BSR Sofia IFRS Q2 2010 final · 2010. 8. 31. · BSR SOFIA AD INTERIM CONDEDNSED STATEMENT OF...

BSR SOFIA AD INTERIM CONDENSED FINANCIAL INFORMATION INDEPENDENT AUDITORS’S REVIEW REPORT JUNE 30, 2010

BSR SOFIA AD TABLE OF CONTENTS JUNE 30, 2010

TABLE OF CONTENTS Page

Interim condensed statement of financial position 2

Interim condensed statement of comprehensive income 3

Interim condensed statement of changes in equity 4

Interim condensed statement of cash flows 5

Notes to the interim condensed financial information 6-17

BSR SOFIA AD INTERIM CONDEDNSED STATEMENT OF FINANCIAL POSITION JUNE 30, 2010

2 The notes set out on pages 6 – 17 are an integral part of this interim condensed financial information.

(all amounts in EUR thousands) Note June 30, 2010

December 31, 2009

June 30, 2009

ASSETS Non-current assets Investment property in progress 2 12,168 10,493 9,056Other tangible assets 2 27 28 28Investment property 3 98 140 182Restricted cash at bank 2,183 2,183 1,580Total non-current assets 14,476 12,844 10,846 Current assets Inventory 5 28,322 30,037 29,399Trade and other receivables 4 1,821 2,280 419Cash and cash equivalents 6 3,024 6,198 6,176Total current assets 33,167 38,515 35,994 Total assets 47,643 51,359 46,840 EQUITY Share capital 7 26 26 26Reserves 10,688 10,688 10,688Accumulated losses (2,674) (185) (138)Total equity 8,040 10,529 10,576 LIABILITIES Non-current liabilities Borrowings from shareholders 9 33,232 34,900 34,317Borrowings from banks 9 3,750 3,158 -Trade payables 8 96 40 -Provisions 8 1,364 1,328 1,291Derivative financial instrument 10 343 144 -Total non-current liabilities 38,785 39,570 35,608 Current liabilities Trade and other payables 8 805 1,247 656Deferred income 13 13 -Total current liabilities 818 1,260 656 Total liabilities 39,603 40,830 36,264Total equity and liabilities 47,643 51,359 46,840

This interim condensed financial information on pages 2-17 were approved on August 10, 2010 and signed as follows:

Guy Matarasso Head of the Board of Directors

Yair Abrahami CEO

Momchil Georgiev Chief Financial Officer

August 10, 2010 August 10, 2010 August 10, 2010Initialled for identification purposes in reference to the audit report. Rositsa Boteva Petko Dimitrov Registered auditor PricewaterhouseCoopers Audit OOD August 11, 2010

BSR SOFIA AD INTERIM CONDEDNSED STATEMENT OF COMPREHENSIVE INCOME JUNE 30, 2010

3 The notes set out on pages 6 – 17 are an integral part of this interim condensed financial information


(all amounts in EUR thousands)

Six months ended

Year ended Six months ended

June 30, 2010 December 31, 2009

June 30, 2009

Note Rental income 50 100 50Administrative expenses 11 (154) (275) (143)Depreciation expense (43) (85) (42)Impairment loss 5 (2,193) - -Operating loss (2,340) (260) (135) Finance income 12 123 322 87Finance costs 12 (272) (171) (14)Finance income, net 12 (149) 151 73 Loss before income tax (2,489) (109) (62) Current and deferred income tax - - - Comprehensive loss for the period (2,489) (109) (62) Other comprehensive income(loss) for the period -

- -

Total comprehensive loss for the period (2,489) (109) (62)


Yair Abrahami CEO



BSR SOFIA AD INTERIM CONDENSED STATEMENT OF CHANGES IN EQUITY JUNE 30, 2010



Note Issued share

capital

Unpaid share

capital

Capital reserves

Accumulated

deficit

Total

January 1, 2009 7 26 - 10,688 (76) 10,638Comprehensive loss Loss for six months ended June 30, 2009 - - - (62) (62)Total comprehensive loss - - - (62) (62) June 30, 2009 26 - 10,688 (138) 10,576

January 1, 2009 7 26 - 10,688 (76) 10,638Comprehensive loss Loss for the period - - - (109) (109)

Total comprehensive loss - - - (109) (109)

December 31, 2009 26 - 10,688 (185) 10,529

January 1, 2010 7 26 - 10,688 (185) 10,529Comprehensive loss Loss for six months ended June 30, 2010 - - - (2,489) (2,489)Total comprehensive loss - - - (2,489) (2,489)

June 30, 2010 26 - 10,688 (2,674) 8,040



Yair Abrahami CEO



BSR SOFIA AD INTERIM CONDENSED CASH FLOWS STATEMENT JUNE 30, 2010


(all amounts in EUR thousands) Six months

endedYear ended Six months

ended June 30,

2010December 31,

2009 June 30,

2009 Note Operating activities Income (Loss) before taxes (2,489) (109) (62)Adjustments for: Interest income 12 (123) (322) (87)Depreciation 43 85 42Paid interest for derivative financial instrument 59 - -Derivative financial instrument 199 144 -Impairment loss 5 2,193 - -Operating cash flow before working capital changes (118) (202) (107) Change in trade and other receivables 459 4,745 6,805Change in Inventory (38) (242) (102)Change in trade and other payables (350) 654 (10)Net cash flows from/(used in) operating activities

(47)

4,955 6,586 Investing activities Acquisition of Investment property in progress (1,582) (2,082) (784)Interest received 123 308 87Change in restricted cash in bank - (584) 19Net cash flows used in investing activities (1,459) (2,358) (678) Financing activities Current borrowings granted - (203) (203)Current borrowings repaid - 203 -Proceeds from non-current borrowings banks 1,213 3,158 -Repaid loan (2,881) - -Proceeds from non-current borrowings - 304 332Net cash flows from financing activities (1,668) 3,462 129 Net increase/(decrease) in cash and cash equivalents

(3,174)

6,059 6,037Cash and cash equivalents at the beginning of the period 6 6,198

139 139

Cash and cash equivalents at the end of the period 6 3,024

6,198 6,176



Yair Abrahami CEO



BSR SOFIA AD NOTES TO THE INTERIM CONDENSED FINANCIAL INFORMATION JUNE 30, 2010

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1 Company background and significant accounting policies Company background BSR Sofia AD (“BSR Sofia” or “the Company”) is registered in Bulgaria at the Register of

commercial entities under file deed number 20621/2007 г. of Sofia City Court with its registered address Sofia, region Triaditza, 53, Han Asparuh Str. Since June 2008 the company is registered with the registry Agency under the unique Identity Code 175441593. The main activity of the Company is building and construction, real estate deals and entrepreneurial services. In 2008, the Company has purchased a plot of land in the city of Sofia where a complex of buildings will be built with commercial, office and residential area. The first phase of the project has commenced in August, 2009.

