DUPD.L Regulatory News (DUPD)

Dragon - Ukrainian Properties & Development plc, a leading real estate investor and developer in Ukraine is glad to provide an update on its operations and results of its portfolio appraisal together with the financial statements for the period ending 30 June 2010.

Political and Macroeconomic outlook:

*

Ukraine's political risk has gone down considerably since a new president was elected in February 2010. The new Cabinet is better suited to implement unpopular measures demanded by International Financial Institutions. The ruling coalition enjoys a sufficient majority in Verkhovna Rada (Ukrainian parliament) to pass legislation backing the government's reform program. With next regular parliamentary elections not due until late 2012 and political negotiations going on to schedule local elections for end-October 2010, the new administration is close to securing for itself the rare prospect of more than two years without major elections - and thus a window of opportunity for many necessary but unpopular reforms which previous Ukrainian governments were hesitant about.

*

Ukraine's political risk has gone down considerably since a new president was elected in February 2010. The new Cabinet is better suited to implement unpopular measures demanded by International Financial Institutions. The ruling coalition enjoys a sufficient majority in Verkhovna Rada (Ukrainian parliament) to pass legislation backing the government's reform program. With next regular parliamentary elections not due until late 2012 and political negotiations going on to schedule local elections for end-October 2010, the new administration is close to securing for itself the rare prospect of more than two years without major elections - and thus a window of opportunity for many necessary but unpopular reforms which previous Ukrainian governments were hesitant about.

*

Ukraine is expected to maintain its status as one of the fastest growing economies in the region with real GDP to advance by 5.5% this year and 4.5% in 2011.The IMF's new lending program ($15bn) will substantially ease Ukraine's budget deficit financing pressures for the rest of the year. Cooperation with the Fund will remain a key factor for Ukraine to ensure that external financing remains cheap and relatively easily accessible in 2011. S&P have upgraded Ukraine's sovereign rating by one notch to B+ on the back of IMF deal and other rating agencies are expected to follow suit.

Real Estate outlook:

* 

While the economy of Ukraine was hard hit by the global financial turmoil, combined with political instability in the run-up to the presidential elections, early signs of stabilisation were witnessed already in the first quarter of 2010. Despite the first signs of increase in occupier demand, the office property market in Kyiv was still determined as a "tenant's market" as opposed to the "landlord's market" that prevailed during 2004-Q3 2008. In the first quarter of 2010, a noticeable improvement in general dynamics on the demand side of the retail market across Ukraine was witnessed, with retailers increasingly seeking opportunities to expand, whilst the lack of critical mass of high-quality retail properties in the country remains a major obstacle.

* 

The residential sector has also shown first signs of revival during the first half of 2010, primarily in elite segment, evidenced by increased number of transactions and marginal increase in prices. Such trend is expected to sustain for the remaining of the year end, while price growth will be still limited to not more than 3-5%. Suburban real estate has also witnessed revival of development, mainly organized community projects which were frozen during the crisis. Further development of the market will heavily depend on availability of mortgage financing, which currently remain largely unavailable.

Valuation and Financial Highlights:

*

NAV as at 30 June 2010 stood at USD 292.6 million, compared to USD 293.9 million as at 31 December 2009;

*

The value of the Company's portfolio was appraised by CB Richard Ellis and amounted to USD 86.8 million as at 30 June 2010, compared to USD 85.0 million as at 31 December 2009. This excludes investment in land banking in the amount of USD 122 million, which was not subject to valuation.

*

Cash on deposits, held in several leading European banks with top ratings, stood at USD 80.7 million as at 30 June 2010.

*

No bank debt at Company or Group level.

Operational Highlights:

*

The Company was able to demonstrate solid performance, having officially opened to the public two of its gated residential communities under development, Green Hills and Riviera Villas on May 27 and June 5, respectively. Both communities were very well perceived by the market, thus enhancing DUPD's profile and reputation among the public, despite the fact that the overall Ukrainian residential market remains depressed. By end of July, the first turn-key home was sold in Riviera Villas for approx. USD 0.9 million, and 4 shell-and-core cottages in Green Hills, bringing the total number of sold homes in both communities to 16. This result, coupled with the fact that several more sales in both communities are currently in closing stages, makes us confident in further successful development of these projects and allows anticipating strong sales in 2H 2010.

*

As envisioned by the annual budget of Henryland Group Limited, construction of the big-box retail center in Odesa commenced in 2Q 2010. The subject property is 100% pre-let and scheduled for opening in 4Q 2010. Development is funded with equity and internal cash flow from two existing retail centers of Henryland Group Limited in Lutsk and Kremenchug with no additional equity disbursements from DUPD and other shareholders.

*

Despite the change of local authorities in Kyiv during 1H 2010, the Company managed to receive the final approval of the project documentation for the Obolon Residential Towers project by the State Detailed Expertise, coming as a post interim event on July 27, 2010, and is now in negotiations with a few international banks to secure debt financing for the construction phase.

*

Within Glangate project - which after the sale of Sevastopol land plot envisions development of 2 shopping centres in regions of Ukraine - DUPD completed the project documentation for a 40,000 sqm shopping centre in Kremenchuk in two phases and advanced with the acquisition of a 5.4 hectare land plot in Rivne, allowing the Company to start concept design works.

*

The Company maintains and reiterates its focus on exploiting attractive acquisition opportunities of income-generating, or nearly-completed, real estate assets in Kyiv and major regional cities of Ukraine, primarily within retail sector. The Company is currently considering several such opportunities which are anticipated to conclude, and be announced, in the nearest future.

"During the first half of 2010, we continued to advance our key corporate initiatives" said Chris Kamtsios, Senior Partner & Managing Director of Dragon Capital Partners Ltd (the Investment Manager). "We remain committed to increasing the value of our investments portfolio through uninterrupted development of our projects, optimization of the development scale and phasing to reflect the current market conditions, and stringent control over operating expenditures.

