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Orchid Developments Group Limited

('Orchid' or the 'Group')

Interim Results for the 6 months ended 30 June 2008

Highlights

• Varna Grand Mall multi-use complex - general contractor agreement signed and construction works are progressing as scheduled. Orchid has signed long term leases with tenants for approximately 21,000 sq m and agreed head of terms for additional 9,500 sq m (representing over 60% of the mall area).

• Financing - agreements concluded for Grand Mall, Orchid Gardens and Orchid Business Center Varna providing a total of approximately €145 million of facilities to the Company.

• Residential units sales in Varna Hills project are progressing well with 277 apartments  sold of the current available stages.

David Holland, chairman, said:

'Our developments are progressing in accordance with our expectations and we continue to see positive interest in our residential and commercial developments. We are monitoring the real estate market in Bulgaria and watching for opportunities which may arise.'

Orchid Developments Group Limited	+359 2 981 9955
Guy Meyohas
Shore Capital and Corporate Limited	+44 20 7408 4090
Graham Shore
Dru Danford
Citigate Dewe Rogerson	+44 20 7638 9571
Nicola Smith

Chief Executive's Review

Operational review

Orchid is active in all principal sub-sectors of the Bulgarian real estate and leisure markets: residential, commercial property and retail developments in Sofia and Varna including the operation of hotels on Varna's coast.

Orchid is focusing on progressing the development of its commercial and residential projects and has made considerable progress in the development of its multi-use complex, Grand Mall Varna and in the construction of Varna Hills residential development. In addition, the Group has started the construction of the Orchid Business Center and the Orchid Gardens multi-use project, both in Varna. 

During the period, Orchid concluded new financing agreements for the Grand Mall, Orchid Gardens and the Orchid Business Center developments providing a total of €145 million in debt facilities to the Company.

The Directors are confident that Orchid can continue to deliver on its stated strategy of generating value for its shareholders by developing quality residential, commercial and retail developments in prime locations in selected Bulgarian cities.

Commercial and retail developments 

Orchid Multi Use Complex Varna - Construction is progressing as planned with foundation slab works expected to be completed in September. The general contractor agreement was signed in August and the financing agreement was signed with a consortium of European banks led by OTP Hungary during the period. The Company has also now signed long term leases with tenants for approximately 21,000 sq m and agreed head of terms for an additional 9,500 sq m (representing over 60% of the mall area).

Orchid Business Center Varna - Construction of the Orchid Business Center Varna is progressing as planned and is scheduled to be completed by Q1 2010. The financing agreement was signed with Raiffeisen bank and Colliers International have been nominated as the exclusive brokers for this development.

Varna Gardens - shoring and excavation works are expected to be completed in September. Selling and leasing activities of this high-end residential, office and retail development commenced recently. 

Residential developments

Orchid Hills Sofia - We are currently in the process of securing the usage permit for this high end development. A total of 172 apartment units have sold as at the end of August 2008 out of a total of 177 (165  as at the reporting date) for a total consideration of € 15.1 million.  

Orchid Hills Varna - The construction of the first stage of our gated residential complex in Varna (174 apartment units) is completed and we expect the usage permit to be granted in September. The second stage, comprising 162 units, started construction during September 2007, and is scheduled to complete in March 2009. We have sold 231 units in total out of the current stages as at the end of August (216 as at the reporting date) for a total consideration of €13.2 million. We started the marketing of the third stage (135 units) in July and have concluded preliminary agreements for the sale of 46 units for a total consideration of €3.1 million as at the end of August. The construction of stage 3 is planned to commence in the 4th quarter of 2008.

Hotels and Leisure

As announced on 14 April 2008, an agreement for the sale of Yavor Zlatni AD, a subsidiary company, which owns the Yavor hotel, was signed on December 2007 for a total consideration of €9.85 million. The sale is expected to complete next month. The assets and liabilities of Yavor Zlatni are shown as 'Non-current assets held for sale' in the Consolidated Balance Sheet and its net result is shown as 'Net loss from discontinued operations' in the Consolidated Income Statement. The Yavor hotel was not opened to the public this season.