Accounting Policies

The principal accounting policies applied in the preparation of this interim condensed financial

information are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated. The accounting policies are consistent with those of the annual financial statements for the year ended 31 December 2009, except as described below. Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.

А Basis of preparation

This condensed interim financial information for the six months period ended June 30, 2010;

and comparative information have been prepared in accordance with IAS 34, ‘Interim financial reporting’, as adopted by the European Union. The condensed interim financial information do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the annual financial statements for the year ended December 31, 2009, which have been prepared in accordance with IFRSs, as adopted by the European Union.

(a) Standards, amendments and interpretations to existing standards effective in 2010 but not relevant to the Company

• IFRS 3 (revised), ‘Business combinations’, and consequential amendments to IAS 27, ‘Consolidated and separate financial statements’, IAS 28, ‘Investments in associates’, and IAS 31, ‘Interests in joint ventures’, are effective prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009.

• IFRIC 17, ‘Distributions of non-cash assets to owners’, effective for annual periods

beginning on or after 1 July 2009. This is not currently applicable to the Group, as it has not made any non-cash distributions

BSR SOFIA AD NOTES TO THE INTERIM CONDENSED FINANCIAL INFORMATION (Continued) JUNE 30, 2010

7

1. Company background and significant accounting policies (continued)

A. Basis of preparation (continued)

(a) Standards, amendments and interpretations to existing standards effective in 2010 but not relevant to the Company (continued) • IFRIC 18, ‘Transfers of assets from customers’, effective for transfer of assets received on or

after 1 July 2009. This is not relevant to the Group, as it has not received any assets from customers.

• ‘Additional exemptions for first-time adopters’ (Amendment to IFRS 1) was issued in July

2009. The amendments are required to be applied for annual periods beginning on or after 1 January 2010. This is not relevant to the Group, as it is an existing IFRS preparer.

• Improvements to International Financial Reporting Standards 2009 were issued in April 2009.

The effective dates vary standard by standard but most are effective 1 January 2010. (b) Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Company • IFRS 9, ‘Financial Instruments’ issued in December 2009. This addresses the classification

and measurement of financial assets and is not likely to affect the Company’s accounting for its financial assets. The standard is not applicable until 1 January 2013 but is available for early adoption. The Company is yet to assess IFRS 9’s full impact. However, initial indications are that it will not affect the Company’s financial assets.

• Prepayments of a Minimum Funding Requirement – Amendment to IFRIC 14, issued in

November 2009. The amendments correct an unintended consequence of IFRIC 14, ‘IAS 19 – The limit on a defined benefit asset, minimum funding requirements and their interaction’. Without the amendments, entities are not permitted to recognise as an asset some voluntary prepayments for minimum funding contributions. This was not intended when IFRIC 14 was issued, and the amendments correct the problem. The amendments are effective for annual periods beginning 1 January 2011. Earlier application is permitted. The amendments should be applied retrospectively to the earliest comparative period presented.

• IAS 24, ‘Related party disclosures’, issued in November 2009. It supersedes IAS 24, ‘Related

party disclosures’, issued in 2003. The revised IAS 24 is required to be applied from 1 January 2011. Earlier application, in whole or in part, is permitted.


8

1. Company background and significant accounting policies (continued)

B. Basis of preparation (continued) (b) Standards, amendments and interpretations to existing standards that are not yet e�ective and have not been early adopted by the Company (continued)

• ‘Classification of rights issues’ (Amendment to IAS 32), issued in October 2009. For

rights issues offered for a fixed amount of foreign currency, current practice appears to require such issues to be accounted for as derivative liabilities. The amendment states that if such rights are issued pro rata to all the entity's existing shareholders in the same class for a fixed amount of currency, they should be classified as equity regardless of the currency in which the exercise price is denominated. The amendment should be applied for annual periods beginning on or after 1 February 2010. Earlier application is permitted.

• IFRIC 19, ‘Extinguishing financial liabilities with equity instruments’. This clarifies the

requirements of IFRSs when an entity renegotiates the terms of a financial liability with its creditor and the creditor agrees to accept the entity’s shares or other equity instruments to settle the financial liability fully or partially. The interpretation is effective for annual periods beginning on or after 1 July 2010. Earlier application is permitted.

• Improvements to International Financial Reporting Standards 2010 were issued in May

2010. The effective dates vary standard by standard but most are effective 1 January 2010.

Currently, the following IASB pronouncements have not yet been endorsed for use in Europe:

• IFRS 9 Financial Instruments

• Improvements to IFRSs

Seasonality of operations The Company’s business is not seasonal and it is not expected operating profits to fluctuate during the year.

B Going concern

The Company’s interim condensed financial information have been prepared on a going concern basis.


9

(in all notes the amounts are presented in EUR thousands unless otherwise stated)

2 Investment property in progress and other tangible assets

LandAssets under constructions

Total investment property in

progress

Other tangible

assets

Period ended December 31, 2009 Carrying amount at beginning of the period 7,807 289

8,096 10

Additions - 2,397 2,397 19Depreciation charge - - - (1)Carrying amount at the end of the period 7,807 2,686

10,493 28

As of December 31, 2009 Cost 7,807 2,686 10,493 29Accumulated depreciation - - - (1)Carrying amount 7,807 2,686 10,493 28 Period ended June 30, 2010 Carrying amount at beginning of the period 7,807 2,686 10,493 28Additions - 1,675 1,675 -Depreciation charge - - - (1)Carrying amount at the end of the period 7,807 4,361

12,168 27

As of June 30, 2010 Cost 7,807 4,361 12,168 29Accumulated depreciation - - - (2)Carrying amount 7,807 4,361 12,168 27

Borrowing costs qualifying for capitalisation in the cost of assets under construction are includedin the analysis above. For the six months ended June 30, 2010 and the year ended December 31, 2009 borrowing costs of EUR 286 thousand and EUR 335 thousand respectively have been capitalized in the assets under construction. The fair value of investment property in progress as atJune 30, 2010 is EUR 16,067 thousand. The investment property in progress includes the landcurrently used by the development of investment property which will be subsequently become aninvestment property.


10


3 Investment property

Investment property amounting to EUR 98 thousand (gross book value of EUR 255 thousand and accumulated depreciation of EUR 157) represents the existing office and storage premises which according to the preliminary contract for purchase of land and buildings are rented for a period not shorter than 30 months starting from August 2008. Management’s intention is to demolish these buildings and to construct offices and residential buildings on the respective plot. The management’s expectation is to use the buildings for a period of 18 months after June 30, 2010. The building is depreciated to nil over the period to the expected demolishment. The investment property net value as of December 31, 2009 and June 30, 2009 was EUR 140 thousand and EUR 182 thousand respectively.

4 Trade and other receivables

30/06/2010 31/12/2009 30/06/2009VAT recoverable 163 487 87Advances to suppliers 1,608 1,720 1Other receivables 50 73 331 1,821 2,280 419

The carrying value of trade and other receivables approximates their fair value. The classes within trade and other receivables do not contain impaired assets.

