SPFL Sofia Prop

TIDMSPFL

RNS Number : 5130J

Sofia Property Fund Limited

30 June 2011

AIM: SPFL

Sofia Property Fund Limited ('the Fund', 'the Company' or 'the Group')

Financial results for the year ended 31 December 2010

Overview

-- Valuation of the Sofia Property Fund portfolio at 31 December 2010 is Euro19.2 million

-- NAV per share of 23.3 pence (27.2 Euro cents) at 31 December 2010, compared to 26.7 pence ( 30.1 Euro cents).

-- The value of properties retained in the portfolio fell by approximately 10% compared to 2009. This effect, together with losses on sales

and administration expenses , offset by a release of liabilities no longer deemed payable, reduced net asset value by Euro1.9 million.

-- Recent data suggests an uplift in demand for Bulgarian property, the availability of mortgages and an increase in property prices.

-- Tentative signs that conditions may now be more propitious for the Group to recommence marketing and development of its major

projects, subject to finance.

-- In 2009, six contracts with BuySell rescinded after breach of contractual duty by BuySell - discussions continue with assorted groups

including BuySell to resolve repayment of the Group's Euro9.5 million deposit together with penalties of a further Euro9.5 million (these

contracts are valued at nil in the financial statements).

-- The Group has procured a loan of GBP500,000 as separately announced.

Chairman's Report

2010 saw the beginnings of a revival in the Bulgarian economy, following the sharp declines experienced in the preceding two years. The economy started to expand from the middle of the year, driven by export growth. But with the consumer sector still weak, there was no recovery in the domestic housing market, although the previous sharp falls did not repeat themselves. This is reflected in the value of the Fund's properties retained in the portfolio that fell by approximately 10% in 2010 compared to 2009.

Recent data in 2011 suggests an uplift in demand for Bulgarian property, the availability of mortgages and an increase in property prices. These tentative signs are such that conditions may now be more propitious for the Group to recommence marketing and development of its major projects, subject to finance. Although the Fund has taken measures to minimise costs and to protect working capital as far as possible, cash remains tight. The company is seeking to raise funds, so that shareholders can benefit from the recovery in the economy and residential property in Bulgaria. We are therefore pleased yesterday to have announced a new twelve month loan of GBP500,000, which should help shareholders benefit from the recovery in the economy and residential property in Bulgaria.

Charles Burton

30 June 2011

Property Report

During 2010 there was very little activity in the Bulgarian property market. However, towards the end of 2010 and moving into 2011 it became increasingly clear that the market was in the process of bottoming out. As you will see in the property report below, we think that the outlook for all sectors of the market over the next few years is positive. We are now planning how we can market or develop one or more of our properties during 2011. We are more optimistic about prospects for achieving this than has been the case for a couple of years.

THE BULGARIAN ECONOMY

With expansion of 0.6% in Q1 of this year, GDP growth in Bulgaria has slowed somewhat from the 0.9% quarterly average pace of 2010. The

deceleration in Q1 was largely due to very weak private and public consumption (mainly due to de-stocking). Exports however continued to perform strongly, rising 4.6% on the quarter.

Oxford Economics are forecasting GDP growth of 3.1% in 2011, before picking up to 4.8% in 2012 and 5.8% in 2013. These medium-term prospects are partly based on the large catch-up potential of the Bulgarian economy.

Exports grew strongly in 2010 by 16.3% and while the pace will moderate somewhat in 2011, due to slowing foreign demand, exports are still expected to grow by more than 10% in 2011 (contributing 1% point to GDP growth). At the same time, domestic demand, in particular consumption, is likely to remain weak due to pressure from high inflation (4.8% in May 2011).

Bulgaria joined the newly created Euro-plus-pact at the beginning of 2010. The pact aims to foster competitiveness, employment, and fiscal

sustainability amongst Eurozone and potential accession countries. Bulgaria's corporate tax rate of 10% remains unchanged and is still the lowest in the EU.

BULGARIAN PROPERTY MARKET UPDATE (sources King Sturge and Colliers International)

Overview:

The first positive signs since the beginning of the global property crisis were seen in the Bulgarian residential real estate market as the number of deals increased by 10-20% in 2010.

Demand for seaside properties was the first to pick up with the number of transactions increasing by around 20%. The largest source of enquiries for holiday homes (both seaside and in the mountains) came from Russians. Despite higher number of transactions, prices continued to fall throughout the year. Prices in Sofia and in the bigger cities like Plovdiv fell to a lesser extent, estimated to be down about 5%.

According to Colliers International, there is a clear expectation that the residential market has reached the bottom in terms of sales prices. Some developers might even consider adjusting prices in 2011, reflecting the steady demand and what is seen as a potential lack of supply as the pipeline empties.

We expect that demand in mid-plus and high-end residential real estate should continue to grow as the Bulgarian economy gradually improves. Demand for residential real estate is growing in maturity with increasing segmentation of the market. Buyers of mid-plus and high-end properties have high expectations and requirements and prefer new projects offering an attractive standard of living, such as gated communities. However, as supply is taken up at the high end and medium end, we believe that there is a genuine risk of the market becoming qualitatively undersupplied.

According to Colliers International's latest market reports, the expected improvement of Bulgaria's macro- and microeconomic indicators in 2011 should lead to an increase in real estate transactions across all market segments. On the commercial side four new shopping malls opened during the second half of 2010 with two new projects in the pipeline for 2011. The high street is also expected to make a come-back. Discount retailers are expected to be the most active within the Big Box format, which will be defining the retail market. Interestingly, large international players are sticking to their expansion plans, while the local and smaller operators are more cautious, preferring to focus on managing costs.

On the office side, supply of new office space in Sofia reached a new peak in early 2011. Demand came mainly from the outsourcing sector and pharmaceutical companies. The improving economy, favourable lease rates and the general positive outlook for businesses are likely to lead to further expansions of office premises . As a significant number of lease contracts expire in 2011, the number of transactions should increase as should lease rates.

The supply of speculative industrial and logistics real estate in Sofia grew moderately in the second half of 2010. Outsourcing of logistics services continues to define the development in demand for the market.

PROPERTY PORTFOLIO

BuySell

The Company rescinded six contracts with BuySell, a Bulgarian property development company, on 17 April 2009 due to BuySell's non performance of their contractual duty to deliver completed properties in Sofia to the Company by the due date. As a result of BuySell's nonperformance the Company is entitled to claim the repayment of its Eur9.5 million deposit plus penalties of an additional Eur9.5 million.

As highlighted in our previous report at the end of June 2010, The Company is still in talks with various parties, including BuySell with a view to resolving its outstanding claims. Although progress has been slow because of the complexities of some of the issues, the Company continues to believe that there is a realistic possibility that the talks will be concluded successfully and hopes to be able to make an announcement detailing progress later in 2011. This would clearly be a positive development for the Company and its shareholders. However at this stage the Group still values the BuySell inventory as nil.

Westhill

One of the Company's Bulgarian subsidiaries is in dispute with Westhill BG 8 AD, a Bulgarian property development company. The latter submitted an insolvency claim against the Company's subsidiary which, in the Company's opinion based on legal advice, is groundless. The case is expected to come to Court in the fourth quarter of 2011. The Company is confident that this matter will eventually be concluded successfully. Further announcements will be made as appropriate.

GROUP PROPERTIES

Land Build Cost Eur Valuation Eur

Area M(2) Area M(2) 31/12/2010 31/12/2010

(Note 1)

1 Goverdartsi (Crystal Vale/ Crystal Glade) 36,562 41,332 5,820,084 4,820,000

2 Beli Iskar (Crystal Heights) 19,432 22,464 1,322,309 1,000,000

3 Razlog/Bansko 18,353 24,301 6,984,372 5,350,000

4 Dolna Banya 48,548 48,713 1,661,695 1,240,000

5 Plovdiv 12,141 12,712 3,040,195 2,450,000

6 Banya 117,774 141,329 3,608,063 3,950,000

7 Sofia Project 55 1,298 567 842,888 425,000

Sub Total 254,108 291,418 23,279,606 19,235,000

8 Buy Sell Rescinded Contracts (Note 2) 48,218 89,967 9,529,477 -

302,326 381,385 32,809,083 19,235,000

Note 1: Some build areas are estimated subject to planning approval.