The other hotel which the Group owns, the Golden Yavor hotel in the Golden Sands resort on the Black Sea, operates during the summer and closes for the low season. It was opened for the summer season in May, with better occupancy rates compared to the previous season. The management is looking at ways to maximise shareholder value with this asset.

Future Plans

We will concentrate our efforts in the near future on progressing the construction of our residential and commercial developments in Varna and Sofia, as well as on the leasing of the retail and commercial spaces and selling of the apartment units in our residential projects. 

Outlook

The Bulgarian property market in general, is currently witnessing stabilisation in real estate prices, as well as a slowdown in the purchasing activity of international property funds. However, the Group's reputation, its track record and its pipeline of developments should enable us to further grow our business in the coming years. The Directors remain confident that Orchid can continue to pursue exciting and profitable opportunities in both the commercial and residential markets and will continue to pursue our strategy of opportunistic land acquisitions in our key markets, being Sofia and Varna, as well as in other large cities in Bulgaria.

Financial Review

During the first six months of 2008, the Group's revenues increased to €5.3 million (30.06.2007: €4.2 million), primarily due to recognition of income from the sale of apartments in its residential projects. Our policy in relation to residential projects is to recognise income on the basis of the percentage of construction complete whilst the sale of land and rights is recognised on actual transfer of ownership. 

At 30 June 2008, the total sales value of units sold at Orchid Sofia Hills amounted to approximately €12 million (excluding VAT), of which a net sales amount of approximately €0.7 million was recognised in the reporting period.  

The total sales value of the units sold at Varna Hills amounted to approximately €12.2 million (excluding VAT), of which a net sales amount of approximately €4.3 million was recognised in the reporting period. 

Revenues for the period also include the results of our Golden Yavor hotel in Varna, which generated revenue of approximately €0.1 million (30.06.2007: €0.1 million).

The net loss after tax of approximately €1.1 million (2007: €1.6 million) for the period reflects the large scale of the Group's development and marketing activities during the first six-month period. 

As at 31.12.2007 we reclassified the Yavor Hotel in our balance sheet as 'investment held for sale'. 

Current trading

Orchid has secured financing for all of its projects under development. The construction of our flagship development, Grand Mall Varna, is progressing as planned. 

The construction of Orchid Hills, the residential development in Varna, is well advanced with the first stage now complete, and the second stage likely to follow in Q2 2008. The construction of the third stage is planned to start in Q4 2008 and we are witnessing strong demand for the apartment units by local residents.  

The Group has commenced the construction of the Business Park project in Varna with completion envisaged in December 2009. The excavation and shoring works in Orchid Gardens project are expected to complete this month and we plan to continue with the foundation slab works in October.

The Group is expecting to finalise the sale of its Yavor hotel in September 2008.

The Board views the future prospects of the Group with confidenc

 

Interim Consolidated Balance Sheet

	Notes	Unaudited	Unaudited	Аudited
		6 months to 30 June 2008	6 months to 30 June 2007	31 December  2007
		€'000	€'000	€'000
Assets
Non-current
Property, plant and equipment		56,387	44,389	53,088
Equity accounted investments in associates		272	282	277
Goodwill		3	1,639	3
Other intangible assets		40	42	46
Other assets		208	-	135
Long-term financial assets		-	2	-
Long-term loans due from associates		286	356	277
Deferred tax assets		249	131	169
		57,445	46,841	53,995
Current
Receivables from sale of investment		-	368	368
Development work in progress		11,541	4,738	6,062
Inventories		16	57	3
Development contract receivables		5,860	6,956	4,920
Short-term loans		-	75	-
Trade receivables		3,780	1,733	2,623
Receivables from related parties		23	14	23
Tax receivables		2,611	1,072	942
Other receivables		354	310	376
Cash and cash equivalents		5,146	12,120	5,950
		29,331	27,443	21,267
Non-current asssets held for sale		5,762	-	5,616
Total assets		92,538	74,284	80,878
Approved by the Board and signed on its behalf by:
Guy Meyohas
Joint Chief Executive
19  September 2008

  