5 Inventory

Inventory amounted to EUR 28,322 thousand represents the portion of the investment project of the Company attributed to the residential premises. For the period of six months ended June 30, 2010 there was evidence of the carrying value of inventories to be higher than their net realizable value. For six months ended June 30, 2010 valuation reports made by independent valuator (Colliers International) indicated impairment for the amount of EUR 2,193 thousand and recognized as an expenses in the Statement of comprehensive income for the period. For six months ended June 30, 2010 total valuation of the plot according to the valuation report is for the amount of EUR 28,322 thousand. The Inventory value as of December 31, 2009 was EUR 30,037 thousand and six months ended June 30, 2009 was EUR 29,399 thousand. The Inventory is pledged under a loan agreement signed between the Company and Unicredit Bulbank AD. Management intention is to sell these premises upon completion. For six months ended June 30, 2010, the year ended December 31, 2009 and six months ended June 30, 2009 borrowing costs of EUR 440 thousand, EUR 1,003 thousand and EUR 550 thousand respectively have been capitalized in the Inventory.

6 Cash and cash equivalents

30/06/2010 31/12/2009 30/06/2009Deposits 2,955 6,102 6,134Cash at bank and hand 69 96 42

1 Total cash and cash equivalents 3,024 6,198 6,176


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6 Cash and cash equivalents(continued)

Deposit bearing 5% annually interest 2,955 5,097 6,134 Deposit bearing 1,7% annually interest - 1,005 -

Total deposits 2,955 6,102 6,134

All the above mentioned deposits are denominated in Euros and have a maturity less than three months.

7 Share capital Number of

shares Value in

EUR As at June 30, 2010 50,000 25,565 As at December 31, 2009 50,000 25,565 As at June 30, 2009 50,000 25,565 As at the balance sheet date the Company's share capital is 25 565 EUR. The share capital is

divided into 50,000 ordinary shares, each share amounting to 1 BGN (0.51 EUR). The share capital of the Company is fully paid The share capital is distributed between the shareholders as follows: Gibor BSR Europe B.V. – 21,250 shares representing 42.5% of the share capital;

EDR Holding B.V. – 21,250 shares representing 42.5% of the share capital;

City Realty Ltd. – 7,500 shares representing 15% of the share capital.

As per shareholders’ decision dated December 31, 2008, “Reserves” fund is formed according

to art. 246, par. 2, p. 4 of the Bulgarian Commercial Act. According to the decision, loans payable to shareholders at the amount of EUR 10,688 thousand were transferred to reserves. The distribution of the transferred amounts among the shareholders is the following: Gibor B.S.R. Europe B.V. – 5 077 000 EUR EDR Holding B.V. – 5 077 000 EUR City realty OOD – 534 421 EUR

8 Trade and other payables and provisions

30/06/2010 31/12/2009 30/06/2009 Trade payables – non-curent portion 96 40 -Provisions 1,364 1,328 1,291Trade payables – current portion 805 1,247 656 2,265 2,615 1,947


12


8 Trade and other payables and provisions(continued)

The provisions represent the present value of the liability to Varna Tower OOD (one of the former owners of the properties acquired) due in approximately 18 months after June 30, 2010. The amount is with nominal value of EUR 1,500 thousand and comprise a retention amount from the purchase price against the obligation of Varna Tower OOD to demolish the old buildings in an approximately 18 months after June 30, 2010. The Company has issued a bank guarantee on Piraeus Bank amounted to EUR 1,500 thousand in favour of Varna Tower OOD. The bank guarantee expires on August 1, 2013. The amount of the provision as of June 30, 2010, December 31, 2009 and June 30, 2009 is EUR 1,364 thousand, EUR 1,328 and EUR 1,291 respectively.

The provision is discounted with effective interest rate of 5.9% in accordance with the interest rate as of August 14, 2008 granted by Pireous Bank on regards a collateral deposit made by the Company in respect of this liability. The interest expense is capitalised in the Inventory. The amount of EUR 96 thousand included in Trade payable – non-current portion, represents retention amount of 5% of the executed construction work by Planex Build OOD in respect of a performance guarantee.

9 Borrowings

30/06/2010 31/12/2009 30/06/2009 Bank borrowings 4,057 3,484 -Unamortised Arrangement fee (307) (326) -Borrowings due to shareholders and related parties 33,232 34,900 34,317

36,982 38,058 34,317 This note represents the closing balances of the shareholders’ and other related parties’ loans at nominal value: 30/06/2010 31/12/2009 30/06/2009 Non-current liabilities Interest-bearing loans from shareholders and related parties 30,180

32,420

32,448

Interest due to shareholders and related parties 3,052 2,480 1,869 33,232 34,900 34,317

The principal and accumulated interest on the shareholders’ loans mature in 2013. All loans from related parties are denominated in EUR. The nominal interest rate on the loans is equal to three-month EURIBOR plus 3%.


13

(in all notes the amounts are presented in EUR thousands unless otherwise stated) 9

Borrowings (continued)

Balances of the loans per creditors are as follows:

30/06/2010 31/12/2009 30/06/2009

Principal Interest Principal Interest Principal InterestGibor – B.S.R Europe B.V.

14,279 1,446

15,399

1,175

15,399 886

EDR Holding B.V. 14,279 1,445 15,399 1,174 15,399 884City Realty OOD 1,622 161 1,622 131 1,650 99

30,180 3,052 32,420 2,480 32,448 1,869

On April 9, 2009 an agreement has been signed between the Company and Unicredit Bulbank AD in respect of a credit facility for the construction of the first phase of the project. The loan’s main conditions are as follows: • Loan amount – up to EUR 23,900 thousand, including EUR 21,400 thousand for investment

and EUR 2,500 thousand for working capital purposes (VAT)

• Applicable interest – three-month Euribor + margin of 5,5% before receiving permit for use of the buildings and margin of 4,5% after receiving the permit for use

Utilization period – until April 9, 2011 • Repayment of principal – 40 quarterly instalments starting from May 9, 2011, the first 39

quarterly instalments shall be equal and their sum shall represent 67% of the utilised principal, the final maturity date for the last instalment shall be on April 9, 2021 (for the investment loan) and on October 9, 2011 (for the VAT loan)

• Repayment of interest on a quarterly basis. • Collateral guarantees – first rank mortgage over the real estate owned by the Company –

regulated land property II in district 95в on the detailed plan of Sofia, Slatina district, Hristo Smirnenski area together with the constructed buildings in the same regulated land property; first rank mortgage over the real estate owned by the Company – regulated land property XI in district 95в on the detailed plan of Sofia, Slatina district, Hristo Smirnenski area; first rank pledge over the future receivables of the Company from lease agreements of sites in the project; pledge on all receivables, present and future, on all bank accounts of the Company with Unicredit Bulbank AD.