Note 2: The Group has terminated these contracts with BuySell and accordingly they have been valued at EurNil on the balance sheet.

1 GOVEDARTSI

CRYSTAL VALE

Crystal Vale has full residential planning approval and is situated inside the Super Borovets project boundary. Super Borovets is a joint venture between the Omani State General Reserve Fund, Equest and the Municipality of Samokov for the development of an enhanced ski resort in the area surrounding Borovets; the project plans call for the investment of up to Eur500 million in the construction of new hotels, apartments, ski lifts and supporting infrastructure. The Crystal Vale site has a footprint of 16,776 sq m and a build area of 17,589 sq m.

The project has been designed as an exclusive retreat destination and is aimed at the international and domestic leisure market. The 'Clubhouse' building, which will contain 22 apartments and all central facilities for the project (including swimming pool, spa and restaurant), has been partly completed - to the extent that the roof is in place. Construction was halted in September 2009 awaiting a recovery in market conditions.

CRYSTAL GLADE

The Crystal Glade project is located approximately one kilometre away from Crystal Vale and has a site footprint and build area of 19,786 sq m. The site has residential planning permission and is intended to be a complementary leisure development to Crystal Vale. It will remain in the land bank until Crystal Vale has been substantially completed.

2 BELI ISKAR

CRYSTAL HEIGHTS

The Fund has purchased 19,432 sq m, currently designated as agricultural land, inside the Super Borovets project area beside the village of Beli Iskar. Residential planning permission for the land will be sought in due course.

3 RAZLOG

PANORAMA VILLAS

This project is located close to the ski resort of Bansko and Phase 1 has reached the stage of rough construction; further work has been suspended pending improved market conditions. Until Phase 1 has been completed the remaining 3 phases will remain in the land bank.

NIRVANA

This undeveloped plot close to the centre of Bansko has residential planning permission and will remain in the land bank.

4 DOLNA BANYA

The Fund owns four plots in and around the town of Dolna Banya; the plots have a total surface area of 48,548 sq m and a build area of 57,621 sq m. One of the plots has a construction permit for residential buildings and a restaurant, while the other three are zoned for residential development. Dolna Banya is famed for its geothermal hot springs and is 16 km from the Borovets ski resort. The four plots will continue to be held in the land bank.

5 PLOVDIV

The Fund owns 12,151 sq m of land in Plovdiv, split between two separate locations. Both projects have residential planning permission. The first plot ('Plovdiv Reach') is situated two kilometres from the city centre, beside the national rowing centre. The second site ('Roman View') is a disused tobacco factory located in the heart of the city centre. Both plots will be held in the land bank until economic recovery warrants their development or sale.

6 BANYA

The Fund owns 117,774 sq m of land close to the village of Banya which is five kilometres from Bulgaria's main ski resort (Bansko). The site was bought from numerous landowners as agricultural and has since been consolidated into three plots of similar size. Change of use from agricultural to residential has already been obtained on one of the plots whilst the other two have been removed from agricultural. The site will remain in the land bank while neighbouring leisure developments, not owned by the Fund, are completed. The reason this is important is that as neighbouring developments reach completion their ultimate sale of apartments will crystallise value for our plots whilst the importation of utilities close to the site will also improve its attractiveness to potential purchasers.

INVESTING POLICY

-- The Fund is restricted to investments in Bulgaria and these investments must be largely (but not exclusively) residential in nature.

-- The Fund may invest in early stage residential developments mainly, but not exclusively, in and around Sofia and its adjacent ski resorts.

-- The Fund may buy land and seek to develop its land through partnerships with Developers.

-- The Fund may borrow in order to develop its assets.

-- The Fund does not intend to pay a dividend (although the Fund is not restricted from doing so).

Mark Anderson and Loraine Pinel

June 2011

Board of Directors

Statement of Directors' responsibilities in respect of the financial statements

Guernsey company law requires the Directors to prepare financial statements for each financial period which give a true and fair view of the state of affairs of the Group and of the profit or loss of the Group for that year. In preparing those financial statements, the Directors are required to:

-- select suitable accounting policies and then apply them consistently; -- make judgements and estimates that are reasonable and prudent;

-- state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the

financial statements; and

-- prepare the financial statements on the going concern basis unless it is inappropriate to presume that company will continue in business.

The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Group and to enable them to ensure that the financial statements have been properly prepared in accordance with the Companies (Guernsey) Law, 2008. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors confirm that they have complied with the requirements in preparation of the financial statements.

So far as the Directors are aware, there is no relevant audit information of which the company's auditor is unaware, having taken all the steps the Directors ought to have taken to make themselves aware of any relevant audit information and to establish that the company's auditor is aware of that information.

Independent auditors' report

to the members of Sofia Property Fund Limited

We have audited the consolidated financial statements of Sofia Property Fund Limited for the year ended 31 December 2010 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows and the related notes 1 to 28. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRS) as adopted by the European Union.

This report is made solely to the company's members, as a body, in accordance with Section 262 of the Companies (Guernsey) Law, 2008. Our audit work is undertaken so that we might state to the group's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the group and the group's members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of the Directors and auditors

As explained more fully in the Directors' Responsibilities Statement within the Directors' Report, the directors are responsible for the preparation of the consolidated financial statements and for being satisfied that they give a true and fair view.

Our responsibility is to audit and express an opinion on the consolidated financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non financial information in the Annual Report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent misstatements or inconsistencies we consider the implications for our report.

Opinion on the financial statements

In our opinion the financial statements:

-- give a true and fair view of the state of the group's affairs as at 31 December 2010 and of group's loss for the year then ended;

-- have been properly prepared in accordance with IFRS as adopted by the European Union; and

-- have been properly prepared in accordance with the requirements of the Companies (Guernsey) Law, 2008.

Emphasis of matter Going concern

In forming our opinion on the consolidated financial statements, which is not modified, we have considered the adequacy of the disclosure made in note 2.2(c) to the consolidated financial statements concerning the group's ability to continue as a going concern. As disclosed in note 2.2(c) to the financial statements, the group will require additional funding. These conditions, along with the other matters explained in note 2.2(c) to the consolidated financial statements, indicate the existence of a material uncertainty which may cast significant doubt about the group's ability to continue as a going concern. The consolidated financial statements do not include the adjustments that would result if the group was unable to continue as a going concern.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies (Guernsey) Law, 2008 requires us to report to you if, in our opinion:

-- proper accounting records have not been kept by the company; or

-- the financial statements are not in agreement with the accounting records; or

-- we have failed to obtain all the information and explanations, which, to the best of our knowledge and belief, are necessary for the

purposes of our audit.

BDO Limited

CHARTERED ACCOUNTANTS Place du Pre

Rue du Pre St Peter Port Guernsey

30 June 2011

Consolidated statement of comprehensive income for the year ended 31 December 2010

2010 2009

Notes Revenue Capital Total Total

Eur Eur Eur Eur

Revenue

Property sales 436,379 - 436,379 326,618

Cost of sales 13 (1,028,489) - (1,028,489) (597,394)

Impairment of inventories 13 - (1,046,265) (1,046,265) 693,289

Gross (loss) / profit (592,110) (1,046,265) (1,638,375) 422,513

Expenses

Administration fees 3 134,636 - 134,636 168,953

Management fees - - - 586,127

Performance fees - - - (2,841,623)

Directors' fees and expenses 4 47,025 - 47,025 61,117

Foreign exchange gain (6,735) - (6,735) (4,240)

Salaries and other disbursements 5 354,192 - 354,192 88,985

Legal and professional fees 467,572 - 467,572 669,160

Loss on disposal of subsidiaries 6 116,851 - 116,851 -

Other expenses 7 306,805 - 306,805 801,310

Revaluation of investment properties 12 - (1,764,259) (1,764,259) 24,922,721

1,420,346 (1,764,259) (343,913) 24,452,510

Operating loss (2,012,456) 717,994 (1,294,462) (24,029,997)

Finance income 8 883 - 883 2,823

Finance expense 9 (636,313) - (636,313) (2,237,929)

Loss before taxation (2,647,886) 717,994 (1,929,892) (26,265,103)

Taxation 10 - - - 1,413,792

Loss for the year (2,647,886) 717,994 (1,929,892) (24,851,311)

Other comprehensive income

for the year - - - -

Total comprehensive loss

for the year (2,647,886) 717,994 (1,929,892) (24,851,311)

Earnings per share - basic and

diluted (cents per share) 11 (2.88) (50.60)

The total column of this statement represents the Group's Consolidated Statement of Comprehensive Income prepared in accordance with IFRS. The revenue and capital columns are supplied as supplementary information permitted under IFRS.