Currently, we are completing construction of a retail centre in Odesa and continue to develop our two gated communities near Kyiv, by reinvesting all of their sales proceeds. As debt financing is starting to become available for financially strong developers, we feel confident that we will be able to commence construction of other large portfolio projects, currently in pre-construction stage, such as Obolon Residential Towers. At the same time, we aim to take advantage of our strong balance sheet by deploying part of our uncommitted cash into acquisitions of selected, income-generating properties at distressed valuations."

Enquiries:

For further information, please contact:

Dragon-Ukrainian Properties & Development plc (www.dragon-upd.com)

Tomas Fiala

+380 44 490 7120

Dragon Capital Partners Limited (Investment Manager)

Chris Kamtsios 

+380 44 490 2021

Panmure Gordon (UK) Limited (Nominated Adviser and Broker)

Richard Gray / Andrew Potts / Stuart Gledhill

+44 (0)20 7459 3600

Dragon - Ukrainian Properties & Development plc.

Consolidated financial statements

30 June 2010

Contents

Consolidated statements of financial position

2

Consolidated statements of comprehensive income (loss)

4

Consolidated statements of cash flow

5

Consolidated statements of changes in equity

6

Notes to the consolidated financial statements

9

Consolidated statements of financial position as at 30 June 2010

Consolidated

Consolidated

Note

30 June 2010

 31 December 2009

(in thousands of USD)

Assets

Non-current assets

Investment properties

5

 63,353

62,500

Property under construction

5

 7,267

6,331

Prepayments for land

6

 124,062

121,487

Investments in subsidiaries

-

-

Investments in associates

7

 14,598

14,184

Long-term loan

8

 2,501

2,702

Property and equipment

 57

63

Intangible assets

 39

45

Total non-current assets

 211,877

207,312

Current assets

Inventories

9

 12,233

12,242

Loans to Group companies

-

-

Trade and other receivables

10

 3,061

3,076

Prepaid income tax

 17

16

Financial Instruments (call option)

7

 2,412

2,437

Cash and cash equivalents

11

 80,721

86,195

Total current assets

 98,444

103,966

Total assets

 310,321

311,278

Consolidated statements of financial position as at 30 June 2010, (continued)

Consolidated

Consolidated

Note

30 June 2010

31 December 2009

(in thousands of USD)

Equity and Liabilities

Equity

12

Share capital

 2,354

2,354

Share premium

 282,077

282,077

Retained earnings

 8,912

10,029

Total equity attributable to equity holders of the Parent Company

 293,343

294,460

Non-controlling interest

 (774)

(563)

Total equity

 292,569

293,897

Non-current liabilities

Deferred tax liabilities

13

 15,160

14,832

Total non-current liabilities

 15,160

14,832

Current liabilities

Trade and other payables

14

 2,591

2,537

Income tax payable

 1

12

Total current liabilities

 2,592

2,549

Total liabilities

 17,752

17,381

Total equity and liabilities

 310,321

311,278

These consolidated financial statements were approved by management on 30 July 2010 and were signed on its behalf by

Chairman of the board

Aloysius Wilhelmus Johannes Van der Heijden

Non-executive director

Fredrik Svinhufvud

The consolidated statements of financial position are to be read in conjunction with the notes to and forming part of the financial statements set out on pages 9 to 43.

Consolidated Statements of comprehensive income (loss)

For six months ended 30 June 2010

For six months ended 30 June 2009

Consolidated

Consolidated

Note

(in thousands of USD)

Rental income

 294

320

Profit (loss) from sales of investment property

 (38)

-

Profit (loss) on revaluation of investment properties

5

 1,087

(7,262)

Write-down of trading property to net realizable value

  (10)

(426)

Management fee

15

 (2,217)

(2,231)

Administrative expenses

17

 (1,190)

(566)

Other income

 13

2

Other expenses

 (26)

-

Loss from operating activities

 (2,087)

(10,163)

Gain on disposal of subsidiaries

4

 4

-

Gain on recognition of joint venture

7

-

-

Net financial income

18

 713

765

Share of the profit (loss) of associates

7

 414

542

(Loss) profit before income tax

 (956)

(8,856)

Income tax benefit (expense)

13

 (378)

1,285

Total comprehensive income (loss) for the period

 (1,334)

(7,571)

Attributable to:

Equity holders of the Parent Company

 (1,123)

(7,571)

Non-controlling interest

 (211)

-

Total comprehensive income (loss) for the period

 (1,334)

(7,571)

(Loss) earnings per share

Basic (loss) earnings per share (in USD)

20

(0.01)

(0.058)

Diluted (loss) earnings per share (in USD)

20

(0.01)

(0.058)

The Directors believe that all results derive from continuing activities.

The consolidated statements of comprehensive income (loss) are to be read in conjunction with the notes to and forming part of the financial statements set out on pages 9 to 43.

Consolidated Statements of Cash Flows

For six months ended 30 June 2010

For six months ended 30 June 2009

Note

(in thousands of USD)

Cash flow from operating activities

Profit (loss) before income tax

 (956)

(8,856)

Adjustments for:

Write-down of trading property to net realisable value

 10

426

Gain on disposal of subsidiary

4

 (4)

-

Changes of value Financial Instruments (option)

 25

-

Gain on acquisition of joint venture

-

-

Gain on sale of property, equipment

-

(2)

Profit (loss) on revaluation of investment properties

 (1,087)

7,262

Depreciation

 13

9

Share of the loss/(profit) of associates

 (414)

(542)

Net financial income

18

 (713)

(765)

Operating cash flow before changes in working capital

 (3,126)

(2,468)

Decrease (increase) in inventories

 (1)

(12,586)

Decrease (increase) in trade and other receivables

 218

(289)

Decrease (increase) in loans to Group companies

-

-

Increase (decrease) in trade and other payables

 54

(243)

Share based payments

 6

9

Income tax paid

 (62)

(7)

Cash flows (used in) from operating

activities

 (2,911)

(15,584)

Consolidated Statements of Cash Flows (continued)

For six months ended 30 June 2010

For six months ended 30 June 2009

Consolidated

Consolidated

Note

(in thousands of USD)

