ELMEC SPORT BULGARIA EOOD

ELMEC SPORT BULGARIA EOODANNUAL FINANCIAL STATEMENTSANNUAL REPORT ON THE ACTIVITIESThe annual financial statements from page 1 to page 22 has been approved and signed on behalf ofELMEC SPORT BULGARIA EOOD (Ltd. Sole) by:Representative:__________________________Prepared by:_______________________Mihail KatsibirisZoya ShiyakovaThe report by the management on the activities during the year ending on 31.12.2008, from page 22 to page25, has been approved and signed on behalf of “ELMEC SPORT BULGARIA EOOD”, by:__________________________Mihail KatsibirisSofia, 18 March 2009

“Elmec Sport Bulgaria” ЕООDReport and Financial Statements for the year ended 31 December 2008____________________________________________________________________INCOME STATEMENT for the period from 01 January to 31 December 2008All amounts are in thousand Bulgarian LevaNote 2008 2007Revenue 1.1.1. 19,248 12,273Cost of sales 1.2.7 (9,099) (5,924)Gross profit 10,149 6,349Other income 1.1.2. 4Administration, selling and distribution expenses 1.2. (4,910) (4,313)Operating profit 5,243 2,036Finance income 1.1.3. 65 6Finance costs 1.2.8. (145) (80)Profit before tax 5,163 1,962Income tax expense (563) (245)Deferred tax 6 (11)Tax 1.2.9. (557) (256)Net Profit 4,606 1,706Representative:Prepared by:Mihail KatsibirisManagerZoya ShiyakovaChief AccountantThe notes on pages 14 to 22 form an integral part of these financial statements.2

“Elmec Sport Bulgaria” ЕООDReport and Financial Statements for the year ended 31 December 2008____________________________________________________________________BALANCE SHEET as at 31.12.2008All amounts are in thousand Bulgarian Leva Note 31.12.2008 31.12.2007ASSETSNon-current assetsProperty, plant and equipment 2.1. 1,657 1,107Intangible assets 2.2. 44 79Trade and other receivables 2.4. 181 196Deferred tax asset 2.3. 15 -Total noncurrent assets 1,897 1,382Current assetsInventories 2.5. 6,409 3,433Trade and other receivables 2.6. 3,060 992Cash at bank and in hand 2.7. 2,175 963Total current assets 11,644 5,388Total assets 13,541 6,770EQUITY AND LIABILITIESShare capital 2.12.1. 3,020 3,020Retained earnings 2.12.2. 7,010 2,404Total equityNon-current liabilities10,030 5,424Borrowings 2.13. 144Finance lease 2.13. 24 40Deferred tax liabilities 2.14. 19 10Non-current liability 43 194Current liabilitiesBorrowings 2.16. 37Finance lease 2.16. 22 20Trade and other payables 2.15. 2,918 819Current tax liabilities 2.17. 528 276Current liabilities 3,468 1,152Total equity and liabilities 13,541 6,770Representative:Prepared by:Mihail KatsibirisManagerZoya ShiyakovaChief AccountantThe notes on pages 14 to 22 form an integral part of these financial statements.3

“Elmec Sport Bulgaria” ЕООDReport and Financial Statements for the year ended 31 December 2008____________________________________________________________________STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2008All amounts are in thousand Bulgarian LevaShare Capital Retained Earnings TotalBalance as at 31 December 2006 3,020 698 3,718Net profit for the year 1,706 1,706Balance as at 31 December 2007 3,020 2,404 5,424Net profit for the year 4,606 4,606Balance as at 31 December 2008 3,020 7,010 10,030Representative:Prepared by:Mihail KatsibirisManagerZoya ShiyakovaChief AccountantThe notes on pages 14 to 22 form an integral part of these financial statements.4

“Elmec Sport Bulgaria” ЕООDReport and Financial Statements for the year ended 31 December 2008____________________________________________________________________CASH FLOW STATEMENT for the year ended 31 December 2008All amounts are in thousand Bulgarian Leva 2008 2007Cash flows from operating activitiesProfit before tax 5,163 1,962Plus adjustments for:Depreciation 216 137Inventory loss 214 553Finance cost 72 74Less adjustments for:Gain from sale of non-current assets (4)Finance income (8)Changes in working capital:(Increase)/decrease of inventories (2,976) (210)Decrease/(increase) of trade and other receivables (2,053) 2(Decrease/(increase) of trade and other payables 2,099 (1,845)Paid interests and other bank charges (72) (74)Tax paid (313) (79)Net cash flows from the operating activities 2,338 520Cash flows from investing activitiesProceeds from the sale of property, plant and equipment 26 4Purchase of property, plant and equipment (961) (16)Purchase of intangible assets (3)Interests received 8Net cash flows flows used in investing activities (930) (12)Cash flows from financial activitiesRepayment of borrowings (181) (37)Payment of finance lease liabilities (15) (26)Net cash flows used in financing activities (196) (63)Net increase in cash and cash equivalents 1,212 445Cash and cash equivalents at beginning of the year 963 518Cash and cash equivalents at 31 December 2,175 963Representative:Prepared by:Mihail KatsibirisManagerZoya ShiyakovaChief AccountantThe notes on pages 14 to 22 form an integral part of these financial statements.5