All items in the above statement derived from continuing operations. All income is attributable to the equity holders of the parent company, there are no minority interests.

Consolidated statement of financial position as at 31 December 2010

Notes 2010 2009

Eur Eur Eur Eur

Non-current assets

Investment properties 12 13,640,000 19,545,693

Investment properties - held for sale - 488,279

Current assets

Inventory 13 5,595,000 7,440,000

Property options - 5

Trade and other receivables 15 52,757 196,308

Cash and cash equivalents 16 244,838 1,053,703

5,892,595 8,690,016

Total assets 19,532,595 28,723,988

Current liabilities

Trade and other payables 17 (1,265,117) (1,387,412)

Short term loan payable 18 - (4,063,687)

(1,265,117) (5,451,099)

Non-current liabilities

Trade and other payables 17 - (3,075,519)

-

Total liabilities (1,265,117) (8,526,618)

Net assets 18,267,478 20,197,370

Equity

Share capital 19 - -

Special reserve 20 57,913,640 57,913,640

Capital reserve 21 (23,192,717) (23,910,711)

Revenue reserve 21 (16,453,445) (13,805,559)

Total Equity 18,267,478 20,197,370

NAV per share (Euro per share) 22 0.272 0.301

NAV per share at launch (Euro

per share) 1.1781 1.1781

The consolidated financial statements were approved by the Board of Directors and authorised for issue on 30 June 2011 and were signed on its

behalf by C. Burton and G. Williams

C Burton G Williams

Director Director

Consolidated statement of changes in equity

for the year ended 31 December 2010

Share Special Capital Revenue Total

Capital Reserve Reserve Reserve Equity

Eur Eur Eur Eur Eur

As at 31 December 2008 - 56,956,985 (2,522,902) (10,342,057) 44,092,026

Total comprehensive loss

for the year - - (21,387,809) (3,463,502) (24,851,311)

Issue of shares - 1,051,886 - - 1,051,886

Commission payable on issue of

shares - (95,231) - - (95,231)

As at 31 December 2009 - 57,913,640 (23,910,711) (13,805,559) 20,197,370

Total comprehensive loss

for the year - - 717,994 (2,647,886) (1,929,892)

As at 31 December 2010 - 57,913,640 (23,192,717) (16,453,445) 18,267,478

Consolidated statement of cash flows

for the year ended 31 December 2010

2010 2009

Eur Eur

Loss for the year (1,929,892) (24,851,311)

Adjustment for:

Interest income (883) (2,823)

Interest expense 636,313 2,237,929

Revaluation of investment properties (1,764,259) 24,922,721

Impairment of inventory 1,046,265 (693,289)

Taxation - (1,413,792)

Operating cash flows before movements

in working capital (2,012,456) 199,435

Decrease in trade and other receivables 35,563 352,519

Decrease in trade and other payables (81,590) (2,996,331)

Decrease in inventory 798,735 54,289

Cash used in operations (1,259,748) (2,390,088)

Interest received 883 2,823

Taxation - (672)

Net cash outflow from operating activities (1,258,865) (2,387,937)

Investing activities

Additions to investment properties - (108,693)

Proceeds from disposal of investment properties 450,000

Net cash inflow / (outflow) from investing activities 450,000 (108,693)

Financing activities

Proceeds from issue of shares - 1,051,886

Share issue costs - (95,231)

Proceeds from loan - 1,825,758

Net cash inflow from financing activities - 2,782,413

Net (decrease) / increase in cash and cash equivalents (808,865) 285,783

Cash and cash equivalents at start of year 1,053,703 767,920

Cash and cash equivalents at end of year 244,838 1,053,703

The accompanying notes 1 to 28 form an integral part of these financial statements

Notes to the consolidated financial statements

for the year ended 31 December 2010

1 CORPORATE INFORMATION

Sofia Property Fund Limited (the "Company"), and its subsidiaries (together the "Group") is an investment fund with an investment

portfolio in Bulgaria. The aim of the Fund is to generate capital gains through investing in residential property primarily in Sofia and the adjacent ski resorts. The investment strategy of the Company is to work with developers at the earliest possible stage.

The company is a closed-ended limited company incorporated in Guernsey.

The Group's shares are listed at the Alternative Investment Market of the London Stock Exchange.

These financial statements were approved and authorised by the Board for issue on 30 June 2011 and signed by C Burton and G Williams on behalf of the Board.

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

(2.1) Basis of preparation

The financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") which comprise standards and interpretations issued by the International Accounting Standards Board ("IASB"), and International Accounting Standards and Standing Interpretations approved by the International Accounting Standards Committee that remain in effect, and to the extent they have been adopted by the European Union.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires the Board of Directors to exercise its judgement in the process of applying the Group's accounting policies.

The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these 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 only affects that period, or in the period of the revision and future periods if the revision affects both current and future periods. The areas involving a high degree of judgement or complexity, or areas where the assumptions and estimates are significant to the financial statements are disclosed in note (2.2).

Adoption of new and revised Standards

The accounting policies adopted are consistent with those of the previous financial year, except for the following new and amended IFRS

and IFRIC interpretations adopted in the year commencing 1 January 2010

a) Revised and amended Standards and interpretations

-- IFRS 3 Business Combinations (Revised) and IAS 27 Consolidated and Separate Financial Statements (Amended) effective 1 July 2009 including consequential amendments to IFRS 7, IAS 21, IAS 28, IAS 31 and IAS 39.

-- IFRIC 17 Distributions of Non-cash Assets to Owners

-- IFRIC 18 Transfers of Assets from Customers

Improvements to IFRS

In May 2008 and April 2009, the IASB issued omnibus of amendments to its standards, primarily with a view to removing inconsistencies and clarifying wording. There are separate transitional provisions for each standard. The adoption of the following amendments resulted in changes to accounting policies, but did not have any impact on the financial position or performance of the Fund.

-- IFRS 8 Operating Segments: clarifies that segment assets and liabilities need only be reported when those assets and liabilities are included in measures that are used by the chief operating decision maker. The adoption of the amendment had no impact on the Fund's segment disclosure since the Fund is organised into only one operating segment.

Other amendments resulting from Improvements to IFRS to the following standards did not have any impact on the accounting policies, financial position or performance of the Fund:

Issued in May 2008

-- IFRS 5 Non-current Assets Held for Sale and Discontinued Operations

Issued in April 2009

-- IFRS 5 Non-current Assets Held for Sale and Discontinued Operations

-- IAS 1 Presentation of Financial Statements

-- IAS 7 Statement of Cash Flows

-- IAS 36 Impairment of Assets

-- IAS 39 Financial Instruments: Recognition and Measurement

The principal accounting policies adopted are set out in note (2.3) below:

b) New standards, amendments and interpretations issued but not effective for the financial year beginning 1 January 2010 and not early adopted

IFRS 9, 'Financial instruments', issued in November 2009. This standard is the first step in the process to replace IAS 39, 'Financial instruments: recognition and measurement'. IFRS 9 introduces new requirements for classifying and measuring financial assets and is likely to affect the group's accounting for its financial assets. The standard is not applicable until 1 January 2013.

IFRS 10, 'Consolidated Financial Statement - includes the concept of de facto control and replaces the consolidation guidance in IAS 27. The standard is not applicable until 1 January 2013 and has not yet been endorsed by the EU.