Cash flow from investing activities

Interest received

 511

556

Acquisition of investment properties

5

 (702)

(2,733)

Acquisition of property, equipment and intangible assets

 (1)

(7)

Prepayments for land

6

 (2,575)

(3,547)

Disbursement of long-term loan

8

 201

(1,042)

Acquisition of subsidiary and non-controlling interest, net of cash acquired

-

(8)

Cash flows used in investing

activities

 (2,566)

(6,781)

Cash flow from financing activities

Purchase of own shares

-

(10,363)

Cash flows used in financing

activities

 -  

(10,363)

Net (decrease) increase in cash and cash equivalents

 (5,477)

(32,728)

Cash and cash equivalents at 1 January

 86,195

121,216

Effect of the foreign exchange fluctuation on cash balances

 3  

(36)

Cash and cash equivalents at 30

June 2010

 80,721

88,452

Consolidated Statements of Changes in Equity

Attributable to equity holders of the Parent Company

Share capital

Share premium

Retained earnings

Total

Non-controlling interest

Total

(In thousands of USD)

Balances at 1 January 2009

2,668

292,127

18,429

313,224

-

313,224

Total comprehensive loss for the period

Net loss for the year ended 31 December 2009

-

-

(8,415)

(8,415)

(549)

(8,964)

Total comprehensive loss for the period

-

-

(8,415)

(8,415)

(549)

(8,964)

Transactions with owners, recorded directly in equity

Contributions by and distributions to owners

Issue of ordinary shares

-

-

-

-

-

-

Own shares acquired

(314)

(10,050)

-

(10,364)

-

(10,364)

Share based compensation

15

15

-

15

Total contributions by and distributions to owners

(314)

(10,050)

15

(10,349)

-

(10,349)

Changes in ownership interests in subsidiaries that do not result in a loss of control

Acquisition of non-controlling interest

-

-

-

-

(14)

(14)

Total changes in ownership interests in subsidiaries

-

-

(14)

(14)

Total transactions with owners

(314)

(10,050)

15

(10,349)

(14)

(10,363)

Balances at 31 December 2009

2,354

282,077

10,029

294,460

(563)

293,897

Consolidated Statements of Changes in Equity (continued)

Attributable to equity holders of the Parent Company

Share capital

Share premium

Retainedearnings

Total

Non-controlling interest

Total

(In thousands of USD)

Balances at 1 January 2010

 2,354

 282,077

 10,029

 294,460

 (563)

 293,897

Total comprehensive loss for the period

Net loss for the year ended 30 June 2010

-

-

 (1,123)

 (1,123)

 (211)

 (1,334)

Total comprehensive loss for the period

 (1,123)

 (1,123)

 (211)

 (1,334)

Transactions with owners, recorded directly in equity

Contributions by and distributions to owners

Share based compensation

-

-

 6

 6

-

 6

Total contributions by and distributions to owners

-

-

 6

 6

-

 6

Total transactions with owners

-

-

 6

 6

-

 6

Balances at 30 June 2010

 2,354

 282,077

 8,912

 293,343

 (774)

 292,569

1

Background

a

Organization and operations

Dragon - Ukrainian Properties & Development plc. (the Parent Company) was incorporated in the Isle of Man on 23 February 2007. The Parent Company's registered office is Standard Bank House, One Circular Road, Douglas, Isle of Man, IM1 1SB and its principal place of business is Ukraine.

On 1 June 2007 the Parent Company raised USD 208 million through an initial public offering on the AIM Market of the London Stock Exchange. On 29 November 2007 the Parent Company completed a secondary placing on AIM and raised USD 100 million.

The consolidated financial statements as at 30 June 2010 comprise the Parent Company and its subsidiaries (together referred to as the Group) and the Group's interest in associates and joint venture.

The main activities of the Group are investing in the development of new properties and redevelopment of existing properties in Ukraine.

b

Business environment

Ukraine's political risk has gone down considerably since new president was elected in February 2010. The new Cabinet is better suited to implement unpopular measures demanded by IFIs. The ruling coalition enjoys a sufficient majority in Verkhovna Rada (Ukrainian parliament) to pass legislation backing the government's reform program. With next regular parliamentary elections not due until late 2012 and political negotiations going on to schedule local elections for end-October 2010, the new administration is close to securing for itself the rare prospect of more than two years without major elections - and thus a window of opportunity for many necessary but unpopular reforms which previous Ukrainian governments were hesitant about.

Ukraine is expected to maintain its status as one of the fastest growing economies in the region with real GDP to advance by 5.5% this year and 4.5% in 2011.The IMF's new lending program ($15bn) will substantially ease Ukraine's budget deficit financing pressures for the rest of the year. Cooperation with the Fund will remain a key factor for Ukraine to ensure that external financing remains cheap and relatively easily accessible in 2011. S&P have upgraded Ukraine's sovereign rating by one notch to B+ on the back of IMF deal and other rating agencies are expected to follow suit.

However, operations in Ukraine still involve risks that do not typically exist in other markets. The accompanying financial statements reflect management's current assessment of the possible impact of the Ukrainian business environment on the operations and the financial position of the Group. The future business environment may differ from management's assessment.

The impact of such differences on the operations and financial position may be significant. In addition, the effect of future developments on the financial position and the ability of others to continue to transact with the Group cannot presently be determined. The consolidated financial statements therefore may not include all adjustments that might ultimately result from these adverse conditions.

Deteriorating operating conditions may also have an impact on cash flow forecasts and assessment of the impairment of assets. Due to the potential for these economic uncertainties to continue in the foreseeable future, there is a possibility that the assets may not be recovered at their carrying amounts in the ordinary course of business, with a corresponding impact on profitability in future periods.

Various regulatory bodies in Ukraine are considering regulations that could increase the Group's costs to comply with such regulations or limit the lines of business it may conduct.

Management believes it is taking all necessary measures to support the sustainability and growth of the Group's business in the current circumstances.