Interim Consolidated Balance Sheet

	Notes	Unaudited	Unaudited	Аudited
		6 months to 30 June 2008	6 months to 30 June 2007	31 December 2007
		€'000	€'000	€'000
Equity
Share capital		760	760	760
Share premium		64,216	64,216	64,216
Other reserves		337	118	212
Retained earnings		(2,494)	400	(1,364)
Total equity		62,819	65,494	63,824
Liabilities
Non-current
Long-term borrowing liabilities		5,728	4,698	4,111
Long-term lease liabilities		18	36	22
		5,746	4,734	4,133
Current
Short-term borrowing liabilities		16,025	294	7,587
Short-term lease liabilities		18	29	27
Trade payables		6,184	2,901	4,395
Interest payable		934	137	269
Tax liabilities		481	384	317
Payables to employees and social  security institutions		267	278	277
Other liabilities to related parties		22	33	30
		23,931	4,056	12,902
Liabilities directly associated with non-current assets held for sale		42	-	19
Total liabilities		29,719	8,790	17,054
Total equity and liabilities		92,538	74,284	80,878

Interim Consolidated Income Statement

	Notes	Unaudited	Unaudited	Аudited
		6 months to 30 June 2008	6 months to 30 June 2007 Restated	31 December 2007
		€'000	€'000	€'000
Revenue		5,297	4,212	8,111
Development costs		(3,732)	(3,336)	(6,358)
Cost of materials		(117)	(82)	(249)
Hired services expenses		(704)	(535)	(1,221)
Employee compensation and benefit expenses		(1,127)	(1,142)	(2,186)
Depreciation and amortisation		(179)	(165)	(339)
Other expenses		(160)	(107)	(330)
Operating loss		(722)	(1,155)	(2,572)
Result from equity accounted associates		(5)	(3)	(9)
Interest expense		(203)	(202)	(487)
Interest income		49	156	286
Other financial expenses, net		(22)	(110)	(360)
Loss for the period before tax		(903)	(1,314)	(3,142)
Tax expenses, net		(15)	(36)	52
Net loss for the period from continuing operations		(918)	(1,350)	(3,090)
Net loss from discontinued operation		(212)	(206)	(126)
Net loss for the period		(1,130)	(1,556)	(3,216)

Loss per share		€	€	€
Continuing operations
Basic loss per share		(0.01)	(0.02)	(0.04)
Diluted loss per share		(0.01)	(0.02)	(0.04)
Discontinued operations
Basic loss per share		(0.003)	(0.003)	(0.002)
Diluted loss per share		(0.003)	(0.003)	(0.002)

In 2007 the Group reclassified one subsidiary as non-current assets held for sale. As a result all income and expenses related to it are shown under Net Loss from Discontinued Operations.

Interim Consolidated Statement of Cash Flows

	Notes	Unaudited	Unaudited	Аudited
		6 months to 30 June 2008	6 months to 30 June 2007	31 December 2007
		€'000	€'000	€'000
Cash flows from operating activities
Cash receipts from customers		5,207	2,539	10,878
Cash paid to suppliers		(10,042)	(6,248)	(14,946)
Cash paid to employees and social security institutions		(1,209)	(1,202)	(2,420)
Taxes paid		(660)	(374)	(1,222)
Taxes received		121	185	1,453
Other cash inflows, net		(80)	(54)	(256)
Net cash flows from operating activities		(6,663)	(5,154)	(6,513)
Cash flow from investing activities
Purchase of property, plant and equipment		(5,713)	(1,623)	(12,784)
Proceeds from sale of investment		350	12,247	12,247
Proceeds from sale of property, plant and equipment		54	-	-
Interest received		42	170	284
Purchase of intangible assets		-	-	(10)
Loans granted		(2)	(3)	(26)
Loan repayments received		15	100	75
Deposit received for the sale of the asset held for sale		1,180	-	-
Net cash flows from investing activities		(4,074)	10,891	(214)
Cash flows from financing activities
Proceeds from loans		10,349	-	6,818
Repayment of bank loans		(294)	-	(425)
Discharge of finance lease liability		(4)	(23)	(6)
Proceeds from share capital issued		-	6	221
Interest paid		(195)	(189)	(392)
Net cash flows from financing activities		9,856	(206)	6,216
Cash outflow related to current exchange loss		(8)	(5)	(12)
Cash and cash equivalents, beginning of period		6,071	6,594	6,594
Net (decrease)/increase in cash and cash equivalents		(889)	5,526	(523)
Cash and cash equivalents, end of period		5,182	12,120	6,071
Included in non-current assets held for sale in the Balance sheet		36	-	121
Included in cash and cash equivalents in the Balance sheet		5,146	12,120	5,950