IFRS 11, 'Joint Arrangements' - includes the concept of joint operation (resulting in consolidation of entity's share of assets and liabilities) and joint ventures (resulting in equity method of accounting); the new standard replaces IAS 31. The standard is not applicable until 1 January 2013 and has not yet been endorsed by the EU.

IFRS 12, 'Disclosure of Interest in Other Entities' - requires enhanced disclosure for related parties (consolidated and unconsolidated entities). The standard is not applicable until 1 January 2013 and has not yet been endorsed by the EU.

'Classification of rights issues'(amendment to IAS 32), issued in October 2009. The amendment applies to annual periods beginning on or after 1 February 2010. Earlier application is permitted. The amendment addresses the accounting for rights issues that are denominated in a currency other than the functional currency of the issuer. Provided certain conditions are met, such rights issues are now classified as equity regardless of the currency in which the exercise price is denominated.

Revised IAS 24 (revised), 'Related party disclosures', issued in November 2009. It supersedes IAS 24, 'Related party disclosures', issued in 2003. IAS 24 (revised) is mandatory for periods beginning on or after 1 January 2011. Earlier application, in whole or in part, is permitted. The standard has not yet been endorsed by the EU.

IAS 28, 'Investments in Associates and Joint Ventures' - incorporates changed required due to IFRS 10,11 & 12 - for accounting period commencing on or after 1 January 2013.

IAS 34, 'Interim Financial Reporting' - Amendments resulting from May 2010 annual improvements to IFRSs - for accounting period commencing on or after 1 January 2011.

Issued in April 2009

-- IFRS 1 First-time Adoption of International Financial Reporting Standards

-- IFRS 3 Business Combinations

-- IFRS 7 Financial Instruments: Disclosures

-- IAS 1 Presentation of Financial Statements

-- IAS 27 Consolidated and Separate Financial Statements

-- IAS 34 Interim Financial Reporting

The Directors anticipate that with exception of, IFRS 3, IFRS 10, IAS 27 and IFRS 9 the adoption of these standards and interpretations in future periods will not have material impact on the financial statements of the Group. There are other Standards in issue but these are not relevant to the Group.

(2.2) Significant accounting estimates and judgements

The Group makes estimates and assumptions concerning the future. The resulting accounting estimate will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

In applying the Group's accounting policies, the Directors make judgements in the following areas:

(a) Investment property and inventory

Investment properties are carried at fair value which is calculated using the residual method undertaken by a professional valuer.

Inventory is carried at lower of cost and net realisable value. Net realisable value is determined using a valuation under the residual method, also undertaken by a professional valuer.

The theoretical basis of the residual method is based on the expected sales proceeds used to arrive at the total capital value for the specific project. From this figure the budgeted total development costs are deducted, the resultant figure represents the residual value/profit. Valuations using this method requires numerous estimates and assumptions to be used such as estimated build area, current design and plans, future sales revenue, costs to complete and an applicable discount rate.

Some of the properties have been valued using the assumption that relevant re-zoning and planning consent will be achieved. The Directors have assessed this assumption and based on advice received from their advisors, have concluded that this assumption is appropriate as any future sales negotiations would be undertaken using the same assumptions.

In addition given the current market situation, resulting in a limited number of transaction and the general uncertainty in the market, valuers have relied on their professional judgement to a greater extent than normal in deriving their opinion of value. Accordingly, fair value is not intended to represent the liquidation value of the property which would be dependent upon the price negotiated at the time of sale.

The fair value of investment property at 31 December 2010 was Eur13,640,000 (2009: Eur20,033,972). The inventory was valued at

Eur5,595,000 as at 31 December 2010 (2009: Eur7,440,000). Refer to notes 12 and 13 for further details

(b) Taxation

The Group is subject to income, capital gains and withholding taxes in Bulgaria. Significant judgement is required in determining the provision for income and deferred taxes (see note 27b). There are many transactions and calculations for which the ultimate tax determination and timing of payment are uncertain during ordinary course of business. The Group recognises liabilities for anticipated tax issues based on estimates of whether additional tax will be due. Where the final tax outcome of these matters is different from the amount that were initially recorded such differences will impact the income and deferred tax provisions in the period on which there determination is made. The deferred tax liability as at 31 December 2010 was Eur nil (2009: Eur nil). Refer to note 10 for further details.

(c) Going concern

The Directors have reviewed the current budgets and cash flow projections for the period to 30 June 2012. These forecasts highlight the need for additional funding for working capital. Various sources of financing have been considered by the Directors including the possibility of loan financing together with new equity.

As disclosed in note 28, the directors have signed a loan agreement with Pluto Partnership (PP) for a loan of GBP500,000. In addition, the Directors have agreed to retrospectively reduce their fees by 50% from 1 July 2010 and have negotiated a 50% reduction in management salaries effective 1 February 2011. Currently property development and progress on the projects is on hold until sufficent funding is available.

Although above arrangements will provide short term working capital, there is a need for further financing within the next 6 months. The Directors are considering various options that could potentially include raising of additional equity and loan financing or disposal of an asset.

Accordingly the Directors have prepared the financial statements on the going concern basis. (2.3) Accounting policies

The principal accounting policies are set out below.

(a) Consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 December each year. Control is achieved where the Company has the power to govern the financial and operating activities of an investee entity so as to obtain benefits from its activities. The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the effective date of acquisition or disposal.

Where necessary, adjustments are made to the financial statements of the subsidiaries to bring the accounting policies used into line with the those used by the parent company.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

(b) Presentation of income statement

In order to better reflect the activities of an investment trust company and in accordance with guidance issued by the Association of Investment Trust Companies, supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and capital nature has been presented alongside the income statement.

(c) Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the group and the amount of revenue can be reliably measured.

Interest income is recognised on a time apportioned basis using the effective interest method.

(d) Expenses

Expenses are measured at the fair value of the consideration paid or payable and are recognised in the Income Statement on an accruals basis.

(e) Operating profit or loss

Operating profit or loss includes gross profit, net gains or losses on revaluation of investment properties less administrative expenses including impairment losses.

(f) Options over property

Options over property are treated as current assets and included in the balance sheet at cost. Cost is deemed to be the fair value of consideration given. No depreciation is provided on these assets, however the Directors review each option for impairment annually. These property options have now expired and are valued at Eur nil.

(g) Investment property

Investment property, which is property held to earn rentals and/or for capital appreciation, is initially recognised at cost being the fair value of consideration given including related transaction costs. After initial recognition at cost, investment properties are carried at their fair values based on professional valuations made by King Sturge Kft. The valuations are in accordance with standards complying with the Royal Institution of Chartered Surveyors Approval and Valuation manual and the International Valuation Standards Committee.

Gains or losses arising from changes in fair value of investment property are included in the consolidated statement of comprehensive income for the period in which they arise. Properties are treated as acquired when the Group assumes the significant risk and returns of ownership and as disposed of when these are transferred to the buyer.

All costs directly associated with the purchase and construction of a property, and all subsequent capital expenditures are capitalised.

Transfers are made to investment property when there is a change in use, evidenced by the end of owner occupation, commencement of an operating lease to another party or completion of construction or development. Transfers are made from investment property when, and only when, there is a change in use, evidenced by commencement of owner occupation or commencement of development with a view to sale.

(h) Inventory

Inventory which comprises buildings under construction includes capitalised interest where applicable and is carried at cost or, if lower, net realisable value. Cost includes all directly attributable third party expenditure incurred.

(i) Segmental reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker is the person or group that allocates resources to and assesses the performance of the operating segments of an entity. The Group has determined that its chief operating decision maker is the Board of Directors of the Group. The Directors are of the opinion that the Group is engaged in a single segment of business, being property investment business, and in one geographical area, Bulgaria. Accordingly, all significant operating decisions are based upon analysis of the Group as one segment. The financial results from this segment are equivalent to the financial statements of the Group as a whole.

All of the Group's revenue is from sale of properties that are included in the consolidated statement of comprehensive income. All of the Group's non current assets are located in Bulgaria. The Group has no major customer.