Various regulatory bodies in Ukraine are considering regulations that could increase the Group's costs to comply with such regulations or limit the lines of business it may conduct.

Management believes it is taking all necessary measures to support the sustainability and growth of the Group's business in the current circumstances.

2

Basis of preparation

a

Statement of compliance

These consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRSs).

b

Basis of measurement

The consolidated financial statements are prepared on the historical cost basis except for investment property, which is carried at fair value.

c

Functional and presentation currency

These consolidated financial statements are presented in thousands of US dollars (USD).

The Group consists of the entities that are domiciled in Ukraine, Cyprus, British Virgin Islands and Isle of Man, and as a result different entities are using currencies of different countries.

Management believes that the most appropriate functional and presentation currency for all consolidated entities and these consolidated financial statements is US dollars. All funds raised by the Parent Company are in US dollars, and all project developments are based on US dollars. Deposits and prepayments are also in US dollars. All financial information presented in US dollars is rounded to the nearest thousand.

For Ukrainian entities there are certain transactions in Ukrainian Hryvnia, which is not a convertible currency.

d

Use of judgments, estimates and assumptions

The preparation of financial statements in conformity with IFRSs requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses and the disclosure of contingent assets and liabilities. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

In particular, information about significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements are included in the following notes:

*

note 5 - valuation of investment property

*

note 16 - measurement of share-based payments.

e

Changes in accounting policies

Starting from 1 January 2009 as a result of new standards coming into effect, the Group has changed its accounting policies in the following areas:

*

Determination and presentation of operating segments

*

Presentation of financial statements

*

Accounting for business combinations

*

Accounting for consolidated and separate financial statements

(i)

(i)

(ii) Determination and presentation of operating segments

As at 1 January 2009 the Group determines and presents operating segments based on the information that internally is provided to the Board, which collectively is the Group's chief operating decision maker. This change in accounting policy is due to the adoption of International Financial Reporting Standard 8 Operating Segments. Previously operating segments were determined and presented in accordance with International Financial Reporting Standard IAS 14 Segment Reporting. The new accounting policy in respect of segment operating disclosures is presented as follows.

Management has determined that the sole segment in which the Group operates is property development. For operational purposes the Board analyses the Group's activity on the basis of individual projects and they are described in detail in the Annual Report. Budgeting and comparison of actuals versus budgeted is also done on the basis of individual projects.

(ii)

Presentation of financial statements

The Group applies revised IAS 1 Presentation of Financial Statements (2007), which became effective as at 1 January 2009. The revised standard requires a presentation of all owner changes in equity to be presented in the statement of changes in equity, whereas all non-owner changes in equity are presented in the consolidated statement of comprehensive income.

Comparative information has been re-presented so that it also is in conformity with the revised standard. Since the change in accounting policy only impacts presentation aspects, there is no impact on earnings per share.

(iii)

(iii)

Accounting for business combination

The Group has adopted early IFRS 3 Business Combinations (2008) and IAS 27 Consolidated and Separate Financial Statements (2008) for all business combinations occurring in the financial year starting 1 January 2009. All business combinations occurring on or after 1 January 2009 are accounted for by applying the acquisition method. The change in accounting policy is applied prospectively and had no material impact on earnings per share.

Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, the Group takes into consideration potential voting rights that currently are exercisable. The acquisition date is the date on which control is transferred to the acquirer. Judgment is applied in determining the acquisition date and determining whether control is transferred from one party to another.

The Group measures goodwill as the fair value of the consideration transferred including the recognised amount of any non-controlling interest in the acquiree, less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date.

Consideration transferred includes the fair values of the assets transferred, liabilities incurred by the Group to the previous owners of the acquiree, and equity interests issued by the Group. Consideration transferred also includes the fair value of any contingent consideration and share-based payment awards of the acquiree that are replaced mandatorily in the business combination (see below). If a business combination results in the termination of pre-existing relationships between the Group and the acquiree, then the lower of the termination amount, as contained in the agreement, and the value of the off-market element is deducted from the consideration transferred and recognised in other expenses.

When share-based payment awards exchanged (replacement awards) for awards held by the acquiree's employees (acquiree's awards) relate to past services, then a part of the market-based measure of the awards replaced is included in the consideration transferred. If they require future services, then the difference between the amount included in consideration transferred and the market-based measure of the replacement awards is treated as post-combination compensation cost.

A contingent liability of the acquiree is assumed in a business combination only if such a liability represents a present obligation and arises from a past event, and its fair value can be measured reliably.

The Group measures any non-controlling interest at its proportionate interest in the identifiable net assets of the acquiree.

Transaction costs that the Group incurs in connection with a business combination, such as finder's fees, legal fees, due diligence fees, and other professional and consulting fees are expensed as incurred.

Profit or loss and each component of other comprehensive income of subsidiaries are attributed to the owners of the Parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. This change in accounting policy was applied prospectively and had no material impact on earnings per share.

(iv)

3

Significant accounting policies

The accounting policies set out below have been consistently to all periods presented in these consolidated statements, and have been applied consistently by Group entities, except as explained in note 2(e), which addresses changes in accounting policies.

a

Basis of consolidation

i

Subsidiaries

Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account.

The financial results of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with those used by the Group.

The results of subsidiaries acquired during the year are included in the statement of comprehensive income from the effective date of acquisition.

Any premium and discount arising on the acquisition of a non-controlling interest in a subsidiary represents the excess of the cost of the additional investment over the carrying amount of the net assets acquired at the date of exchange. The effect of these transactions is recognized directly in equity.