Interim Consolidated Statement of Changes in Equity

All amounts presented in €'000	Share capital	Premium reserve	Other reserves	Accumulated loss	Total  equity
Balance 1 January 2007	758	63,996	226	1,734	66,714
Net loss for the period	-	-	-	(1,556)	(1,556)
Total recognised income and expenses for the period	-	-	-	(1,556)	(1,556)
Shares issued	2	220	-	-	222
Employee share based compensation	-	-	114	-	114
Share options exercised	-		(222)	222	-
Balance 30 June 2007	760	64,216	118	400	65,494
Balance 1 January 2008	760	64,216	212	(1,364)	63,824
Net loss for the period	-	-	-	(1,130)	(1,130)
Total recognised income and expenses for the period	-	-	-	(1,130)	(1,130)
Employee share based compensation	-	-	125	-	125
Balance 30 June 2008	760	64,216	337	(2,494)	62,819

Notes to the Interim Consolidated Financial Statements

  1.  Basis of preparation

The interim consolidated financial statements for the six months ended 30 June 2008 have been prepared in accordance with International Financial Reporting Standards (IFRS), applicable to accounting periods ended on 30 June 2008, as developed and published by the International Accounting Standard Board and as approved by the EU. 

These interim consolidated financial statements have been prepared in accordance with IAS 34, 'Interim Financial Reporting'. They do not include all of the information required for full annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group for the year ended 31 December 2007.

The main accounting policies of the Group have remained unchanged from those set out in the Group's 2007 annual report and accounts. The interim consolidated financial information has been reviewed by the Group's auditors. A copy of the auditors' review is attached to this interim announcement.

These consolidated condensed interim financial statements have been approved for issue by the Board of Directors on 19 September 2008.

  2.  Accounting policies and changes during the period

Except as described below, the accounting policies applied are consistent with those of the annual financial statements for the year ended 31 December 2007, as described in those annual financial statements.  

Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings. 

The following new standards, amendments to standards or interpretations are mandatory for the first time for the financial year beginning 1 January 2008, but are not currently relevant for the Group:

• IFRIC 11 'IFRS 2 - Group and treasury share transactions'.

• IFRIC 12 'Service concession arrangements'.

• IFRIC 14 'IAS 19 - the limit on a defined benefit asset, minimum funding requirements and their interaction'.

The following new standards, amendments to standards and interpretations have been issued, but are not effective for the financial year beginning 1 January 2008 and have not been early adopted:

• IFRIC 15 'Agreements for the construction of real estate', effective for annual periods beginning on or after 1 January 2009. The expected impact of the real estate construction agreements is still being assessed by the directors. As of 30 June 2008 the adoption of this interpretation would have led to restatement in the consolidated financial statements of the Group according to preliminary information: 

as of 30 June 2008 reduction of the profit for the current period net of tax of about €696,000 (as of 30 June 2007: €0 as of 31 December 2007: €137,000);

reduction of retained earnings from prior periods as of 31 December 2006 of about €2,080,500, net of tax;

increase in development work in progress by €15,562,000 and 

increase in advances from clients by €14,335,000.

• IFRS 8 'Operating segments', effective for annual periods beginning on or after 1 January 2009. IFRS 8 replaces IAS 14, 'Segment reporting' and requires a 'management approach' under which segment information is presented on the same basis as that used for internal reporting purposes. The expected impact is still being assessed by Group's management. 