(j) Taxation

The Company is exempt from Guernsey taxation. As such, the Company is only liable to pay a fixed annual fee, currently GBP600.

The Bulgarian subsidiaries will be liable for Bulgarian Corporation Tax at 10% of the income. The subsidiaries are not liable for any further local taxes, however withholding taxes may be payable on repatriation of assets and income to the Company, as currently there is no double tax treaty between Guernsey and Bulgaria.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each balance sheet date 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.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

(k) Foreign currency

(a) Functional and reporting currency

The functional currency of the Company is Euros as substantially all expenses relating to the investments are made in Euros.

The reporting currency of the Company for accounting purposes is also the Euro. The information following the financial statements is converted into Sterling, for information purposes only and does not form part of these audited financial statements. Income statement accounts are being converted using the average exchange rate for the year while balance sheet accounts are converted using the balance sheet date rate for supplementary information. Exchange gains/losses on translation are taken to statement of changes in equity.

(b) Transactions and balances

Foreign currency balances are translated into Euro at the rate of exchange ruling on the last day of the company's financial period. Foreign currency transactions are translated at the rate of exchange ruling on the date of transaction. Gains and losses arising on currency translation are included in the consolidated statement of comprehensive income.

(c) Group companies

The results and financial position of all the group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

(i) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;

(ii) income and expenses for each income statement are translated at average exchange rates (unless the average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and

(iii) all resulting exchange differences are recognised as a separate component of equity.

(l) Financial instruments

Financial assets and financial liabilities are recognised on the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument. The Group shall offset financial assets and liabilities if the Group has a legally enforceable right to set off the recognised amounts and interests and intends to settle on a net basis.

(a) Financial assets

The Group's financial assets fall into the category of only loans and receivables. The Group has not classified any of its financial assets as held at fair value through profit or loss, held to maturity or as available for sale. Unless otherwise indicated, the carrying amount of the Group's financial assets are a reasonable approximation of their fair value.

(a)(i) Loans and receivables

These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through trade receivables and cash and cash equivalents, but also incorporate other types of contractual monetary assets. They are initially recognised at fair value plus transaction costs that are directly attributable to the acquisition or issue and subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.

The effect of discounting on these financial instruments is not considered to be material.

Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Group will be unable to collect all of the amounts due under the terms

receivable, the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable.

Cash and cash equivalents are defined as cash on hand, short term deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

(a) (ii) De-recognition of financial assets

A financial asset (in whole or in part) is derecognised either:

- when the group has transferred substantially all the risks and rewards of ownership; or

- when it has transferred nor retained substantially all the risks and rewards and when it no longer has control over the asset or a portion of the asset; or

- when the contractual right to receive cash flow has expired.

(b) Financial liabilities

The Group classifies its financial liabilities as other financial liabilities at amortised cost. Unless otherwise indicated, the carrying amounts of the Group's financial liabilities are a reasonable approximation of their fair values.

(b)(i) Financial liabilities measured at amortised cost

Other financial liabilities include trade payables and other short-term monetary liabilities, which are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method.

(b) (ii) De-recognition of financial liabilities

A financial liability (in whole or in part) is derecognised when the Group has extinguished its contractual obligations, it expires or is cancelled. Any gain or loss on de-recognition is taken to the income statement.

(c) Share Capital

Financial instruments issued by the Group are treated as equity only to the extent that they do not meet the definition of a financial liability. The Company's ordinary shares are classified as equity instruments. For the purposes of the disclosures given in Note 23 the Group considers all its share capital, share premium and all other reserves as equity. The Company is not subject to any externally imposed capital requirements.

(d) Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial asset or liability and of allocating interest income or expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts or payments (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset or liability, or, where appropriate, a shorter period.

3 ADMINISTRATION FEES

Under the Administration Agreement the Administrator is entitled to receive an annual administration fee at a rate as may be agreed in writing from time to time between the Company and the Administrator. The present fee is 0.09% per annum of the Net Asset Value of the Company up to GBP50 million and 0.07% of the Net Asset Value of the Company above GBP50 million, subject to a minimum annual fee of GBP68,185 per annum (2009: GBP68,185) plus disbursements.

Other administration fees are paid by the underlying subsidiaries at a rate as may be agreed in writing from time to time between those companies and their separately appointed administrators.

4 DIRECTORS' FEES AND EXPENSES

Until 30 June 2010 the Chairman received GBP15,000 per annum, with other Directors receiving GBP12,000 per annum with the exception of Clive Simon and Gerry Williams who received an annual fee of GBP7,500 each. In June 2011 all Directors agreed to retrospectively reduce their fees by 50% with effect from 1 July 2010. The Chairman and Directors are also reimbursed for other expenses properly incurred by them in attending meetings and other business of the Company.

5 SALARIES AND OTHER DISBURSEMENTS 2010 2009

Eur Eur

Salaries 312,543 79,430

Social security contributions 41,649 9,555

354,192 88,985

The above salary costs are in relation to key management personnel who have authority and responsibility for planning, directing and

controlling the activities of the Group. The number of employees as at year-end was two (2009: three).

6 DISPOSAL OF SUBSIDIARIES

VT Blacksea

Development Properties Total

Eur

Net proceeds 450,000 4,700,000 5,150,000

Net assets disposed of (515,000) (4,751,851) (5,266,851)

Loss on disposal (65,000) (51,851) (116,851)

VT Development

On 26 January 2010, the Group disposed of its Bulgarian subsidiary VT, to International Residential Holdings SA for a cash consideration of Eur450,000. The sole asset of VT was 13,443 square meters of land in Bulgarian city of Veliko Tarnavo.

Blacksea Properties

On 20 January 2009 the Group entered into an arrangement with Enderton Company Assets Inc., and the shares of Blacksea Properties EOOD were sold for Eur1.826 million with an option to buy back. This transaction was treated as a financing transaction with an intention to exercise the buy back option. Option exercise date was 28 February 2010 and the directors, having explored a number of possibilities, decided to let the Option Agreement lapse and dispose of the company. The carrying value of the loan payable to exercise the option as at date of disposal was Eur4,700,000 and it has been recorded as deemed disposal proceeds for the Blacksea Properties EOOD.

7 OTHER EXPENSES

2010 2009

Eur Eur

Registrar's fees 8,710 10,285

Audit fees 37,239 35,933

Consultancy fees - 40,583

Insurance costs 15,968 23,734

Statutory fees 4,998 10,915

Travel expenses 29,178 28,999

Bank charges 9,115 13,198

Property and municipal taxes 109,981 255,409

Commission on sales - 103,916

Other fees and expenses 82,616 110,629

General administration and maintenance of properties 9,000 167,709

306,805 801,310

No amounts were paid to BDO Limited by the Company and its subsidiary undertakings in respect of non-audit services.

8 FINANCE INCOME

2010 2009

Eur Eur

Bank interest 883 2,823

The above interest arises from financial assets classified as loans and receivables, including cash and cash equivalents, and has been

calculated using the effective interest method.

There are no other gains or losses on loans and receivables other than those disclosed above.

9 FINANCE EXPENSE

2010 2009

Eur Eur

Interest on short term loan 636,313 2,237,929

The above finance cost arises on financial liabilities measured at amortised cost using effective interest rate method. No other losses have

been recognised in respect of financial liabilities at amortised cost other than disclosed above. Refer note 18 for further details.

10 TAXATION

(a) Analysis of tax charge for the year

2010 2009

Eur Eur

The tax payable for the year comprises:

- Current taxation - 672

- Deferred taxation - (1,414,464)

Income tax credit - (1,413,792)

(b) Deferred taxation

Deferred taxation is calculated, in full, on all temporary timing differences under the liability method using a principal Bulgarian tax rate of 10% (2009: 10%). The movement on the deferred tax account is as follows:

2010 2009

Eur Eur

Deferred tax liabilities

Investment properties revaluation

At start of year - 1,414,464

Credit to income - (1,414,464)

At end of year - -

Deferred tax assets have not been recognised on losses carried forward due to lack of certainty of availability of future taxable profits

against which such losses will be utilised. Tax losses can be carried forward in Bulgaria for five years.