(v)

Consolidated subsidiaries include the following:

Name

Country of incorporation

% of ownership

2010

2009

Bi Dolyna Development LLC

Ukraine

100%

100%

EF Nova Oselya LLC

Ukraine

100%

100%

Glangate LTD

Cyprus

100%

100%

Grand Development LLC

*(1)

Ukraine

-

100%

Hindale LTD

Cyprus

18.77%

18.77%

J Komfort Neruhomist LLC

Ukraine

100%

100%

Korona Development LLC

Ukraine

100%

100%

Landshere LTD

Cyprus

95%

95%

Landzone LTD

Cyprus

100%

100%

Linkdell LTD

Cyprus

100%

100%

Linkrose LTD

Cyprus

100%

100%

Mountcrest LTD

Cyprus

100%

100%

OJSC "Dom byta "Obolon"

Ukraine

98%

98%

Promtek LLC

Ukraine

18.77%

18.77%

Riverscope LTD

Cyprus

95%

95%

Startide LTD

Cyprus

100%

100%

Tradecom Inko LLC

Ukraine

-

-

Ukrainian Development Holding LTD

Cyprus

100%

100%

Ukrainian Properties LTD

Cyprus

100%

100%

Noviy Region LLC

Ukraine

100%

100%

(1) - subsidiary disposed

ii

Associates

Associates are those entities, in which the Group has significant influence, but not control or join control, over the financial and operating policies. Associates are accounted for using the equity method. The financial statements include the Group's share of the income and expenses of associates, after adjustments to align the accounting policies with those of the Group, from the date that significant influence commences until the date that significant influence ceases. When the Group's share of losses exceeds its interest in an associate, the carrying amount of that interest (including any long-term investments) is reduced to nil and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the investee.

iii

(vi) Joint ventures

A joint venture is a contractual arrangement whereby the Group and other parties undertake an economic activity that is subject to joint control, that is, when the strategic, financial and operating policy decisions relating to the activities of the joint venture require the unanimous consent of the parties sharing control.

Joint venture arrangements that involve the establishment of a separate entity in which each venture has an interest are referred to as jointly controlled entities. The Group reports its interests in jointly controlled entities using proportionate consolidation. The Group's share of the assets, liabilities, income and expenses of jointly controlled entities are combined with the equivalent items in the financial statements on a line-by-line basis.

Where the Group transacts with its jointly controlled entities, unrealized profits and losses are eliminated to the extent of the Group's interest in the joint venture.

Any goodwill arising on the acquisition of the Group's interest in a jointly controlled entity is accounted for in accordance with the accounting policy for goodwill arising on the acquisition as described in note 3(g).

As at 30 June 2010 the Group has no joint ventures. As at 30 June 2009 the Group had the following joint ventures: Hindale LTD (Cyprus) and Promtek LLC (Ukraine).

iv

(vii) Transactions eliminated on consolidation

Intra-group balances, and any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing these financial statements. Unrealized gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Group's interest in the investee. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.

b

Foreign currency and operations

i

Foreign currency transactions

Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognized in the statement of comprehensive income.

(viii)

ii

Foreign operations

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to USD at exchange rates at the reporting date. The income and expenses of foreign operations are translated to USD at exchange rates at the dates of the transactions.

(ix)

c

Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management are included as a component of cash and cash equivalents for this purpose.

d

Share capital

Incremental costs directly attributable to issue of ordinary shares and share options are netted against proceeds received.

e

Investment properties

Investment properties are those that are held either to earn rental income or for capital appreciation or for both. Investment properties principally comprise freehold land, leasehold land and investment properties held for future redevelopment. Land held under operating lease is classified and accounted for as investment property when it meets the definition of investment property.

i

Initial measurement and recognition

Investment properties are measured initially at cost, including related acquisition costs. Investment properties are derecognized on disposal or when they are permanently withdrawn from use and no future economic benefits are expected from its disposal. The gain or loss on disposal is calculated as the difference between the net disposal proceeds and the carrying amount of the asset and is recognized as gain or loss in the statement of comprehensive income.

If the Group uses part of the property for its own use, and part to earn rentals or for capital appreciation, and the portions can be sold or leased out separately, they are accounted for separately. Therefore the part that is rented out is investment property. If the portions cannot be sold or leased out separately, the property is investment property only if the company-occupied portion is insignificant.

(x)

ii

Subsequent measurement

Subsequent to initial recognition investment properties are stated at fair value. Any gain or loss arising from a change in fair value is included in the statement of comprehensive income in the period in which it arises.

When the Group begins to redevelop an existing investment property for continued future use as investment property, the property remains an investment property, which is measured at fair value, and is not reclassified to property and equipment during the redevelopment.

It is the Group's policy that an external, independent valuation company, having an appropriate recognized professional qualification and recent experience in the location and category of property being appraised, values the portfolio every six months. The fair value is the amount for which a property could be exchanged on the date of valuation between a willing buyer and a willing seller in an arm's length transaction. The valuation is prepared in accordance with the practice standards contained in the Appraisal and Valuations Standards published by the Royal Institution of Chartered Surveyors (RICS) or in accordance with International Valuation Standards published by the International Valuations Standards Committee.

Management believes that there is no transparent, active market in Ukraine for land because there are few transactions and each transaction tends to be unique and subject to significant negotiations. Therefore, management has chosen to use a valuation model to estimate fair value.

After discussion with the independent appraiser, and considering the types of investment properties owned by the Group and their intended development, management chose to estimate the fair value of land using the "residual land value" income approach. Under this method, the fair value of the freehold and leasehold interest in land equals the residual value of land under development (assuming that the developer will meet the terms set for development).

The residual value of land is determined based on the value for which such land could be sold in the market, which is estimated by appraisers to be the fair value of the completed project less cost to complete and an appropriate developer's profit. The residual value of land is equal to future cash flows generated by the developed property within the forecasting period plus terminal value of the property less development costs and developer's interest.

(xi)

iii

Property under construction

Property that is being constructed or developed for future uses as an investment property is accounted for as property and equipment and is stated at cost until construction or development is complete. During the construction phase only the building is accounted as property under construction. The land is classified as an investment property throughout the construction phase. Upon completing construction and bringing the building into condition in which it is ready for operation and when it is put into operation, the item is reclassified and subsequently accounted as an investment property.

f

Property and equipment

i

Recognition and measurement

Items of property and equipment are measured at cost less accumulated depreciation and impairment losses.

Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labor, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located. Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment.