As of October 16, 2009, a bank guarantee in Unicredit Bulbank AD in favour of BSR Sofia AD amounting to EUR 1,799 thousand has been issued by Planex Build OOD (contractor) in respect of a construction services agreement signed by the parties. The bank guarantee expires on July 21, 2013. As of October 10, 2009, a bank guarantee in Raiffeisenbank(Bulgaria) AD in favour of BSR Sofia AD amounting to EUR 1,799 thousand has been issued by Planex Build OOD (contractor) in respect of paid advance. The bank guarantee expires on July 12, 2011. As of June 30, 2010, the Company has withdrawn a gross amount of EUR 4,057 thousand from the Unicredit Bulbank AD credit facility.


14


10 Derivative financial instrument 30/06/2010 31/12/2009 30/06/2009 Non-current liabilities Interest rate swap - fair value 343 144 -

343 144 -In October 2009 the Company entered into interest rate swap agreement with Unicredit Bulbank AD. According to the agreement the Company shall pay a fixed interest rate of 2.5% p.a. for three-months EURIBOR paid by Unicredit Bulbank AD to the Company. The agreement is effective from November 2nd , 2009 until August 1st , 2012. Net present value of interest rate swap as of June 30, 2010 and December 31, 2009 is respectively EUR 343 thousand and EUR144 thousand.

11 Administrative expenses June 30,

2010December

31, 2009June 30,

2009

Property and waste taxes 29 60 41Labour cost 22 25 7Communications 6 8 2Travel and accommodation 24 48 25Legal services 16 32 16Audit and financial services 13 25 27Professional services 6 11 6Insurance 10 - -Office expenses and other administrative costs 23 49 19Marketing expenses 5 17 -Total administrative and other operating expenses 154 275 143


15


12 Finance income, net

30/06/2010 31/12/2009 30/06/2009 Interest income on bank deposits 123 322 87 Financial cost (272) (171) (14) Interest rate swap at fair value (258) (144) - Other financial cost (14) (27) (14) (149) 151 73

Borrowing costs qualifying for capitalisation in the cost of investment in property in progress and inventory are not included in the analysis above. As of June 30, 2010 borrowing costs amounting to EUR 726 thousand have been capitalized in the cost of investment in property in progress and inventory. As of December 31, 2009 and June 30, 2009 the Company has capitalized borrowing costs in an amount of EUR 1,338 thousand and EUR 689 thousand respectively. On the February 1, 2010 and May 1, 2010 was paid the total net amount of EUR 59 thousand for the interest difference between fixed interest rate and three-months EURIBOR according the SWAP agreement.

13 Related party transactions

The Company has a related party relationship with the following companies: • Gibor BSR Europe B.V. – a shareholder (42.5% significant influence) • EDR Holding B.V. – a shareholder (42.5% significant influence)

City Realty Ltd. – a shareholder (15% significant influence)

Directors and executive officers For the period ended June 30, 2010 the Company has paid a management fee in an amount of EUR 42thousand.


16


13 Related party transactions (continued)

Balances of the loans per creditors are as follows: 30/06/2010 31/12/2009 30/06/2009

Principal Interest Principal Interest Principal InterestGibor – B.S.R Europe B.V. 14,279 1,446

15,399

1,175

15,399 886

EDR Holding B.V. 14,279 1,445 15,399 1,174 15,399 884City Realty OOD 1,622 161 1,622 131 1,650 99

30,180 3,052 32,420 2,480 32,448 1,869 Transaction with related parties during the period

June 30, 2010 December 31, 2009

June 30, 2009

Gibor BSR Europe B.V. – loans received - 166 166Gibor BSR Europe B.V. – loan returned 1,120 - -Gibor BSR Europe B.V. – interest charge on loans Gibor BSR Europe B.V. – consulting services received

271

79

616

199

327

-

Gibor BSR Europe B.V. – reimbursed expenses 19 - -EDR Holding B.V. – loans received - 166 166EDR Holding B.V. – loan returned 1,120 - -EDR Holding B.V. – interest charge on loans EDR Holding B.V. – reimbursed expenses City Reality Ltd – loan returned

271--

617 10 28

327--

City Realty Ltd – loans received - - -City Realty Ltd – interest charge on loans 30 66 34City Realty Ltd – reimbursed expenses 3 - -BSR Varna AD – management services received - 60 44BSR Varna AD – current loan granted - 203 203BSR Varna AD – current loan returned - 203 ‐


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14 Contingent liabilities

Bulgarian tax legislation is subject to varying interpretations and constant changes. Furthermore, the interpretations of tax authorities as applied to the transactions and activity of the Company may not coincide with that of the management. As a result tax authorities may challenge the way of calculating tax losses carried forward as well as assess additional taxes, penalties and interest, which can be significant. Management considers that there will be no additional tax liabilities as at June 30, 2010 hence no further provision is considered necessary. The tax authorities may at any time request the books and records within 5 years subsequent to the reported tax year, and may impose additional tax assessments and penalties. The Company’s management is not aware of any circumstances which may give rise to a potential material liability in this respect.

15 Events after the balance sheet date There were no events after the balance sheet date requiring adjustment or additional disclosure in this

interim condensed financial information of BSR Sofia AD.

PricewaterhouseCoopers Audit OOD Email: [email protected]; Web Site: www.pwc.com/bg Registered with the Sofia City Court under company file number 13424/1997 Bulstat number 121499387

PricewaterhouseCoopers Audit OOD 9-11 Maria Louisa Blvd 1000 Sofia Bulgaria Telephone +359 2 9355200 Facsimile +359 2 9355266

REPORT ON REVIEW OF INTERIM FINANCIAL INFORMATION TO THE SHAREHOLDERS OF BSR SOFIA AD Introduction We have reviewed the accompanying interim condensed financial information of BSR Sofia AD (“the Company”) as of June 30, 2010, comprising of the interim statement of financial position as of June 30, 2010 and the related interim statements of comprehensive income, changes in equity and cash flows for the six-month period then ended and explanatory notes. Management is responsible for the preparation and fair presentation of this interim condensed financial information in accordance with International Financial Reporting Standard IAS 34 “Interim Financial Reporting”. Our responsibility is to express a conclusion on this interim condensed financial information based on our review. Scope of Review We conducted our review in accordance with International Standard on Review Engagements 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity". A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim condensed financial information is not prepared, in all material respects, in accordance with International Accounting Standard 34 “Interim Financial Reporting”. ________________________ ______________________________ Rositsa Boteva Petko Dimitrov Registered auditor PricewaterhouseCoopers Audit OOD August 11, 2010 Sofia

BSR VARNA AD INTERIM CONDENSED FINANCIAL INFORMATION INDEPENDENT AUDITORS’S REVIEW REPORT JUNE 30, 2010

BSR VARNA AD TABLE OF CONTENTS JUNE 30, 2010

2

TABLE OF CONTENTS Page Interim condensed statement of financial position 3 Interim condensed statement of comprehensive income 4 Interim condensed statement of changes in equity 5 Interim condensed statement of cash flows 6 Notes to the interim condensed financial information 7-18

BSR VARNA AD INTERIM CONDENSED STATEMENT OF FINANCIAL POSITION JUNE 30, 2010

The notes set out on pages 7 – 18 are an integral part of this interim condensed financial information.