11 EARNINGS PER SHARE - BASIC AND DILUTED

The consolidated loss per Ordinary Share of 2.88 (2009: 50.60) cents is based on the net revenue loss of Eur2,647,886 (2009: Eur3,463,502)

and the net capital gain for the period of Eur717,994 (2009 loss: Eur 21,387,809). Calculations are based on 67,074,515 (2009: 49,114,706)

Ordinary Shares, being the weighted average number of shares in issue during the year. There are no potentially dilutive options in issue.

12 INVESTMENT PROPERTIES

2010 2009

Eur Eur

Fair value of investment properties at 1 January 20,033,972 44,848,000

Disposal (5,082,712) -

Cost adjustment for creditors (note 17) (3,075,519) -

Subsequent expenditure - 108,693

Fair value adjustment in the year 1,764,259 (24,922,721)

Fair value of investment properties at 31 December 13,640,000 20,033,972

The fair value of the Group's investment properties at 31 December 2010 and at 31 December 2009 has been arrived at on the basis of valuations carried out at that date by King Sturge Kft, independent valuers not connected to the Group. The Valuer has recent experience in the location and category of properties being valued.

The valuation basis has been market value as defined by the Royal Institute of Chartered Surveyors (RICS). The approved RICS definition of market value is the "estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arms length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion."

Cost of investment properties at 31 December 2010 was Eur13,866,990 (2009: Eur29,436,970).

Under terms of the loan agreement signed with Pluto Partnership (PP) the Group will enter in to a Forward Sale Agreement under Bulgarian

law whereby PP will have the right to acquire the properties known as "Crystal Glade" and "Dolna Banya Lake". The Group has right to

buyback the properties within 12 months. Refer Note 28 for further details.

13 INVENTORY

Group 2010 2009

Eur Eur

At 1 January 7,440,000 6,801,000

Additions 229,754 543,105

Disposals (1,028,489) (597,394)

Impairment (1,046,265) (630,054)

Reversal of impairment - 1,323,343

At 31 December 5,595,000 7,440,000

At valuation 5,595,000 7,440,000

Inventories were valued on an open market basis as at 31 December 2010 by King Sturge Kft, independent valuers not connected to the Group. As a result of decrease in the market value of the properties, as determined by the valuers, an impairment charge has been recognised.

BuySell project was written down to a nil value and an impairment charge of Eur10,379,426 was included in the income statement for the year ended 2008. Negotiations with BuySell, its Bankers and the Fund are on going and accordingly the Directors continue to carry the asset at a nil value.

The carrying value has been set as the lower of cost and net realisable value as set out under the requirements of IAS 2, Inventories. The total carrying value of all the properties impaired is Eur5,595,000 (2009: Eur7,440,000).

14 INVESTMENT IN SUBSIDIARIES

Details of the Company's subsidiary undertaking are as follows:

% Holding and Country of Principal

Name of subsidiary undertaking voting rights incorporation activity

Splendid Investments S.A. 100% Luxembourg Holding company

Fumero Properties S.A. 100% Luxembourg Holding company

Lewis Charles Sofia Property

Fund Bulgaria EOOD 100% Bulgaria Property Investment

Panorama Villa EOOD 100% Bulgaria Property Investment

Roman View EOOD 100% Bulgaria Property Investment

Plovdiv Reach EOOD 100% Bulgaria Property Investment

Nirvana Estates EOOD 100% Bulgaria Property Investment

15 TRADE AND OTHER RECEIVABLES

2010 2009

Eur Eur

Accrued income 2 1

Prepayments 18,552 20,131

Other receivables 34,203 176,176

52,757 196,308

The aging of these receivables is as follows:

Less than 3 months 2 1

3 to 6 months 34,203 87,670

Over 6 months - 88,506

34,205 176,177

Other receivables are not considered impaired and relate to receivables for which there is no recent history of default and as such it is assessed that all of the receivables will be recovered.

The Directors consider that the carrying amount of other receivables approximates fair value. Allocation of the carrying amount of the Group's trade and other receivables by foreign currency is presented in Note 23.

16 CASH AND CASH EQUIVALENTS

2010 2009

Eur Eur

Blackrock Euro Liquidity Fund 4,531 3,107

Cash at Bank 240,307 1,050,596

244,838 1,053,703

The cash equivalent investments are considered to be highly liquid investments readily convertible to a known amount of cash subject to

minimum risk of change in value such that book cost is considered equivalent to book value. The average interest rate on cash balances at

31 December 2010 was 0.5% (2009: 0.6%).

17 TRADE AND OTHER PAYABLES

2010 2009

Current liabilities Eur Eur

Audit fee payable 34,992 35,601

Legal fee payable 82,353 149,644

Other creditors 1,147,772 1,202,167

1,265,117 1,387,412

2010 2009

Eur Eur

Non-current liabilities

Sundry creditors (note 12) - 3,075,519

- 3,075,519

The provision for long-term creditors represented a balance due to the vendor of certain plots acquired in prior years. The amounts was payable based on the vendors achieving certain goals. In prior years the Directors believed that the vendor was in a position to achieve the requirements and hence the amount was provided in full. During the course of legal proceedings detailed in note 27, it has become clear that vendor will no longer be able to fulfil the contract and hence it has now been reversed. Accordingly, the purchase cost of relevant plots have been adjusted. Further details are included in note 27.

The Group has financial management policies in place to ensure that all payables are paid within the agreed credit time frame. There is no difference between the carrying value of trade and other payables and their fair value.

18 LOAN PAYABLE

2010 2009

Eur Eur

Balance at 1 January 4,063,687 -

Loan advanced - 1,825,758

Interest (note 9) 636,313 2,237,929

Repayment (note 6) (4,700,000) -

Balance at 31 December - 4,063,687

During the year ended 31 December 2009 Splendid Investments S.A. a wholly owned subsidiary of the Group entered into a sale and buyback financing transaction with an unrelated party, in which shares of Blacksea Properties were sold at Eur1.825m with an option to buyback at an agreed price of Eur4.7m. This option was required to be exercised before 28 February 2010. The option lapsed and accordingly the loan payable has been written off as disposal proceeds for the Subsidiary.

19 SHARE CAPITAL

2010 2009

Shares Shares

Authorised

Unlimited shares of no par value - -

Issued and fully paid

At 1 January 67,074,515 48,345,000

Issued during the year - 18,729,515

At 31 December 67,074,515 67,074,515

The company has one class of ordinary share which carries no right to fixed income.

The Company will have a maximum life of seven years expiring on 27 September 2012, which may be extended beyond seven years by a special resolution carried by a two-thirds majority of those Shareholders that vote on it. It is intended to arrange the Property Portfolio so that it can be realised in an orderly way. The life of the Company may be extended if it is necessary for an orderly realisation of the Company's assets. It is expected that Directors will propose extension of life of the Company to shareholders in due course.

20 SPECIAL RESERVE

2010 2009

Eur Eur

At 31 December 2010 57,913,640 57,913,640

On 8 July 2005 the Royal Court of Guernsey approved the reduction of capital by way of a cancellation of the Company's share premium account. The amount cancelled, being Eur56,956,985, has been credited as a distributable reserve established in the Company's accounts. This shall be available as distributable profits for all purposes permitted under Guernsey Company Law including the buy back of shares and the payment of dividends.

The Group, on 17 December 2009, issued 18,729,515 ordinary shares of no par value at a price of 5p per share to raise net proceeds of Eur0.94 million approximately. The New Ordinary Shares will rank pari passu in all respects with the existing Ordinary Shares. The proceeds from re-issue of the new shares have been included in special reserve.

21 CAPITAL AND REVENUE RESERVE

Balances in the capital reserve reflect cumulative unrealised gains on the revaluation of properties, impairment losses on inventory, provision for performance fees that will become payable as a result of the uplift in property values and the notional loss on foreign currency dating back to the conversion of the initial subscription proceeds.

The balance on the revenue reserve reflects cumulative operational expenditure in excess of the non-property inventory related operational income.