• IAS 23 (amendment) 'Borrowing costs', effective for annual periods beginning on or after 1 January 2009. This amendment will not have effect on the Group, as it currently applies a policy of capitalizing borrowing costs. 

• IFRS 2 (amendment) 'Share-based payment', effective for annual periods beginning on or after 1 January 2009. Management is assessing the impact of changes to vesting conditions and cancellations on the Group's share option schemes. 

• IFRS 3 (amendment) 'Business combinations' and consequential amendments to IAS 27 'Consolidated and separate financial statements', IAS 28 'Investments in associates' and IAS 31 'Interests in joint ventures', effective prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009. Management is assessing the impact of the new requirements regarding acquisition accounting, consolidation and associates on the Group. The Group does not have any joint ventures.

• IAS 1 (amendment) 'Presentation of financial statements', effective for annual periods beginning on or after 1 January 2009. Management is in the process of developing proforma accounts under the revised disclosure requirements of this standard.

• IAS 32 (amendment) 'Financial instruments: presentation' and consequential amendments to IAS 1 'Presentation of financial statements', effective for annual periods beginning on or after 1 January 2009. This is not relevant to Orchid Developments Group Ltd., as it does not have any puttable instruments.

• IFRIC 13 'Customer loyalty programmes', effective for annual periods beginning on or after 1 July 2008. Management does not apply customer loyalty programmes. 0

• IFRIC 16 'Hedges of a net investment in a foreign operation', effective for annual periods beginning on or after 1 October 2008. The Group does not apply hedging of investments in foreign operations. 

  3.  Segment reporting

For reporting purposes the divisions of the Group are as follows: 

• Hotel

• Commercial property development

• Residential property development

• Mixed property development

• Central management

The activities undertaken by the hotel segment include the development, renovation and operation of hotels on the Black Sea coast. The development and letting out of premises for offices and shops is undertaken by the commercial property segment. The residential property segment develops and sells apartments and houses. The mixed property segment involves both commercial and residential activities. All segments operate in Bulgaria.

Business segments 30 June 2008	Commercial property	Residential property	Mixed property	Hotel	Central management	Consolidation	Group
	€’000	€’000	€’000	€’000	€’000	€’000	€’000
Rеvenue
From external customers	30	5,027	-	126	114	-	5,297
From other Segments	-	-	-	-	355	(355)	-
Operating result	(275)	912	(102)	(246)	(932)	(79)	(722)
Finance cost, net	4	(2)	-	(198)	38	(1)	(159)
Other financial expenses, net	(10)	(3)	(1)	(2)	(6)	-	(22)
Tax expense	26	(95)	10	44	-	-	(15)
Net result for the year from continuing operations	(255)	812	(93)	(402)	(900)	(80)	(918)
Net result of investment from discontinued operations	-	-	-	(212)	-	-	(212)
Depreciation and amortisation	(10)	(22)	(2)	(112)	(33)	-	(179)
Property, plant and equipment	32,885	1,051	3,661	7,203	194	11,393	56,387
Consolidated total assets	40,368	14,395	11,034	19,709	63,501	(56,469)	92,538
Consolidated total liabilities	20,569	2,614	1,028	6,020	552	(1,064)	29,719

Business segments 30 June 2007	Commercial property	Residential property	Mixed property	Hotel	Central management	Consolidation	Group
	€’000	€’000	€’000	€’000	€’000	€’000	€’000
Rеvenue
From external customers	10	4,000	-	121	81	-	4,212
From other Segments	-	-	-	-	223	(223)	-
Operating result	(109)	332	(16)	(143)	(1,184)	(35)	(1,155)
Finance cost, net	(5)	-	-	(194)	148	2	(49)
Other financial expenses, net	(4)	(4)	-	(1)	(101)	-	(110)
Tax expense	9	(46)	-	-	1	-	(36)
Net result for the year from continuing operations	(109)	282	(16)	(338)	(1,136)	(33)	(1,350)
Net result of investment from discontinued operations	-	-	-	(206)	-	-	(206)
Depreciation and amortisation	(4)	(22)	-	(111)	(28)	-	(165)
Property, plant and equipment	11,551	1,092	9,345	10,857	434	11,110	44,389
Consolidated total assets	13,258	14,994	9,646	14,210	66,001	(43,825)	74,284
Consolidated total liabilities	481	2,559	536	5,456	907	(1,149)	8,790