“Elmec Sport Bulgaria” ЕООDReport and Financial Statements for the year ended 31 December 2008____________________________________________________________________General InformationName of the Company:ELMEC SPORT BULGARIA EOODManager :Compiler:Lawyers:State registration of the company:Registered office and address of registration:Mihail KatsibirisZoya ShiyakovaAtanasov & Ivanov – Lawyer OfficeBulgaria22, Zlaten Rog St., SofiaThe financial statement is an individual statement of the company.Objects and main activities of the company:Elmec Sport Bulgaria ЕООD is a business company, established in 1997, with the function of officialrepresentative of NIKE for Bulgaria. The company has an outlet store in the Capital, three representative shops /NIKE Exclusive Stores / in Sofia, one each in Burgas, Varna and Plovdiv, and approx. 40 authorised distributorsaround the country. Elmec Sport Bulgaria ЕООD owns also the sole agency rights of the Converse products, whichare offered at the representative shop in Sofia opened in 2008, and in another 35 sales outlets in Bulgaria.Financial statement date: 31.12. 2008.Current period: the year beginning on 01.01.2008 and ending on 31.12.2008.Preceding period: the year beginning on 01.01.2007 and ending on 31.12.2007.6

“Elmec Sport Bulgaria” ЕООDReport and Financial Statements for the year ended 31 December 2008____________________________________________________________________General InformationName of the Company:ELMEC SPORT BULGARIA EOODManager :Compiler:Lawyers:State registration of the company:Registered office and address of registration:Mihail KatsibirisZoya ShiyakovaAtanasov & Ivanov – Lawyer OfficeBulgaria22, Zlaten Rog St., SofiaThe financial statements are individual statements of the company.Objects and main activities of the company:Elmec Sport Bulgaria ЕООD is established in 1997, with the function of official representative of NIKE forBulgaria. The company has an outlet store in the Capital, three representative shops / NIKE Exclusive Stores / inSofia, one each in Burgas, Varna and Plovdiv, and approx. 40 authorized distributors around the country. ElmecSport Bulgaria ЕООD owns also the sole agency rights of the Converse products, which are offered at therepresentative shop in Sofia opened in 2008, and in another 35 sales outlets in Bulgaria.Financial statement date: 31.12. 2008.Current period: from 01.01.2008 to 31.12.2008.Previous period: from 01.01.2007 to 31.12.2007.7