22 NAV PER SHARE

2010 2009

Eur Eur

Net Asset Value 18,267,478 20,197,370

Number of shares in issue 67,074,515 67,074,515

Net asset value per share 0.272 0.301

23 FINANCIAL INSTRUMENT RISK MANAGEMENT

Total interest income and total interest expense on financial assets and

liabilities not at fair value through profit and loss

2010 2009

Eur Eur

Interest receivable on cash and cash equivalents 883 2,823

Interest payable on loan (636,313) (2,237,929)

Categories of financial assets and liabilities

2010 2009

Loans and receivable Eur Eur

Trade and other receivables* 34,205 176,177

Cash and cash equivalents 244,838 1,053,703

Financial liabilities measured at amortised cost

Trade and other payables (1,265,117) (4,462,931)

Loan payable - (4,063,687)

Net financial liabilities (986,074) (7,296,738)

*Excludes prepayments

Financial risk factors

The Company's' activities expose it to a variety of risks from its use of financial instruments:

- market risk (including interest rate risk, price risk and currency risk)

- credit risk

- liquidity risk

The accounting policy with respect to the financial instruments are disclosed in note 2.

The Board of Directors has overall responsibility for the establishment and oversight of the Groups' risk management framework. This note presents information about the Group's' exposure to each of the above risks and the Board of Directors' objectives, policies and processes for measuring and managing these risks. There have been no changes in such policies during the year.

Market risk

Market risk is the risk that changes in the market prices will affect the Group's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposure within acceptable parameters.

(a) Price risk

The Group has no exposure to price risk as its investments are in property development or land banks.

(b) Interest rate risk

Interest-bearing financial assets consist only of cash and cash equivalents while interest-bearing financial liabilities consist of loans payable. The following table indicates effective interest rates at the balance sheet date for financial assets and liabilities. All other financial assets and liabilities are non-interest bearing.

6 months Greater than

2010 Interest rate Total or less 6 -12 months 1 year

% Eur Eur Eur Eur

Cash and cash equivalents 0.5% 244,838 244,838 - -

2009

Cash and cash equivalents 0.87% 767,920 767,920 - -

Short term loan payable 83% (4,063,687) (4,063,687) - -

At any time that the Group is not fully invested, the Group may invest in Euro denominated government bonds with maximum maturities of the lesser of two years or the remaining life of the Company and/or invest in AAA rated liquidity funds. Any change to interest rates relevant for a particular security may result in income either increasing or decreasing. The Group has not invested in bonds during the years ended 2010 and 2009. The Group has chosen to invest in high liquidity, floating rate instruments to mitigate the risk that similar returns would be unavailable on the expiry of contracts.

A 100 basis points change in interest rate would increase/decrease the net interest income/expense by Eur2,448 (2009: Eur30,100).

Instruments subject to interest rate movements are disclosed in note 16 and 18.

(c) Currency risk

Currency risk is the risk that the statement of comprehensive income and statement of financial position can be affected by currency translation movements. The Board consider that the Group's exposure to currency risk is minimal as the majority of the Group's transactions are made in Euros and the books and records are kept in Euros.

Where there are assets and liabilities recorded in Bulgarian Lev, the risk is considered minimal as the Lev is tied to the Euro in preparation for adoption of the Euro in Bulgaria. The Lev is expected to be replaced by the Euro in future.

The tables below summarise exposure to foreign currency risk at 31 December 2010 and 2009. Assets and liabilities at carrying amounts are included in the table, categorised by the currency at their carrying amount.

Group

As at 31 December 2010 Eur GBP Total

Trade and other receivables 34,205 - 34,205

Cash and cash equivalents 200,304 44,534 244,838

Total assets 234,509 44,534 279,043

Trade and other payables 1,034,206 230,911 1,265,117

Loan payable - - -

Total liabilities 1,034,206 230,911 1,265,117

Net balance sheet currency position (799,697) (186,377) (986,074)

Group

As at 31 December 2009 Eur GBP Total

Trade and other receivables 176,177 - 176,177

Cash and cash equivalents 278,371 775,332 1,053,703

Total assets 454,548 775,332 1,229,880

Trade and other payables 4,218,771 244,160 4,462,931

Loan payable 4,063,687 - 4,063,687

Total liabilities 8,282,458 244,160 8,526,618

Net balance sheet currency position (7,827,910) 531,172 (7,296,738)

The following significant exchange rates applied during the year:

Average rate Reporting date spot rate

2010 2009 2010 2009

Euro

1 GBP 1.168 1.127 1.166 1.127

1 BGN ** 0.511 0.511 0.511 0.511

** The Bulgarian Lev (BGN) was fixed to the Euro at 1.95583 BGN to 1 Euro on 5 July 1999

The tables above present financial assets and liabilities denominated in foreign currencies held by the Group in 2010 and 2009 used to monitor foreign currency risk at the reporting dates. If the Euro had strengthened/weakened by 10% against the UK pound as at 31 December, with all other variables held constant, post-tax Group profit for the year would have been Eur18,638 (2009: Eur53,117)

higher/lower.

As the Lev is fixed against the Euro this results in no additional exposure to any Euro movements.

Liquidity risk

Liquidity risk is the risk that arises when the maturity of assets and liabilities does not match. An unmatched position potentially enhances profitability, but can also increase the risk of losses. The Group has procedures with the object of minimising such losses such as maintaining sufficient cash and other highly liquid current assets and will negotiate additional credit facilities as and when required. Cash and cash equivalents are placed with financial institutions on a short term basis reflecting the Group's desire to maintain a high level of liquidity to enable timely completion of investment transactions. An analysis of other financial assets is provided in notes 15 and 16.

A summary table with maturity of financial liabilities is presented below:

Total Less than 6 to 12 Greater than

Financial liabilities 2010 6 months months 12 months

Eur Eur Eur Eur

Trade and other payables 1,265,117 1,265,117 - -

Loan Payable - - - -

Total liabilities 1,265,117 1,265,117 - -

Total Less than 6 to 12 Greater than

Financial liabilities 2009 6 months months 12 months

Eur Eur Eur Eur

Trade and other payables 4,462,931 1,387,412 - 3,075,519

Loan Payable 4,063,687 4,063,687 - -

Total liabilities 8,526,618 5,451,099 - 3,075,519

The Group is continuously monitoring its liquidity position, further details are included in note 2.2 (c) and note 28. Credit risk

Credit risk is the risk that a counterparty will be unwilling or unable to meet a commitment that it has entered into with the Group.

The Company has exposure to credit risk relating to its cash and cash equivalents. The Group has tried to mitigate this risk by investing in high liquidity, AAA rated instruments.

The Group's maximum exposure to credit risk by class of financial instruments is shown below.

Carrying Maximum Carrying Maximum

2010 2010 2009 2009

Eur Eur Eur Eur

Trade and other receivables* 34,205 34,205 176,177 176,177

Cash and cash equivalents 244,838 244,838 1,053,703 1,053,703

Total 279,043 279,043 1,229,880 1,229,880

*Refer to note 15 for ageing of trade and other receivables and impairment review. Capital risk management

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may return the capital to shareholders, issue new shares or sell assets to reduce debt.

24 RELATED PARTY DISCLOSURES

Transactions with Directors are as disclosed in Director's report, the consolidated statement of comprehensive income and note 6 to the financial statements. The balances outstanding as at the year end was Eur31,493 (2009: Eur15,210).

Ardel Fund Services Limited is a related party by virtue of its appointment as Administrator and Secretary to the Group. Fees paid to this entity are disclosed on the face of the income statement and also in note 3. The balances outstanding as at the year end was Eur3,002 (2009: nil).

25 CONTROLLING PARTY

In the opinion of the Directors there is no controlling party as no one party has the ability to direct the financial and operating policies of

the Company with a view to gaining economic benefits from their direction.