When parts of an item of property and equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment.

(xii)

ii

Subsequent costs

The cost of replacing part of an item of property and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The costs of the day-to-day servicing of property and equipment are recognized in the statement of comprehensive income as incurred.

(xiii)

iii

Depreciation

Depreciation is recognized in the statement of comprehensive income on a straight-line basis over the estimated useful lives of each part of an item of property and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives. Land is not depreciated.

The estimated useful lives for the current and comparative periods are as follows:

*

vehicles and equipment

5-7 years

*

fixture and fittings

3 years

g

Goodwill

Goodwill arises on the acquisition of subsidiaries, associates and joint ventures. Goodwill represents the excess of the cost of the acquisition over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquiree. When the excess is negative (negative goodwill), it is recognized immediately in the statement of comprehensive income.

Goodwill is measured at cost less accumulated impairment losses. In respect of associates, the carrying amount of goodwill is included in the carrying amount of the investment.

h

Inventories

Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the first-in first-out principle, and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition.

i

Financial instruments

i

Non-derivative financial instruments

Non-derivative financial instruments comprise investments in equity and debt securities, trade and other receivables, cash and cash equivalents, loans and borrowings, and trade and other payables.

Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair value through profit or loss, any directly attributable transaction costs. Subsequent to initial recognition non-derivative financial instruments are measured as described below.

Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.

Accounting for finance income and expenses is discussed in note 3 (n).

Held-to-maturity investments

If the Group has the positive intent and ability to hold debt securities to maturity, then they are classified as held-to-maturity. Held-to-maturity investments are measured at amortised cost using the effective interest method, less any impairment losses.

Available-for-sale financial assets

The Group's investments in equity securities and certain debt securities are classified as available-for-sale financial assets. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses (see note 3 (j)(i)), and foreign exchange gains and losses on available-for-sale monetary items (see note 3 (b)(i)), are recognised directly in equity. When an investment is derecognised, the cumulative gain or loss in equity is transferred to the statement of comprehensive income.

Financial assets at fair value through profit or loss

An instrument is classified as at fair value through profit or loss if it is held for trading or is designated as such upon initial recognition. Financial instruments are designated at fair value through profit or loss if the Group manages such investments and makes purchase and sale decisions based on their fair value in accordance with the Group's documented risk management or investment strategy. Upon initial recognition attributable transaction costs are recognised in the statement of comprehensive income when incurred. Financial instruments at fair value through profit or loss are measured at fair value, and changes therein are recognised in the statement of comprehensive income.

Other

Other non-derivative financial instruments are measured at amortised cost using the effective interest method, less any impairment losses. Investments in equity securities that are not quoted on a stock exchange are principally valued using valuation techniques such as discounted cash flow analysis, option pricing models and comparisons to other transactions and instruments that are substantially the same. Where fair value cannot be estimated on a reasonable basis by other means, investments are stated at cost less impairment losses.

(xiv)

ii

Derivative financial instruments

Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics and risks of the host contract and the embedded derivative are not closely related, a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, and the combined instrument is not measured at fair value through profit or loss.

Derivatives are recognised initially at fair value; attributable transaction costs are recognised in the statement of comprehensive income when incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are recognised immediately in the statement of comprehensive income.

(xv)

j

Impairment

i

Financial assets

A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate.

Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics.

All impairment losses are recognised in the statement of comprehensive income.

An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost the reversal is recognised in the statement of comprehensive income.

(xvi)

ii

Non-financial assets

The carrying amounts of the non-financial assets, other than inventories and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset's recoverable amount is estimated. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, the recoverable amount is estimated at each reporting date.

An impairment loss is recognized if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that largely are independent from other assets and groups. Impairment losses are recognized in the statement of comprehensive income. Impairment losses recognized in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

k

Share based payments

The grant date fair value of options granted to employees is recognized as an employee expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the options. The amount recognized as an expense is adjusted to reflect the actual number of share options that vest.

For equity settled share-based payment transaction other than transactions with employees the Group measures the goods or services received at the fair value of goods and services, unless that fair value cannot be estimated reliably. If this is the case the Group measures their fair values and the corresponding increase in equity, indirectly, by reference to the fair value of equity instruments granted.

l

Provisions

A provision is recognized if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.

m

Rental income

Rental income from investment property is recognized in the statement of comprehensive income on a straight-line basis over the time of the lease.

n

Finance income and expenses

Finance income comprises interest income on funds invested, dividend income, and foreign currency gains. Interest income is recognized as it accrues, using the effective interest method. Dividend income is recognized on the date that the Group's right to receive payment is established.

Finance expenses comprise interest expense on borrowings and the unwinding of the discount on provisions. All borrowing costs are recognized in the statement of comprehensive income using the effective interest method, except for borrowing costs related to qualifying assets which are recognized as part of the cost of such assets.

Foreign currency gains and losses are reported on a net basis.

o

Income tax expense

Income tax expense comprises current and deferred tax. Income tax expense is recognized in the statement of comprehensive income except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred tax is recognized using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for the following temporary differences: the initial recognition of goodwill, the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that they probably will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.

A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which temporary difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

p

Earnings per share

The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the total comprehensive income (loss) attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the total comprehensive income (loss) attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise warrants and share options.

q

New standards and interpretations not yet adopted

A number of new standards, amendments to standards and interpretations are not yet effective for the year ended 31 December 2009, and have not been applied in preparing these consolidated financial statements. Of these pronouncements, potentially the following will have an impact on the Group's operations. Management plans to adopt these pronouncements when they become effective, and has not yet analyzed the likely impact of these new standards on its consolidated financial statements.

Amendment to IAS 32 Financial Instruments: Presentation - Classification of Rights Issues clarifies that rights, options or warrants to acquire a fixed number of an entity's own equity instruments for a fixed amount are classified as equity instruments even if the fixed amount is determined in foreign currency. A fixed amount can be determined in any currency provided that entity offers these instruments pro rata to all of the existing owners of the same class of its own non-derivative equity instruments. The amendment is applicable for annual periods beginning on or after 1 February 2010.