“Elmec Sport Bulgaria” ЕООDReport and Financial Statements for the year ended 31 December 2008____________________________________________________________________Basis of preparation of the financial statements and principal accounting policiesThe financial statements have been prepared according to the requirements of the Bulgarian accountinglegislation and are expressed in the national currency of the Republic of Bulgaria – the Bulgarian Lev.The Bulgarian Lev has had since the 1 st of January 1999 an exchange rate fixed to the Euro: BGN 1. 95583 for € 1.The precision of the amounts presented in the financial statements is in thousands of Bulgarian Leva.The financial statements have been prepared in compliance with the requirements of the International FinancialReporting Standards (IFRS) as adopted by the Commission of the European Union as well as in compliance withthe requirements of the International Accounting Standards, published by the International Accounting StandardsBoard. All the International Accounting Standards have been published by the International Accounting StandardsBoard, in force for the period of preparation of such consolidated financial statements, have been adopted by theEuropean Union through an approval procedure, as determined by the Commission of the European Union.Changes in the Accounting PolicyThe adopted accounting policy is applied consistently compared with the previous year.Current and Noncurrent AssetsAn asset is defined as current when it meets any one of the following criteria:• It is expected to be realised, or it is held with the aim of being sold, or used within the normal operatingcycle of the entity;• It is held above all with the purpose of trading;• It is expected to be realised within twelve months after the financial statement date;• Cash or cash equivalents, unless there is a restriction for them to be exchanged or used for liabilitysettlement during at least twelve months from the financial statement date;An asset is defined as noncurrent when it does not meet the criteria of being defined as current.Property, Plant and EquipmentAssets are accounted for as Property, Plant and Equipment, when they meet the recognition criteria of IAS 16, andhave an acquisition value equal to or higher than BGN 25. The assets having an acquisition value lower than theindicated one are accounted for as current expense for the acquisition period, in accordance with the approvedaccounting policy. Each property, plant or equipment is valued at historical cost, in compliance with therequirements of the IAS 16.The entity accounts for each item of the property, plant and equipment, in compliance with the IAS 16, athistorical cost less depreciation and devaluation.Subsequent expenses, related to a single property, plant and equipment, are accounted for by an increase in thebalance value of the asset, provided the principle of recognition, set forth in the IAS 16, has been observed.Expenditure for repairs and maintenance of property, plant and equipment, is charged to the income statement ofthe year in which it is incurred.Profit and loss from writing off of property, plant and equipment, is included in the profit or loss account, when theasset is written off, unless the IAS 17 requires else at sale and back leasing. Profit or loss, arising from the writingoff of a property, plant and equipment, are defined as the difference between the net proceeds from the sale, if any,and the asset net book value. They are not classified as an income.Property, plant and equipment are depreciated according to the straight-line method so as to write off the cost ofeach asset to its residual value over its estimated useful life. The depreciation begins from the moment when theassets become present in the company, at the place and in the condition required for their use in the manner asenvisaged in the instruction manual. The asset depreciation is suspended on the earlier of the following two dates:the date on which they were classified as held for sale according to the IFRS 5.the date of writing off the assets.The depreciation is not suspended in periods of standstill or dropping from active use.The relevant depreciation norms, which were applied in 2008 and 2007, are as follows:Group %Buildings 2Plant & Equipment 4Vehicles & Other assets 3-15Furniture, Fixture & Office equipment 10-33Devaluation of Property, Plant and EquipmentAccording to the requirements of IAS 36, an evaluation is carried out at the date of preparing the financialstatements, whether there are indications that the value of a given asset from the Property, Plant and Equipment is8

“Elmec Sport Bulgaria” ЕООDReport and Financial Statements for the year ended 31 December 2008____________________________________________________________________devaluated. In the event of such indications the refundable value of the asset is calculated, and the loss due todevaluation is determined.Intangible AssetsThe entity accounts for distinguishable non-cash assets having no physical substance, as intangible assets, whichmeet the criteria for recognition laid down in the IAS 38.The intangible assets are initially accounted for at the price of acquisition.The price of acquisition of a separately acquired intangible asset is determined according to the IAS 38, and itcomprises:- the buying value, the import duties and the unrecoverable taxes on the purchase, the commercial discounts andrebates, are deducted;and- any relevant expenditure for the asset preparation for its expected use;The price of acquiring an intangible asset, acquired in exchange for a non-cash asset, is measured by a fair value,unless:- the exchanging action has a commercial character;or- neither the fair value of the obtained asset, nor that of the given asset, can be reliably measured.The acquired asset is measured in this way, even if the enterprise cannot write off forthwith the given asset. If theacquired asset has not been appraised under the fair value, its acquisition price is measured under the balance sheetvalue of the given asset.The price of acquiring an in-house created intangible asset according to the IAS 38, is its cost price, including thesum of the expenses made from the date on which the intangible asset has met for the first time the recognitioncriteria, on.The intangible assets are accounted for after being acquired at an acquisition price, reduced by the accrueddepreciation and the accrued losses due to devaluation.The enterprise judges whether the useful life of an intangible asset is limited or unlimited. An intangible asset isconsidered as having unlimited useful life when, on the basis of an analysis of the respective factors, there is noforeseeable limitation for the period of time during which the asset is expected to generate net cash flows for theenterprise.The intangible assets with limited useful life are depreciated, while the intangible assets with unlimited useful lifeare not depreciated.The intangible assets that are subject to depreciation are depreciated according to the straight-line method for theperiod of the established useful life.Depreciation starts when the asset is available for use, i.е. when it is in the place and the condition, required for itscapacity to operate in a way as expected by the management. The depreciation is ceased on the earlier date ofeither:- the date on which the asset is classified as held for sale (or included in the group for release, which is held forsale in compliance with the IFRS 5)or- the date on which the asset is written off.The relevant depreciation rates, which were used in 2008 and 2007, are as follows:Group %Software 14Trade marks & licenses 8Devaluation of Intangible AssetsAccording to the requirements of the IAS 36, an evaluation is made by the date of preparation of the financialstatements, whether there are indications that the cost of the Intangible Assets is devaluated. In case of suchindications, the refundable value of the assets is calculated, and the loss due to devaluation is determined.Cash and cash equivalentsCash and cash equivalents comprise cash in hand, and demand deposits, in Bulgarian Leva or in foreign currency,respectively.Cash and cash equivalents are short-term, high-liquidity investments, which are easily convertible in concretesums of money, and they contain insignificant risk of change in their value.Refundable taxesRefundable taxes, which do not arise from contractual relations, are not classified in the categories of financialassets.9