3

(all amounts in EUR thousands) Six months ended


Notes June 30, 2010

December 31, 2009

June 30, 2009

ASSETS Non-current assets Property plant and equipment 2 429 435 462Total non-current assets 429 435 462 Current assets Inventories 3 36,789 40,994 45,725Restricted cash in bank 12 688 1,456 400Trade and other receivables 4 98 68 88Cash and cash equivalents 5 116 11 185Total current assets 37,691 42,529 46,398 Total assets 38,120 42,964 46,860 EQUITY Share capital 6 2,526 2,526 26Capital reserves 6 3,167 3,167 5,667Accumulated losses (12,887) (7,344) (1,151)Total equity (7,194) (1,651) 4,542 LIABILITIES Non-current liabilities Borrowings from related and other parties

8 25,754 25,090 20,004

Borrowings from banks 8 - - 19,545Total non-current liabilities 25,754 25,090 39,549 Current liabilities Trade and other payables 7 25 31 58Borrowings from related parties 8 - - 203Borrowings from banks 8 19,535 19,494 2,508Total current liabilities 19,560 19,525 2,769 Total equity and liabilities

38,120 42,964 46,860

This interim condensed financial information on pages 3-18 were approved on August 10, 2010 and signed as follows: Guy Matarasso Chairman of Board of Directors

Yair Abrahami CEO


August 10, 2010 August 10, 2010 August 10, 2010 Initialled for identification purposes in reference to the review report: Rositsa Boteva Petko Dimitrov Registered auditor PricewaterhouseCoopers Audit OODAugust 11, 2010

BSR VARNA AD INTERIM CONDENSED STATEMENT OF COMPREHENSIVE LOSS JUNE 30, 2010

The notes set out on pages 7 – 18 are an integral part of this interim condensed financial information. 4


Six months


ended Note June

30, 2010December

31, 2009 June

30, 2009 Other operating income - 58 51Administrative expenses 9 (129) (385) (212)Sales and Marketing expenses 9 - (39) (25)Depreciation 2 (6) (21) (10)Impairment loss 3 (4,205) (4,773) -Operating loss (4,340) (5,160) (196) Finance income 10 24 28 21Finance costs 10 (1,227) (1,438) (202)Finance costs, net (1,203) (1,410) (181) Loss before income tax (5,543) (6,570) (377) Current and deferred taxes - - - Comprehensive loss for the period (5,543) (6,570) (377) Other comprehensive income(loss) for the year

- - -

Total comprehensive loss for the period (5,543) (6,570) (377)


Yair Abrahami CEO


August 10, 2010 August 10, 2010 August 10, 2010 Initialled for identification purposes in reference to the review report: Rositsa Boteva Petko Dimitrov Registered auditor August 11, 2010

PricewaterhouseCoopers Audit OOD

BSR VARNA AD INTERIM CONDENSED STATEMENT OF CHANGES IN EQUITY JUNE 30, 2010

The notes set out on pages 7 – 18 are an integral part of this interim condensed financial information.

5


Note Issued share

capital

Capital reserves

Accumulated deficit

Total

January 1, 2009 6 26 5,667 (774) 4,919 Comprehensive loss Loss for six months ended June 30, 2009 - - (377) (377)Total comprehensive loss - - (377) (377)June 30, 2009 26 5,667 (1,151) 4,542 January 1, 2009 6 26 5,667 (774) 4,919Comprehensive loss

Loss for the period - - (6,570) (6,570)Total comprehensive loss - - (6,570) (6,570)Transactions with owners

Issued share capital 2,500 - - 2,500Decrease capital reserves - (2,500) - (2,500)

Total transactions with owners 2,500 (2,500) - -

December 31, 2009 2,526 3,167 (7,344) (1,651)

January 1, 2010 6 2,526 3,167 (7,344) (1,651) Comprehensive loss Loss for six months ended June 30, 2010 - - (5,543) (5,543)Total comprehensive loss - - (5,543) (5,543)June 30, 2010 2,526 3,167 (12,887) (7,194)


Yair Abrahami CEO




BSR VARNA AD INTERIM CONDENSED CASH FLOW STATEMENT JUNE 30, 2010

6 The notes set out on pages 7 – 18 are an integral part of this interim condensed financial information.

(all amounts in EUR thousands) Six months ended


Note June30, 2010

December 31, 2009

June30, 2009

Operating activities Loss before taxes (5,543) (6,570) (377)Adjustments for: Interest expenses 1,199 1,372 172Interest income 10 (24) (28) (21)Impairment loss 3 4,205 4,773 -Loan amortization through the statement of comprehensive loss

46 74 28

Depreciation 2 6 21 10Operating cash flows before working capital changes

(111) (358) (188)

Change in trade and other receivables (30) 232 217Change in Inventories - (499) (470)Change in trade and other payables (6) (79) (52)Interest paid (789) (1,424) (622)Bank charges and loan commissions - (64) (50)Net cash flows from (used in) operating activities (936) (2,192) (1,165)Investing activities Acquisition of Property, plant and equipment - (42) (52)Interest received 24 28 21Net cash flows used in investing activities 24 (14) (31)Financing activities Proceeds from non-current borrowings 253 5,383 770Proceeds from current borrowings - 203 203Current borrowings repaid - (2,703) -Change in restricted cash in bank 768 (1,056) -Finance lease payables (4) (22) (4)Net cash flows from/(used in) financing activities 1,017 1,805 969 Net increase/(decrease) in cash and cash equivalents 105 (401) (227)Cash and cash equivalents at the beginning of the period

11 412 412

Cash and cash equivalents at the end of the period 5 116 11 185 This interim condensed financial information on pages 3-18 were approved on August 10, 2010 and signed as follows: Guy Matarasso Chairman of Board of Directors

Yair Abrahami CEO




BSR VARNA AD NOTES TO THE INTERIM CONDENSED FINANCIAL INFORMATION JUNE 30, 2010

7

1 Company background and significant accounting policies Company background

BSR Varna AD (“BSR Varna” or “the Company”) is registered in Bulgaria at the Register of

commercial entities under file deed number 5121/2007 of Sofia City Court with its registered address Sofia, region Triaditza, 53, Han Asparuh Str. Since May 2008 the company is registered in Registry Agency under Unique Identity Code 175264463 The shareholders structure of the Company is disclosed in note 6. The main activity of the Company is building and construction, real estate deals and entrepreneurial services. In 2007, the Company has purchased a plot of land in the city of Varna where a complex of buildings is planned to be built with commercial, office and residential area. As of June 1, 2009 due to the current real estate market situation, the management of the company has decided to temporary freeze the commencing of the project until further notice.