Amendment to IAS 39 Financial Instruments: Recognition and Measurement - Eligible Hedged Items clarifies how the principles that determine whether a hedged risk or portion of cash flows is eligible for designation should be applied in particular situations. The amendment, which becomes mandatory for the Group's 2010 consolidated financial statements, with retrospective application required.

Amendment to IFRS 2 Share-based Payment - Group Cash-settled Share-based Payment Transactions which clarifies that the entity receiving goods or services in a share-based payment transaction that is settled by any other entity in the group or any shareholder of such an entity in cash or other assets is required to recognise the goods or services received in its financial statements. The amendment will come into effect on 1 January 2010.

IFRS 9 Financial Instruments will be effective for annual periods beginning on or after 1 January 2013. The new standard is to be issued in several phases and is intended to replace International Financial Reporting Standard IAS 39 Financial Instruments: Recognition and Measurement once the project is completed by the end of 2010. The first phase of IFRS 9 was issued in November 2009 and relates to the recognition and measurement of financial assets. The Group recognises that the new standard introduces many changes to the accounting for financial instruments and is likely to have a significant impact on Group's consolidated financial statements. The impact of these changes will be analysed during the course of the project as further phases of the standard are issued.

IFRIC 17 Distributions of Non-cash Assets to Owners addresses the accounting for non-cash dividend distributions to owners. The interpretation clarifies when and how a non-cash dividend should be recognised and how the difference between the dividend paid and the carrying amount of the net assets distributed should be recognised. IFRIC 17 became effective for annual periods beginning on or after 1 July 2009.

4

Disposal of subsidiaries

In February 2010 the Group sold Grand Development LLC for USD 32 thousand.

The disposal of the subsidiaries had the following effect on the Group's assets and liabilities on the date of disposal:

Recognised fair values on the date of disposal of subsidiary

(in thousands of USD)

Current assets

Trade and other receivables

 16

Cash and cash equivalents

 12

Net identifiable assets and liabilities

 28

Groups share in the net identifiable assets and liabilities

 28

Agreed price

 32

Gain on disposal of subsidiaries

 4

Consideration received

Cash disposed

 (12)

Net cash outflow

 (12)

Freehold land

Leasehold land

Total

(in thousands of USD)

At 1 January 2009

28,678

44,106

72,784

Acquisitions

-

-

-

Assets acquisition*

-

6,018

6,018

Construction

2,742

1,857

4,599

Disposal of subsidiary and joint venture (Construction)

-

(850)

(850)

Disposal of subsidiary and joint venture (Investment property)**

-

(11,459)

(11,459)

Recognized as joint venture

(447)

-

(447)

Fair value losses on revaluation

137

(1,951)

(1,814)

At 31 December 2009

 31,110

37,721

68,831

Acquisitions

-

-

-

Assets acquisition

-

-

-

Construction

 587

 348

 935

Disposal of subsidiary and joint venture (Construction)

-

-

-

Disposal of subsidiary and joint venture (Investment property)

-

-

-

Disposal of investment property

 (233)

-

 (233)

Fair value gains (losses) on revaluation

 455

 632

 1,087

At 30 June 2010

 31,918

 38,701

 70,620

*

During the year ended 31 December 2009 the Group recognized the acquisition of subsidiary Novyy Region LLC as an acquisition of assets since the entity had no operations or business activities.

**

Management engaged registered independent appraiser CB Richard Ellis LLC, having a recognized professional qualification and recent experience in the location and categories of the projects being valued, to assist with the estimation of fair value.

Management engaged registered independent appraiser CB Richard Ellis LLC, having a recognized professional qualification and recent experience in the location and categories of the projects being valued, to assist with the estimation of fair value.

The estimation of fair value is made using a net present value calculation based on certain assumptions, the most important of which as at 30 June 2010 are as follows:

*

monthly rental rates which were based on current rental rates ranging from USD 10 to USD 45 per sq.m.

*

development costs based on current construction prices

*

discount rates ranging from 12% to 24% p.a.

*

developers profit - 15.0-28.0%

*

growth rate -5.0-25.0%

*

all relevant licenses and permits, to the extent not yet received, will be obtained, in accordance with the timetables as set out in the investment project plans.

As at 31 December 2009 respective assumptions were as follows:

*

monthly rental rates which were based on current rental rates ranging from USD 10 to USD 45 per sq.m.

*

development costs based on current construction prices

*

discount rates ranging from 14% to 27% p.a.

*

developers profit - 20.0-25.0%

*

all relevant licenses and permits, to the extent not yet received, will be obtained in accordance with the timetables as set out in the investment project plans.

6

Prepayments for land

During six months 2010 the Group made several prepayments for land acquisition totaling USD 1,575 thousand for land bank project and 1,000 thousand for Glangate project. As a result of these transactions the total prepayments for land were increased from USD 121,487 thousand as at 31 December 2009 to USD 124,062 thousand as at 30 June 2010.

The prepayments made for land bank are secured by the relevant land plots as per the table below.

The Group entered into the following pledge agreements to secure prepayments for land. The main conditions of the agreements are as follows:

Date of signing

Pledgor

Collateral

Amount of prepayment for land

Assigned value of the collateral

(In thousands of USD)

24 December 2008

K Zatyshna Domivka LLC, Ukraine

The corporate rights of Pledgor in Ukrainian subsidiaries that own land amounting to 85.5 hectares located in the Kyiv region.

16,500

16,500

25 December 2008

Land Investments LLC, Ukraine

The corporate rights of Pledgor in Ukrainian subsidiaries that own land amounting to 191.5 hectares located in the Kyiv region.

54,500

54,500

25 December 2008

Naukovo-doslidne innovatsiyne gospodarstvo LLC, Ukraine

The corporate rights of Pledgor in Ukrainian subsidiaries that own land amounting to 156.0 hectares located in the Kyiv region.

