 30-year pine plantation production cycle. Touchwood Investments Limited were also not able to justify the discount rate of 12% per annum used to discount the proceeds on maturity of the trees even though the model is highly sensitive to the discount rate used. In comparison the rate used by Touchwood

Investments Limited to discount future expenses is 22% per annum, and the weighted average cost of contracts entered in to by Touchwood Investments Limited is even higher. IAS 41 requires the use of a market determined pre-tax rate to discount the net cash flow. In addition IAS 41 requires the entity to use a discount rate which excludes any increases in value from additional biological transformation and future activities of the entity. The standard also requires the possibility of variation in cash flows to be recognized in determining the discount rate and the expected cash flows. Having considered the relevant factors and the explanations provided by Touchwood Investments Limited SLAASMB has determined that the estimates of fair value of biological assets used by Touchwood Investments Limited in its financial statements for the years ended 31 March 2005 and 31 March 2006 are clearly unreliable. SLAASMB is the statutory authority in Sri Lanka to monitor compliance with Accounting Standards and Auditing Standards in relation to listed companies and other specified business enterprises in Sri Lanka.

Touchwood adopted the International Accounting Standard 41 agriculture for the valuation of its biological assets using an independent chartered valuers as is done the world over. However, the Sri Lanka Accounting and Auditing Standards Monitoring Board (SLAASMB) declared that it found the accounts of Touchwood to be noncompliant with the Accounting Standards of Sri Lanka. Acting on this finding, the Securities and Exchange Commission (SEC) issued a directive on Touchwood to re-state its accounts. Both the finding of the SLAASMB and the directive of the SEC have been challenged by Touchwood in two separate writ applications now pending before the Court of Appeal. The Court of Appeal has also issued a stay order on the SEC staying its directive which requires Touchwood to re-state its accounts. Further elaboration and comment on these cases cannot be made at this stage since they are both pending before court. Touchwood stands by its accounting practices, which have been verified and approved by its reputed auditors. Touchwood categorically refutes the allegation of fudging its accounts as being baseless, unfounded and probably made with an ulterior motive.

Touchwood Legal Victory


July 22nd 2010

Touchwood Forestry Co., Ltd (TFC) is pleased to announce that in the matter involving Agarwood Siam Co., Ltd.; the Department of Intellectual Property; and the DirectorGeneral of the Department of Intellectual Property (Civil Case Black No. Tor. Por. 155/2550) the Intellectual Property and International Trade (IP & IT) Court in Bangkok, Thailand has found in favor of TFC. The case commenced on the 5th of October 2007 when TFC filed a civil lawsuit against Agarwood Siam, the Department of Intellectual Property (DIP) and the Director-General of the DIP seeking an invalidation of Agarwood Siams Patent No. 18985, claiming that the agarwood-induction process covered by this patent lacked inventive steps and that there were irregularities involved in the granting of the patent. Agarwood Siam filed a reply to the complaint on 19 December 2007 and the DIP and the Director-General of the DIP filed their combined reply on 19 February 2008. All of them denied the plaintiffs (TFCs) claims. Following a number of hearings in September 2009 and March 2010, the Court handed down its judgment on 9 July 2010 in which it decided in TFCs favor, thus invalidating Agarwood Siams Patent No. 18985 for the reason that TFCs evidence indicated that the invention which was the subject of the patent was not new and did not have an inventive step and also that Agarwood Siam could not prove otherwise. Agarwood Siam has until 9 August 2010 to appeal the decision to the Supreme Court. Soutce : Touchwood Wbsite

Touchwood Legal Victory


July 22nd 2010
Touchwood Forestry Co., Ltd (TFC) is pleased to announce that in the matter involving Agarwood Siam Co., Ltd.; the Department of Intellectual Property; and the DirectorGeneral of the Department of Intellectual Property (Civil Case Black No. Tor. Por. 155/2550) the Intellectual Property and International Trade (IP & IT) Court in Bangkok, Thailand has found in favor of TFC.

The case commenced on the 5th of October 2007 when TFC filed a civil lawsuit against Agarwood Siam, the Department of Intellectual Property (DIP) and the Director-General of the DIP seeking an invalidation of Agarwood Siams Patent No. 18985, claiming that the agarwood-induction process covered by this patent lacked inventive steps and that there were irregularities involved in the granting of the patent. Agarwood Siam filed a reply to the complaint on 19 December 2007 and the DIP and the Director-General of the DIP filed their combined reply on 19 February 2008. All of them denied the plaintiffs (TFCs) claims. Following a number of hearings in September 2009 and March 2010, the Court handed down its judgment on 9 July 2010 in which it decided in TFCs favor, thus invalidating Agarwood Siams Patent No. 18985 for the reason that TFCs evidence indicated that the invention which was the subject of the patent was not new and did not have an inventive step and also that Agarwood Siam could not prove otherwise. Agarwood Siam has until 9 August 2010 to appeal the decision to the Supreme Court.
05). The Judgement of the case No. CA (writ) 323/2007 filed against SLAAAMB (Sri Lanka Accounts and Auditing Standard Monitoring Board) was delivered in favour of petitioner, Touchwood Investments PLC on the 25th of January 2010. SLAASMB has filed application for leave to appeal againstl the judgement given by the court of appeal in the supreme court on the 8th of March 2010.(SC SPL leave to appeal No.42/10) The Court of appeal extended the stay order on the case No.CA (writ) 322/2007 until final determination of the SLAASMB SCSPL leave to appeal No 42/10. Touchwood Investments PLC was summoned by the supreme court and the said matter will be taken for hearing on the 3rd December 2010 in order to decide whether the leave to proceed should be granted for the SLAASMB to proceeds with the case The case No .322/2007 of which Touchwood Investment PLC filed a WRIT application simultaniously against the Securties Exchange Commision of Sri Lanka has been set a side by the Court of Appeal untill final determination of the Suprem Court case No. 42/10. The said Supreme Court Case No SPL LA 42/10 had been postponed on numerous occasions and finally it is fixed for hearing on the 18th of July 2011. 42/10. The said Supreme Court Case No SPL LA 42/10 had been postponed on numerous occasions and finally it is fixed for hearing on the 18th of July 2011

The Judgement of the case No. CA (writ) 323/2007 filed against SLAAAMB (Sri Lanka Accounts and Auditing Standard Monitoring Board) was delivered in favour of petitioner, Touchwood Investments PLC on the 25th of January 2010. SLAASMB has filed application for leave to appeal againstl the judgement given by the court of appeal in the supreme court on the 8th of March 2010.(SC SPL leave to appeal No.42/10) The Court of appeal extended the stay order on the case No.CA (writ) 322/2007 until final determination of the SLAASMB SCSPL leave to appeal No 42/10. Touchwood Investments PLC was summoned by the supreme court and the said matter will be taken for hearing on the 3rd December 2010 in order to decide whether the leave to proceed should be granted for the SLAASMB to proceeds with the case The case No .322/2007 of which Touchwood Investment PLC filed a WRIT application simultaniously against the Securties Exchange Commision of Sri Lanka has been set a side by the Court of Appeal untill final determination of the Suprem Court case No. 42/10. The said Supreme Court Case No SPL LA 42/10 had been postponed on numerous

occasions and finally it is fixed for hearing on the 18th of July 2011. - Copied from TWOD 31.03.2011 quarter end Interim Report.

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