Accounting Policies

The principal accounting policies applied in the preparation of this interim condensed financial

information are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated. The accounting policies are consistent with those of the annual financial statements for the year ended 31 December 2009, except as described below. Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.

А Basis of preparation

This condensed interim financial information for the six months period ended June 30, 2010; have

been prepared in accordance with IAS 34, ‘Interim financial reporting’, as adopted by the European Union. The condensed interim financial information should be read in conjunction with the annual financial statements for the year ended December 31, 2009, which have been prepared in accordance with IFRSs, as adopted by the European Union.

(a) Standards, amendments and interpretations to existing standards effective in 2010 but not relevant to the Company

• IFRS 3 (revised), ‘Business combinations’, and consequential amendments to IAS 27,

‘Consolidated and separate financial statements’, IAS 28, ‘Investments in associates’, and IAS 31, ‘Interests in joint ventures’, are effective prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009.

• IFRIC 17, ‘Distributions of non-cash assets to owners’, effective for annual periods

beginning on or after 1 July 2009. This is not currently applicable to the Group, as it has not made any non-cash distributions

BSR VARNA AD NOTES TO THE INTERIM CONDENSED FINANCIAL INFORMATION (continued) JUNE 30, 2010

8

1 Company background and significant accounting policies (continued)

А Basis of preparation (continued) (a) Standards, amendments and interpretations to existing standards effective in 2010 but not

relevant to the Company (continued) • IFRIC 18, ‘Transfers of assets from customers’, effective for transfer of assets received on

or after 1 July 2009. This is not relevant to the Group, as it has not received any assets from customers.

• ‘Additional exemptions for first-time adopters’ (Amendment to IFRS 1) was issued in

July 2009. The amendments are required to be applied for annual periods beginning on or after 1 January 2010. This is not relevant to the Group, as it is an existing IFRS preparer.

• Improvements to International Financial Reporting Standards 2009 were issued in April

2009. The effective dates vary standard by standard but most are effective 1 January 2010.

(b) Standards, amendments and interpretations to existing standards that are not yet effective

and have not been early adopted by the Company • IFRS 9, ‘Financial Instruments’ issued in December 2009. This addresses the

classification and measurement of financial assets and is not likely to affect the Company’s accounting for its financial assets. The standard is not applicable until 1 January 2013 but is available for early adoption. The Company is yet to assess IFRS 9’s full impact. However, initial indications are that it will not affect the Company’s financial assets.

• Prepayments of a Minimum Funding Requirement – Amendment to IFRIC 14, issued in

November 2009. The amendments correct an unintended consequence of IFRIC 14, ‘IAS 19 – The limit on a defined benefit asset, minimum funding requirements and their interaction’. Without the amendments, entities are not permitted to recognise as an asset some voluntary prepayments for minimum funding contributions. This was not intended when IFRIC 14 was issued, and the amendments correct the problem. The amendments are effective for annual periods beginning 1 January 2011. Earlier application is permitted. The amendments should be applied retrospectively to the earliest comparative period presented.

• IAS 24, ‘Related party disclosures’, issued in November 2009. It supersedes IAS 24,

‘Related party disclosures’, issued in 2003. The revised IAS 24 is required to be applied from 1 January 2011. Earlier application, in whole or in part, is permitted.


9

1

Company background and significant accounting policies (continued)

А Basis of preparation (continued)

(b) Standards, amendments and interpretations to existing standards that are not yet effective and

have not been early adopted by the Company (continued) • ‘Classification of rights issues’ (Amendment to IAS 32), issued in October 2009. For rights

issues offered for a fixed amount of foreign currency, current practice appears to require such issues to be accounted for as derivative liabilities. The amendment states that if such rights are issued pro rata to all the entity's existing shareholders in the same class for a fixed amount of currency, they should be classified as equity regardless of the currency in which the exercise price is denominated. The amendment should be applied for annual periods beginning on or after 1 February 2010. Earlier application is permitted.

• IFRIC 19, ‘Extinguishing financial liabilities with equity instruments’. This clarifies the

requirements of IFRSs when an entity renegotiates the terms of a financial liability with its creditor and the creditor agrees to accept the entity’s shares or other equity instruments to settle the financial liability fully or partially. The interpretation is effective for annual periods beginning on or after 1 July 2010. Earlier application is permitted.

• Improvements to International Financial Reporting Standards 2010 were issued in May 2010.

The effective dates vary standard by standard but most are effective 1 January 2010.

Currently, the following IASB pronouncements have not yet been endorsed for use in Europe: • IFRS 9 Financial Instruments

• Improvements to IFRSs Seasonality of operations The Company’s business is not seasonal and it is not expected operating profits to fluctuate during

the year.


10

1 Company background and significant accounting policies (continued)

B Going concern

The Company’s interim condensed financial information has been prepared on a going concern basis, which assumes that the Company will continue in operational existence for the foreseeable future.

The Company incurred losses for the six months ended 30 June 2010 EUR 5,543 thousand and for the six months ended 30 June 2009 EUR 377 thousand. As at June 30, 2010 current liabilities exceed current assets net of inventories by EUR 18,658 thousand (as at June 30, 2009 current liabilities exceeded current assets net of inventories by EUR 2,096 thousand) and for the year ended 2009 current liabilities exceed current assets net of inventories by EUR 17,990 thousand).

The above conditions indicate the existence of material uncertainty which may cast a significant doubt about the Company’s ability to continue as a going concern.

At the same time, the Company has low operating costs and, as stated in Note 8, it has successfully renegotiated its bank borrowing in June 2009 and expects to continue this in the future. The management’s plans for tackling the issue involve the following steps: a) Renegotiating the current bank borrowings at the amount of EUR 19,535 thousand, and b) Seeking new ventures/partners in respect of the project's development. As of the date on which the financial information was signed, the management of the Company strongly believes that the execution of the above steps together with the fact that the current inventory value is at the amount of EUR 36,789 thousand justifies the ability of the Company to continue as a going concern basis.

Since the foundation of the Company, its owners have provided financial support, so that the Company is able to continue its operations. The Company’s ability to meet its obligations and to continue as a going concern is dependent on the funds provided by the owners. If the Company’s owners do not provide financial support to BSR Varna AD and the management fails to tackle the issue as described above and the going concern basis could not be applied, the Company’s assets and liabilities should be measured at their net realisable value. These values could be substantially different than the amounts presented in this financial information.