“Elmec Sport Bulgaria” ЕООDReport and Financial Statements for the year ended 31 December 2008____________________________________________________________________The current tax assets for the current and preceding periods are appraised through the sum of money that isexpected to be refunded by the tax authorities in applying tax rates and tax laws that are already in force, or areexpected to take effect by the balance sheet date.InventoriesThe enterprise applies the IAS 2 to account for inventories:Inventories are assets:- held for sale in the ordinary course of the economic activity (goods, products);- being in a process of production for such sale (work in progress);- inventories which are expended in the production process, or at providing services; (raw materials)The inventories are valued under the lower one of either the cost price or the net realised value.The consumption of inventories is valued according to the average weighted price.Assets Held for SaleAs assets held for sale according to the IFRS 5 are classified non-current assets, whose balance sheet value will berefunded through a sale transaction, rather than by ongoing use.The assets held for sale are appraised under the lower one of either their balance sheet value, or their fair value,reduced by the expenses for the sale.Loss due to devaluation is recognised at every initial or subsequent reduction in the value of assets held for sale.Profit due to subsequent increase in fair values, reduced by the expenditure for sale of assets held for sale, isrecognised up to the amount of devaluation of the respective asset, already calculated according to the IAS 36 andIFRS 5.Share CapitalThe share capital consists of:• Registered capital – presented according to its nominal value as per a court judgement for registration• Unpaid capital – it is the non paid-up part of the fixed capital on nominal size.• Bought own shares – presented by the value of what was paid for the reacquisition.Reserves including:• Reserve of subsequent valuations – formed according to the requirements of IFRS and the appliedaccounting policy;• Premium reserves – formed by issue of share capital instruments.• General reserves – formed by the distribution of profit according to the requirements of the CommercialAct of the Republic of Bulgaria and the memorandum of association of the enterprise.• Other reserves – formed by a decision of the capital ownersFinancial result including:Retained profit from previous periods, not distributed by the date of the financial statements.Accumulated loss from previous periods, not covered by the date of the financial statements.Profit or loss for the period.Current and Non-Current LiabilitiesA liability is defined as current, when it meets some of the following criteria:• It is expected to be settled within the normal operating cycle of the enterprise;• It is held mainly with the purpose of trading;• It should be settled within twelve months from the financial statements date;• The enterprise does not have the unconditional right to postpone the liability settlement for a period of atleast twelve months from the financial statements date;A liability is classified as non-current if it does not meet the criteria for definition as current one.A liability is classified as current, when it should be settled within twelve months from the financial statementsdate, even if:• the initial term was for a period longer than twelve months;and• an agreement was concluded after the balance sheet date and before the financial statements have beenapproved for publication, for refunding or for a new repayment plan on a long-term basis.Loans, Trade and Other liabilitiesLoans, Trade and Other Debts, are financial liabilities arising from the direct providing of goods, services, moneyor money equivalents from creditors.After the initial recognition the loans and the trade debts that have no fixed maturity, are accounted for by thevalue estimated at their acquisition.10