26 RECONCILIATION OF NAV PER THE FINANCIAL STATEMENTS TO PUBLISHED NAV

2010 2009

Eur Per share Eur Per share

Net Asset Value per financial statements 18,267,478 0.272 20,197,370 0.300

Add back:

Preliminary expenses 223,393 0.003 501,822 0.010

Published Net Asset Value 18,490,871 0.275 20,699,192 0.310

The Company's principal documents require the dealing valuation of the Company's net assets to include preliminary expenses incurred in the establishment of the Company, such expenses to be amortised over the expected life of the Company. However, this accounting treatment is not permitted for financial reporting purposes and has been adjusted accordingly within these financial statements.

27 CONTINGENT LIABILITY

a) The Group is in litigation with Westhill BG8 AD ("Westhill"), a developer with which the Company has partnered on selected projects. As part of this litigation Westhill has lodged a claim with the relevant court in Bulgaria petitioning the court for insolvency proceedings to be brought against the Group's Bulgarian subsidiary. The claim is for an aggregate of Eur7.7million in relation to the initial acquisition and future potential income under the Development Management Agreement. The Group's Bulgarian legal advisers are confident that this claim is fully defensible and in the Directors' opinion there is no longer a liability and no provision is required (note 17). The Group is vigorously defending its position and has made a counterclaim against Westhill.

b) The Group has a potential tax liability of up to approximately Eur725,000. Based on legal advice received, the Board are confident that any claim for the tax could be mitigated successfully, and hence no provision has been made within these financial statements.

28 POST BALANCE SHEET EVENTS

On 29 June 2011 a loan agreement was signed for a GBP500,000 Loan with Pluto Partnership (PP), a private partnership.

-- Term of the loan 12 months from date of signing of the loan agreement.

-- Security The Group will enter in to a Forward Sale Agreement (FSA) under Bulgarian law whereby PP will acquire the

properties known as "Crystal Glade" and "Dolna Banya Lake" after 30 September 2011. The Fund will have to

right to re-acquire the above properties within 12 month period at an agreed purchase price of GBP625,000.

-- Redemption premium GBP125,000 or 25% of the Facility outstanding at the end of 12 month period.

-- Warrants The Loan will carry warrants entitling PP to purchase (pro rata to draw down of the loan) 25,000,000 shares in

the authorised share capital of the Company at an exercise pence of 1 pence, exercisable within 2 years.

-- Drawdown 50% on signing of loan agreement and remaining after 3 months of the loan agreement date.

THE FOLLOWING DOES NOT FORM PART OF THE

AUDITED FINANCIAL STATEMENTS OF THE COMPANY

AND ARE PRESENTED FOR INFORMATION PURPOSES ONLY

Consolidated statement of comprehensive income for the year ended 31 December 2010

Restated into Pound Sterling for information purpose only

2010 2009

Revenue Capital Total Total

GBP GBP GBP GBP

Revenue

Property sales 373,420 - 373,420 289,863

Cost of sales (880,104) - (880,104) (530,169)

Impairment of inventories - (895,315) (895,315) 615,272

Gross (loss) / profit (506,684) (895,315) (1,401,999) 374,966

Expenses

Administration fees 115,211 - 115,211 149,941

Management fees - - - 520,170

Performance fees - - - (2,521,852)

Directors' fees and expenses 40,240 - 40,240 54,239

Foreign exchange gain (5,763) - (5,763) (3,763)

Salaries and other disbursements 303,091 - 303,091 78,971

Legal and professional fees 400,113 - 400,113 -

Loss on disposal of subsidiaries 99,992 - 99,992 -

Other expenses 262,541 - 262,541 1,304,996

Revaluation of investment properties - (1,509,720) (1,509,720) 22,118,141

1,215,425 (1,509,720) (294,295) 21,700,843

Operating loss (1,722,109) 614,405 (1,107,704) (21,325,877)

Finance income 756 - 756 2,505

Finance expense (544,509) - (544,509) (1,986,092)

Loss before taxation (2,265,862) 614,405 (1,651,457) (23,309,464)

Taxation - - - 1,254,696

Loss for the year (2,265,862) 614,405 (1,651,457) (22,054,768)

Other comprehensive income

for the year - - - (3,065,937)

Total comprehensive loss

for the year (2,265,862) 614,405 (1,651,457) (25,120,705)

Earnings per share - basic and

diluted (pence per share) (2.46) (45.62)

The total column of this statement represents the Group's Consolidated Statement of Comprehensive Income prepared in accordance with IFRS. The revenue and capital columns are supplied as supplementary information permitted under IFRS.

All items in the above statement derived from continuing operations. All income is attributable to the equity holders of the parent company, there are no minority interests.

Consolidated statement of financial position as at 31 December 2010

Restated into Pound Sterling for information purpose only

2010 2009

GBP GBP GBP GBP

Non-current assets

Investment properties 11,694,102 17,347,735

Investment properties - held for sale - 433,370

Current assets

Inventory 4,796,811 6,603,355

Property options - 4

Trade and other receivables 45,231 174,233

Cash and cash equivalents 209,909 935,212

5,051,951 7,712,804

Total assets 16,746,053 25,493,909

Current liabilities

Trade and other payables (1,084,634) (1,231,394)

Short term loan payable - (3,606,716)

(1,084,634) (4,838,110)

Non-current liabilities

Trade and other payables - (2,729,670)

Total liabilities (1,084,634) (7,567,780)

Net assets 15,661,419 17,926,129

Equity

Share capital - -

Special reserve 39,525,002 39,525,002

Capital reserve (22,431,952) (23,046,357)

Revenue reserve (1,431,631) 1,447,484

Total Equity 15,661,419 17,926,129

NAV per share (Pence per share) 23.349 26.726

NAV per share at launch (Pence

per share) 72.80 72.80

Consolidated statement of changes in equity

for the year ended 31 December 2010

Restated into Pound Sterling for information purpose only

Share Special Capital Revenue Total

Capital Reserve Reserve Reserve Equity

GBP GBP GBP GBP GBP

As at 31 December 2008 - 38,676,000 (4,065,340) 7,587,172 42,197,832

Issue of shares - 933,517 - - 933,517

Loss for the year - (18,981,017) (3,073,751) (22,054,768)

Commission on issue of shares - (84,515) - - (84,515)

Foreign exchange adjustment arising

on translation to Sterling - - - (3,065,937) (3,065,937)

As at 31 December 2009 - 39,525,002 (23,046,357) 1,447,484 17,926,129

Profit / (loss) for the year - - 614,405 (2,265,862) (1,651,457)

Foreign exchange adjustment arising

on translation to Sterling - - - (613,253) (613,253)

As at 31 December 2010 - 39,525,002 (22,431,952) (1,431,631) 15,661,419

Consolidated statement of cash flows

for the year ended 31 December 2010

Restated into Pound Sterling for information purpose only

2010 2009

GBP GBP

Loss for the year (1,651,457) (22,054,768)

Adjustment for:

Interest income (756) (2,505)

Interest expense 544,509 -

Revaluation of investment properties (1,509,720) 22,118,141

Impairment of inventory 895,315 (615,272)

Operating cash flows before movements

in working capital (1,722,109) (554,404)

Decrease in trade and other receivables 30,490 351,017

Decrease in trade and other payables (69,950) (3,177,748)

Decrease in inventory 684,787 169,366

Cash used in operations (1,076,782) (3,211,769)

Interest received 757 2,505

Taxation - -

Net cash outflow from operating activities (1,076,025) (3,209,264)

Investing activities

Additions to investment properties - (96,462)

Proceeds from disposal of investment properties 385,076 -

Net cash inflow / (outflow) from investing activities 385,076 (96,462)

Financing activities

Proceeds from issue of shares - 933,517

Proceeds from loan - 1,620,447

Net cash inflow from financing activities - 2,553,964

Net decrease in cash and cash equivalents (690,949) (751,762)

Exchange difference arising on translation to Sterling (2,522) 952,044

Cash and cash equivalents at start of year 903,380 734,930

Cash and cash equivalents at end of year 209,909 935,212

For further enquires -

Sofia Property Fund Limited

Charles Burton

Dominic Morley,- Panmure Gordon

+44 (0) 20 7459 3600

This information is provided by RNS

The company news service from the London Stock Exchange

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