11

2 Property, plant and equipment (PPE)

Assets under constructions

Other tangible

assets

Intangible assets

Total

Year ended December 31, 2009 Carrying amount at beginning of the period 336 77 1 414Additions 65 2 - 67Disposals - (25) - (25)Depreciation charge - (21) - (21)Carrying amount at the end of the period 401 33 1 435 As at December 31, 2009 Cost 401 54 1 456Accumulated depreciation - (21) - (21) Carrying amount 401 33 1 435 Six months ended June 30, 2010 Carrying amount at beginning of the period 401 33 1 435Depreciation charge - (6) - (6)Carrying amount at the end of the period 401 27 1 429 As at June 30, 2010 Cost 401 54 1 456Accumulated depreciation - (27) - (27) Carrying amount 401 27 1 429


12


3 Inventories The project was frozen until further notice. The management of the company is seeking for new ventures \ partners in respect of the project's development. The Inventories, represent all cost allocated to the design, preparation and construction of installations, structures and buildings all together called “Varna One” project. At the reporting date value of inventories includes: cost of the land plot where project will be located; design and architecture expenses; engineering research; attributable project management costs and capitalized borrowing costs. The cost of inventories comprises all costs of purchase, conversion and other costs incurred in bringing the Inventories to their present condition. As of December 31, 2009 and six months ended June 30, 2010 there was evidence of the carrying value of inventories to be higher than their net realizable value. For 2009 and six months ended June 30, 2010 valuation reports made by independent valuator (Colliers International) indicated impairment respectively for the amount of EUR 4,773 thousand and EUR 4,205 thousand and recognized as an expenses in the Statement of comprehensive income for the periods. For 2009 total valuation of the plot according to the valuation report is for the amount of EUR 40,994 thousand and for six months ended June 30, 2010 total valuation of the plot according to the valuation report is for the amount of EUR 36,789 thousand. All the carrying amount of the inventories is pledged under a first rank mortgage to Raiffeisenbank Bulgaria as a security for a bank loan. (Please see note 12). As of December 31, 2009 and six months ended June 30, 2009 borrowing costs of EUR 841 thousand and EUR 841 thousand respectively, have been capitalized in the work in progress. Starting from June 1, 2009, the asset does not meet the criteria for borrowing cost capitalization in accordance with IAS 23; hence all borrowing costs are recognized through the statement of comprehensive income for the six months ended June 30, 2010.


13

(in all notes the amounts are presented in EUR thousands unless otherwise stated) 4 Trade and other receivables

Six months ended Year ended Six months ended

June 30, 2010 December 31, 2009

June 30, 2009

VAT recoverable 10 24 58Advances to suppliers 3 3 -Other trade receivables 85 41 30 98 68 88

The carrying value of trade and other receivables approximates their fair value. The classes within trade and other receivables do not contain impaired assets.

5 Cash and cash equivalents

Six months ended Year ended Six months ended

June 30, 2010 December 31, 2009

June 30, 2009

Deposits 102 - -Cash at bank 14 11 185

116 11 185 All the above mentioned deposits are denominated in Euros and have a maturity less than three months and 3,25% annual interests rate.

6 Share capital

On August 12, 2009 General meeting of shareholders accepted the Decision on increase of the capital of BSR Varna AD with the sum of 2,500,217 EUR (4,890,000 BGN), representing part of reserve fund of the company, through issuance of 4,890,000 new personal registered shares each with par value of 0,5113 EUR (1,00 BGN). As of six months ended June 30, 2010 and year ended December 31, 2009 the Company’s share capital is EUR 2,526 thousand. The share capital is divided into 4,940,000 ordinary shares, each share amounting to 0,5113 EUR (1,00 BGN). The share capital of the Company is 100% owned by: Gibor B.S.R. Europe B.V. – 2,099,500 shares – 1,073,457 EUR or 42.5% of share capital EdR Holding B.V. – 2,099,500 shares – 1,073,457 EUR or 42.5% of share capital City realty OOD – 741,000 shares – 378,867 EUR or 15% of share capital. The share capital is fully paid in cash. The share capital of the Company as of June 30, 2009 was as follows: Gibor B.S.R. Europe B.V. – 21,250 shares – 10,865 EUR or 42.5% of share capital EdR Holding B.V. – 21,250 shares – 10,865 EUR or 42.5% of share capital City realty OOD – 7,500 shares – 3,835 EUR or 15% of share capital. The share capital is fully paid in cash.


14

(in all notes the amounts are presented in EUR thousands unless otherwise stated) 7 Trade and other payables

Six months


ended

June 30,

2010December

31, 2009 June 30,

2009 Trade payables 25 15 29Municipality taxes - 16 29 25 31 58

8 Borrowings

Six months


ended

June 30,

2010December

31, 2009 June 30,

2009Non-current Bank borrowings - - 19,500Unamortised Arrangement fee - - (50)Interest due on borrowings from banks - - 73Borrowings from related parties 22,702 22,450 17,773Interest due on borrowings from related parties 3,042 2,628 2,231Finance lease liabilities 10 12 22 25,754 25,090 39,549 Current Borrowings from related parties - - 203Bank borrowings 19,500 19,500 2,500Unamortised Arrangement fee (34) (80) -Interest due on borrowings from banks 69 74 -Finance lease liabilities - - 8

19,535 19,494 2,711

On June 15, 2009 an annex to the existing credit agreement with Raiffeisenbank Bulgaria has been signed, where the terms and conditions for the extension of the existing bank loan are settled. The main conditions agreed are as follows:

• Loan amount – EUR 22,000 thousand; the amount of EUR 2,500 thousand was fully repaid in July 2009.

• Interest three-month EURIBOR + 6% p.a., but not less 8% p.a. • Extension period – 18 months – from May 15, 2009 until November 15, 2010. • Restricted cash was increased in an amount of EUR 1,500 thousands. • The share capital of BSR Varna AD was increased by EUR 2,500 thousand on August 12,

2009.


15


8 Borrowings (continued) The following table presents the effective interest rates of the borrowings: June 30, 2010 December 31, 2009 June 30, 2009

Bank borrowings 8% p.a. 8% p.a. 8% p.a.

Borrowings from related parties 3 month EURIBOR+3%p.a.

3 month EURIBOR+3% p.a. 3 month EURIBOR+3%

The net book value of the borrowings has been denominated in EUR. The principal and accumulated interest on the shareholders’ loans mature in 2012. All loans from related parties are denominated in EUR. The nominal interest rate on the loans is equal to the three - month EURIBOR plus 3%. The following table presents the shareholders’ borrowings and accruedinterest per creditor: Six months ended Year ended Six months ended June 30, 2010 December 31, 2009 June 30, 2009 Principal Interest Principal Interest Principal Interest Gibor – B.S.R Europe B.V. 10,783 1,448 10,663 1,251 8,442 1,062 EDR Holding B.V. 10,783 1,442 10,663 1,246 8,442 1,057 City Realty OOD 1,136 152 1,124 131 889 112 22,702 3,042 22,450 2,628 17,773 2,231 The carrying amount of the long-term loans approximates their fair value.