  4.  Property, plant and equipment

	Land	Buildings	Machines and equipment	Vehicles	Furniture and fixtures	Assets  under construction	Total
	€'000	€'000	€'000	€'000	€'000	€'000	€'000
Cost	30,566	8,711	1,115	438	1,023	4,053	45,906
Accumulated depreciation	-	(778)	(134)	(114)	(491)	-	(1,517)
Net book amount  at 30 June 2007	30,566	7,933	981	324	532	4,053	44,389
Cost	37,841	5,694	986	385	624	8,244	53,774
Accumulated depreciation	-	(262)	(84)	(131)	(209)	-	(686)
Net book amount  at 31 December 2007	37,841	5,432	902	254	415	8,244	53,088
Cost	31,957	6,250	989	399	629	17,023	57,247
Accumulated depreciation	-	(318)	(111)	(181)	(250)	-	(860)
Net book amount  at 30 June 2008	31,957	5,932	878	218	379	17,023	56,387

	Land	Buildings	Machines and equipment	Vehicles	Furniture and fixtures	Assets under construction	Total
	€'000	€'000	€'000	€'000	€'000	€'000	€'000
Carrying amount  at 1 January 2007	30,381	7,997	994	244	604	2,224	42,444
Additions	8,160	-	24	135	24	6,528	14,871
Transfers within property, plant and equipment	184	24	-	-	-	(208)	-
Transfer of cost related to non-current asset held for sale	(878)	(3,018)	(138)	(89)	(419)	(230)	(4,772)
Transfer of accumulated depreciation related to non-current asset held for sale	-	603	77	68	361	-	1,109
Disposals	(6)	-	-	-	(1)	(70)	(77)
Depreciation charge	-	(174)	(55)	(104)	(154)	-	(487)
Carrying amount at 31 December 2007	37,841	5,432	902	254	415	8,244	53,088
Additions	42	557	5	14	5	8,779	9,402
Transfer to development work in progress	(5,926)	-	-	-	-	-	(5,926)
Disposals	-	-	(1)	-	-	-	(1)
Depreciation charge	-	(57)	(28)	(50)	(41)	-	(176)
Carrying amount  at 30 June 2008	31,957	5,932	878	218	379	17,023	56,387

  5.  Taxation

Orchid Developments Group Ltd. is a registered offshore company exempt from taxes. Its offshore subsidiaries are also tax-exempt companies. The current income tax expenses are attributable only to Bulgarian companies owned by the Group. 

For the periods ended 30 June 2008 and 31 December 2007, the corporate income tax rate in Bulgaria was 10%. 

  6.  Loss per share

The basic and diluted loss per ordinary share are calculated on weighted average number of ordinary shares as follows:

	Basic	Diluted
30 June 2008	75,966,260	76,768,023
31 December 2007	75,870,507	76,576,517
30 June 2007	75,773,166	75,773,166

 

 

  7.  Share issue

During the period from 1 January 2007 to 30 June 2007 211,818 shares were issued to satisfy share options previously granted under Orchid Developments Group employee share option scheme. Shares issued and authorised for the period to 30 June 2007 may be summarised as follows:

6 months to 30 June 2007	Number	€'000
At 1 January 2007	75,754,442	758
Issue of shares	211,818	2
At 30 June 2007	75,966,260	760

Year to 31 December 2007	Number	€'000
At 1 January 2007	75,754,442	758
Issue of shares	211,818	2
At 31 December 2007	75,966,260	760

The share issue totalled € 222,000 and increased equity by € 2,000 as of 30 June 2007.  

No shares were issued during the period from 1 January 2008 to 30 June 2008.