50,987

51,000

121,987

122,000

On 28 October 2008 the Group concluded a preliminary agreement with Texville Ltd, Cyprus, for purchasing of a Ukrainian company (Ukr SPV) for USD 3,000 thousand (Glangate project). Ukr SPV is expected to receive a freehold right to a land plot with a total area of 3.7 hectares, located at Gagarina Avenue, Rivne, Ukraine (in the text below referred to as Land Plot-2). The first payment of USD 1,000 thousand was made upon signing of the preliminary agreement. The full settlement will be made upon obtaining by Ukr SPV the original state act of ownership over the land plot and signing a share purchase agreement for the acquisition of Ukr SPV.

According to Assignment agreement signed on 9 April 2010 between the Group, Texville Ltd (Seller-1) and Gonale Holdings Ltd (Seller-2), the Seller-1 agreed to assign and transfer to the Seller-2 all of its rights and obligations under the preliminary agreement in respect of acquisition of freehold rights to the land plots in Rivne.

On 15 April 2010 the Group signed amendment to the preliminary agreement between the Group and Gonale Holdings Ltd provided that the Preliminary Agreement is entered into by the Parties with the aim of the co-operation for the mutual benefits in the framework of the conclusion and subsequent execution of the following agreements:

*

as concerns the acquisition by the Group from the Gonale Holdings Ltd of one hundred percent (100%), but not less than 99.99%, of the participatory interest in the share capital of the company that directly or indirectly owns the Land Plot-1 located at Gagarina Avenue, Rivne, Ukraine with total area 1.9 ha and USD 1,500 thousand purchasing price ;

*

the Agency Agreement between the Group and Gonale Holdings Ltd. with respect to the purchasing by the Ukr SPV of the freehold right to the Land Plot-2 with a total area of 3.7 hectares, located at Gagarina Avenue, Rivne, Ukraine and USD 3,000 thousand purchasing price.

In June 2010 the Group paid 1,000 thousand for Land Plot-1 according the Preliminary Agreement.

7

Investments in associate and interest in joint venture

Name

Ownership

Total assets

Total liabilities

Carrying value of the investment

(in thousands of USD)

Henryland Group Ltd.

38%

 35,893

 5,545

11 532

Hindale Ltd.

18.77%

 21,697

 5,366

3 066

 57,590

 10,910

14 598

The Group has the right to appoint two (out of four) representatives to the Board of Directors of Hindale Ltd. Pursuant to the shareholders agreement, the management structure of Hindale Ltd provided that significant operating decisions require consent by all parties.

In October 2009, due to the fact that certain conditions set in the shareholders agreement between the Group and the partner were not met (in particular, the State Detailed Expertise was not procured and the land plot was not cleared of garages before October 2009) the Group decreased its stake in Hindale Ltd from 50% + 1 share to 18.77 % and as a result in Promtek LLC, which is 100% owned by Hindale LTD.

The share capital of Hindale Ltd was decreased by 1,539 ordinary shares held by the Group. In return, the Group received USD 5,000 thousand and an option to repurchase the 1,539 ordinary shares of Hindale Ltd for USD 5,000 thousand in accordance with the shareholders agreement. Because the fair value of of 1,539 shares of Hindale Ltd as at 31 December 2009 is equal to USD 7,437 thousand, the Group determines the excess of the fair value of the shares over purchase price in the amount of USD 2,437 thousand to be the fair value of the call option and recognized it in the consolidated statement of financial position as at 31 December 2009. As at 30 June 2010 the fair value of the call option is decreased by USD 25 thousand due to revaluation of the Komarova project. Loss on revaluation of the call option is recognized directly in statement of comprehensive income (loss).

The following is summarized financial information, in aggregate, in respect of associates as at for the six months ended 30 June 2010 and 30 June 2009:

Henryland Group Ltd.

Hindale Ltd.

Total

30 June 2010

30 June  2009

30 June 2010

30 June 2009

30 June 2010

30 June 2009

(in thousands of USD)

(Loss) profit for the year

1 131

1 427

(79)

(1 863)

1 052

(436)

Share in (loss) profit for period

429

542

(15)

(931)

414

(389)

Consolidated

Consolidated

30 June 2010

31 December 2009

(in thousands of USD)

Trading property

 12,200

12,210

Other inventory

 32

31

Construction materials

 1

1

Total

 12,233

12,242

As at 30 June 2010 trading property of USD 12,200 thousand represent a net realizable value as defined by the independent appraiser. The revaluation loss for the six months of 2010 totaling of USD 10 thousand was recognized directly in the statement of comprehensive loss.

Consolidated

Consolidated

30 June 2010

31 December 2009

(in thousands of USD)

Prepayments made

 1,497

462

Other receivables

 1,356

2,460

Accrued interest

 208

88

Total

 3,061

3,010

Other receivables includes a loan granted during 2009 to an unrelated party, Morgan Furniture Ltd, of USD 346 thousand, which is collateralized by industrial real estate and which is due to be repaid by 31 December 2010. This loan was taken over from Rodovid bank as a partial settlement of a deposit held by the Group in this bank as at 31 December 2008. This decision was approved by the Board in a written resolution dated 17 February 2009.

11

Cash and cash equivalents

Cash and cash equivalents as at 30 June 2010 and as at 31 December 2009 are as follows:

Consolidated

Consolidated

30 June 2010

31 December 2009

(in thousands of USD)

Bank balances

861

806

Call deposits

79,860

85,389

Total

 80,721

86,195

12

Equity

Movements in share capital and share premium for the year ended 30 June 2010 are as follows:

Ordinary shares

Amount

(in thousands of USD, except for share numbers)

Number of shares unless otherwise stated

Outstanding as at 31 December 2008, fully paid

133,385,716

2,668

Issued during 2009

-

-

Own shares acquired and cancelled

(15,669,201)

(314)

Outstanding as at 31 December 2009, fully paid

117,716,515

2,354

Issued during six months 2010

-

-

Own shares acquired and cancelled during six months 2010

-

-

Outstanding as at 30 June 2010, fully paid

117,716,515

2,354

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Parent Company.