16

(in all notes the amounts are presented in EUR thousands unless otherwise stated) 9 Expenses by nature

Six months

ended Year ended Six months

ended

June 30,

2010 December

31, 2009June 30,

2009 Property tax 60 122 44Labour cost 3 44 42Business trips accommodation, vehicles, communications - 40 35Representative - 1 1Audit and legal services 19 54 22Office rent - 15 15Office stationery - 3 3Professional services 20 41 14Other administrative expenses 25 58 30Insurance 2 7 6Total administrative expenses 129 385 212 Outdoor and media advertisement - 3 3Marketing design services - 17 11Other marketing and sales expenses - 19 11Total marketing and sales expenses - 39 25

10 Finance cost, net

Six months ended


June 30, 2010

December 31, 2009

June 30, 2009

Interest expense on borrowings (1,199) (1,372) (172)Foreign exchange loss on transactions - (2) -Other financial cost (28) (64) (30)Interest income on short-term bank deposits 24 28 21 (1,203) (1,410) (181) Borrowing costs qualifying for capitalisation in the cost of Inventories are not included in the analysis above. In 2009, borrowing costs of EUR 841 thousand have been capitalized in the cost of Inventories (for the six months ended June 30, 2009 - EUR 841 thousand). No borrowing costs were capitalized for the six months period ended June 30, 2010 (note 3).


17

(in all notes the amounts are presented in EUR thousands unless otherwise stated) 11 Related party transactions

Identity of related parties

The Company has a related party relationship with the following companies: • Gibor BSR Europe B.V. – a shareholder (significant influence) • EDR Holding B.V. – a shareholder (significant influence) • City Realty Ltd. – a shareholder (significant influence)

Directors and executive officers

Management fee was paid in amount of EUR 56 thousand, according to a contract for the year 2009, for the six months ended June 30, 2009 EUR 51 thousand and for the six months ended June 30, 2010 none.

Shareholders Long-term payables to related parties

In thousands of Euro Six months ended


June 30, 2010 December 31, 2009

June 30, 2009

Gibor BSR Europe B.V. – loan and interest 12,231 11,914 9,504EDR Holding B.V. – loan and interest 12,225 11,909 9,499City Realty Ltd. – loan and interest 1,288 1,255 1,001 25,744 25,078 20,004

Transactions with related parties during the year Six months ended Year ended Six months

ended June 30, 2010 December 31,

2009June 30, 2009

Gibor BSR Europe BV – loans received 120 2,587 366Gibor BSR Europe BV – interest charge on loans 197 365 176Gibor BSR Europe BV – developer`s fee - 56 -Gibor BSR Europe B.V. – reimbursed expenses 8 EDR Holding BV – loans received 120 2,587 366EDR Holding BV – interest charge on loans 196 366 177 City Realty Ltd – loans received 12 273 38City Realty Ltd – loans repaid - 29 -City Realty Ltd – interest charge on loans 21 38 19City Realty Ltd – other services - 11 11 BSR Sofia AD – management services soldBSR Sofia AD – short-term loan receivedBSR Sofia AD – short-term loan repaid

---

52

203 203

44203

-


18

(in all notes the amounts are presented in EUR thousands unless otherwise stated) 12 Commitments Performance bond issued by order of Planex OOD (Bulgaria) in favor of BSR Varna AD amounting to EUR 66 thousand

Loan Agreements As a collateral in favor of Raiffeisenbank (Bulgaria) EAD, company case No. 14195/1994 at the Sofia City Court, to all obligations of the Company pursuant to a Loan Agreement dated November 22, 2007 among Raiffeisenbank (as a lender) and the Company (as a borrower), (the “Loan Agreement”), and in accordance with Annex 1 dated May 15, 2009 and Annex 2 dated June 15, 2009, is established: 1 First rank mortgage on the real estate properties owned by the Company; 2 A special pledge of the receivables on a special account open on the name of the Company with

Raiffeisenbank, with restricted cash availability (the Pledged funds) in a total amount of EUR 688 thousand, as a security to all obligations of the Company pursuant to the Loan Agreement

3 A pledge on the shares in the capital of the Company by its shareholders in favor of Raiffeisenbank, as security to all obligations of the Company pursuant to the Loan Agreement.

At June 30, 2010 the Company has the following contracted commitment to acquire property, plant and equipment: Outstanding capital commitment of EUR 258 thousand according to the contracts for construction of administration and marketing building. The building is located on the project`s site. It is agreed with the construction company that the finishing works of the building will be finalized at later notice from BSR Varna. 13 Contingent assets and liabilities Bulgarian tax legislation is subject to varying interpretations and constant changes. Furthermore, the interpretations of tax authorities as applied to the transactions and activity of the Company may not coincide with that of the management. As a result tax authorities may challenge the way of calculating tax losses carried forward as well as assess additional taxes, penalties and interest, which can be significant. Management is of the view that there will be no additional tax liabilities as at June 30, 2010 and this no further provision is considered necessary. The tax authorities may at any time inspect the books and records within 5 years subsequent to the reported tax year, and may impose additional tax assessments and penalties. The Company’s management is not aware of any circumstances which may give rise to a potential material liability in this respect. 14 Events after the balance sheet date There were no events after the balance sheet date requiring adjustment or additional disclosure in the interim condensed financial information of BSR Varna AD.

PricewaterhouseCoopers Audit OOD Email: [email protected]; Web Site: www.pwc.com/bg Registered with the Sofia City Court under company file number 13424/1997 Bulstat number 121499387

PricewaterhouseCoopers Audit OOD 9-11 Maria Louisa Blvd 1000 Sofia Bulgaria Telephone +359 2 9355200 Facsimile +359 2 9355266

REPORT ON REVIEW OF INTERIM FINANCIAL INFORMATION TO THE SHAREHOLDERS OF BSR VARNA AD Introduction We have reviewed the accompanying interim condensed financial information of BSR Varna AD (“the Company”) as of June 30, 2010, comprising of the interim statement of financial position as of June 30, 2010 and the related interim statements of comprehensive loss, changes in equity and cash flows for the six-month period then ended and explanatory notes. Management is responsible for the preparation and fair presentation of this interim condensed financial information in accordance with International Financial Reporting Standard IAS 34 “Interim Financial Reporting”. Our responsibility is to express a conclusion on this interim condensed financial information based on our review. Scope of Review We conducted our review in accordance with International Standard on Review Engagements 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity". A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed interim financial information is not prepared, in all material respects, in accordance with International Accounting Standard 34 “Interim Financial Reporting”. Emphasis of matter – going concern Without qualifying our conclusion, we draw attention to Note B Going concern to the condensed interim financial information which indicates that the Company incurred a net loss of Euro 5,543 thousand during the six months period ending June 30, 2010 (June 30, 2009: Euro 377 thousand) and, as of that date, the Company’s current liabilities exceeded its current assets net of inventories by Euro 18,658 thousand (as at December 31, 2009: by Euro 17,990 thousand). These conditions, along with other matters as set forth in note B indicate the existence of a material uncertainty that may cast significant doubt about the Company’s ability to continue as a going concern. ________________________ ______________________________ Rositsa Boteva Petko Dimitrov Registered auditor PricewaterhouseCoopers Audit OOD August 11, 2010 Sofia

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