  8.  Borrowing liabilities

 

	30 June	30 June	31 December
	2008	2007	2007
	€'000	€'000	€'000
Long-term loans	5 728	4 698	4 111
Short-term loans	16 025	294	7 587
	21 753	4 992	11 698

Changes in loans during the period are presented as follows:

	€'000
For the period ended 30 June 2007
Beginning balance 1 January 2007	4 992
Ending balance 30 June 2007	4 992
For the period ended 30 June 2008
Beginning balance 1 January 2008	11 698
Received during the period	10 349
Repaid during the period	(294)
Ending balance 30 June 2008	21 753

The Group received funding for its project in accordance with the following loan agreements signed with banks during the period ended 30 June 2008:

• A loan contract dated 7 February 2008 was signed between the subsidiary Orchid Multicomplex Varna OOD and the lender DSK EAD, Bulgaria. The agreed principal is €10 million, out of which € 8.731 million was drawn as of 30 June 2008. The annual interest rate is three-month EURIBOR plus a margin. The interest charges are paid quarterly and the total amount of the principal should be repaid on 6 February 2009. The collateral provided by the Group is a mortgage over land in Varna owned by the borrower with an area of 36,202 sq m.

• A facility agreement dated 24 March 2008 was signed by the subsidiary Orchid Centre Varna EOOD and Raiffeisenbank, Bulgaria. The negotiated amount of the principal is up to    €11.95 million, out of which €1.,347 million was drawn until 30 June 2008. The annual interest rate is the three-month EURIBOR plus a margin. According to the repayment terms, the loan should be repaid by 20 December 2019 in forty consecutive quarterly installments starting from 20 March 2010. The collateral provided to the bank is land in Varna owned by the borrower with an area of 4,629 sq m and the right to build related to it.

• A revolving loan contract dated 24 March 2008, signed between the subsidiary Orchid Centre Varna EOOD and Raiffeisenbank, Bulgaria. The agreed principal is up to €900,000.  The amount utilized as of 30 June 2008 is €271,000. The annual interest rate is the three-month EURIBOR plus a margin. The maturity date is 20 June 2010. The principal shall be repaid in six consecutive equal monthly installments, each for the amount of €150,000, starting from 20 January 2010 until 20 June 2010. The collateral provided to the bank is land in Varna owned by the borrower with an area of 4,629 sq m and a first ranking pledge on all future receivables under lease agreements to be signed until the date of maturity of the loan.

The Group signed on 18 April 2008 a credit facility agreement with a consortium of European banks led by OTP Bank to finance the project carried out by the subsidiary Orchid Multicompex Varna up to the amount of €107,026,548.. The first repayment date of the loan is 31 December 2010. The annual interest rate consists of three-month EURIBOR plus a margin. The principal shall be repaid in 78 quarterly payments following 31 December 2010.  The loan is collaterized by pledge over the subsidiary enterprise and a pledge over its shares.

  9.  Contingent liabilities

There are no pending court claims against the Group, nor any circumstances concerning the Group to give rise to claims.

  10.  Post balance sheet events

No significant and/or material non-adjusting events took place concerning the activities of the Group between the period of the preparation of the interim financial statements and their approval by the Board of Directors.

REPORT ON REVIEW OF INTERIM FINANCIAL INFORMATION

To the shareholders 

Of Orchid Developments Group Ltd.

Introduction

We have been engaged by the Company to review  the accompanying interim consolidated balance sheet of Orchid Developments Group Ltd. as of June 30, 2008 and the related statements of income, changes in equity and cash flows for the six-month period then ended, and a summary of significant accounting policies and other explanatory notes. The directors are responsible for the preparation and fair presentation of this interim financial information in accordance with International Financial Reporting Standards, as developed and published by the IASB and as adopted by the EU. Our responsibility is to express a conclusion on this interim financial information based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements 2410 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity.' A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim financial information, the financial position of the Group as at June 30, 2008, and its financial performance and its cash flows for the six-month period then ended are not prepared, in all material respects, in accordance with International Accounting Standard 34, as adopted by the EU.

 

Auditing company	Registered auditor
Grant Thornton Ltd	Mariy Apostolov

September 19, 2008

Grant Thornton Ltd.

Chartered Accountants

Sofia, Bulgaria

ENDIR ILFVVAIIALIT