“Elmec Sport Bulgaria” ЕООDReport and Financial Statements for the year ended 31 December 2008____________________________________________________________________The loans and debts that have fixed maturity are accounted for by their depreciated value.Tax liabilitiesThe current tax liabilities of the enterprise do not arise from contractual relations and are not classified as financialliabilities.The current tax for the current and previous periods is recognised as liability up to the extent where it has not beenpaid. The current tax liabilities for the current and previous periods are appraised by the sum that is expected to bepaid to the tax authorities in applying tax rates and tax laws, valid by the date of the balance sheet.Liabilities to the Personnel and Provisions for Long-Term Incomes of the PersonnelDebts towards the personnel comprise debts of the enterprise with respect to past work, performed by theemployed personnel, and the respective social security contributions, that are required by the legislation.According to the requirements of the IAS 19, are included also the calculated short-term incomes of the personnel,whose origin lies in unused leaves of the personnel, and the social security contributions on such incomes,calculated on the basis of the social security rates in force.According to the requirements of the IAS 19, are made provisions for long-term incomes of the personnel,presented by value of an actuary estimate.The enterprise has no policy to account for long-term incomes of the personnel.ProvisionsProvisions are debts having indefinite term or sum.Provisions are acknowledged with respect to structural and legal debts, arising as a result of past events, Accordingto the requirements of the IAS 37.Provisions are acknowledged according to the best approximate assessment of the enterprise management by thebalance sheet date for the expenses required to settle the present debt.The acknowledged sums of provisions are revised on every reporting date, and are recalculated with the objectiveof reflecting the best current estimate.Deferred Tax Assets and LiabilitiesThe deferred tax assets and liabilities are acknowledged on temporary differences, arising between the tax basis ofthe assets and liabilities, and their balance sheet value by the financial statement date.A deferred tax liability is recognised for all the sums for taxes to be due in future periods, related to taxabletemporary differences.A deferred tax liability is recognised for the tax sums refundable in future periods, related to deductable temporarydifferences, transfer of unused tax losses and credits up to the extent where a taxable profit is likely to exist,against which they will be able to be used.The enterprise revises by the date of every balance sheet the unacknowledged deferred tax assets.The company recognises the unrealised deferred tax assets in a previous period up to the extent, to which aprobability has emerged for the future taxable profit to allow the recovery of a deferred tax asset.The balance sheet value of the deferred tax asset is revised by every date of balance sheet. The enterprise reducesthe balance sheet value of the deferred tax assets down to an extent, to which it is no more likely for sufficienttaxable profit to be realised, which enables to utilise the benefit from a part of or the whole deferred tax asset.The postponed tax assets and liabilities are appraised by the tax rates, that are expected to be in force for the periodin which the asset is realised, or the liability is settled/redeemed on the basis of the tax rates (and tax laws), whichare in force or expected to take effect by the date of the balance sheet.The current and deferred taxes are acknowledged as credit or debit, and are included in the profit or loss for theperiod, besides to the extent, to which the tax emerges from an operation or an event, which was acknowledgedduring the same period or a different period directly in the own capital11

“Elmec Sport Bulgaria” ЕООDReport and Financial Statements for the year ended 31 December 2008____________________________________________________________________Profit or Loss for the PeriodAll the debit and credit items, recognised for the period, should be included in a profit or loss account, unless astandard or clarification by the IFRS requires else.ExpensesThe enterprise accounts for the expenses for the activities by economic elements on a current basis and thereafter itreports by functional purpose with the objective of forming the size of the expenses by sectors and activities. Therecognition of the expenses for the current period is made when their corresponding receipts are assessed. Anexpense is recognised immediately in the account of the incomes, when the expense does not create a futureeconomic benefit, or when, and up to the extent to which the future economic profit does not meet therequirements, or will stop meeting the requirements of recognising an asset in the balance sheet.Expenses are accounted for by the principle of current assessment. They are appraised by the fair value of what hasbeen paid, or is about to be paid.RevenueRevenue is a gross flow of economic benefits for the period, created in the course of the customary activities of theenterprise, when such flows lead to an increase of the own capital, other than the increases related to theshareholders’ contributionsThe enterprise accounts for the revenue on a current basis from the customary activities, by kinds of activities.Revenue is evaluated by the fair value of the payment or remuneration which is received or subject to reception.Revenue recognition is conducted in keeping with the adopted accounting policy for the following kinds ofrevenue:Revenue from the sale of goods and products is recognised when all of the following conditions were fulfilled:• the enterprise has transferred to the buyer substantial risks and benefits of the ownership of the goods andproducts;• the enterprise does not keep ongoing participation in the management of the goods and products, insofaras it usually is associated with the ownership, or effective control on the goods and products sold, either;• the sum of the revenue can be valued reliably;• the economic benefits, related to the transaction, are likely to be obtained by the enterprise; and• the expenses made, or those about to be made in relation to the transaction, can be appraised reliably;revenue from services is recognised when the outcome of a transaction can be evaluated reliably, the revenuerelated to the transaction should be recognised subject to the stage of completeness of the transaction by the date ofthe balance sheet. The outcome of a transaction can be evaluated reliably when all the following conditions havebeen met:• the sum of the revenue can be evaluated reliably;• the enterprise will probably have economic benefits, related to the transaction;• the stage of completeness of the transaction by the date of the balance sheet can be evaluated reliably;and• the expenses made on the transaction as well as the expenses involved in the completion of thetransaction, can be evaluated reliably;The stage of completed contract is determined on the basis of the expenses accrued by the date of preparation ofthe statement, versus the expenses generally provided for under the contract.Net Share ProfitThe principal net profit per share is calculated by dividing the profit or loss for the period, which is subject todistribution among the owners of ordinary shares (numerator), by the average weighted number of the ordinaryshares held for the period (denominator).Effects of Exchange Rates VariationsThe functional currency of the enterprise is the Bulgarian Lev.The currency of presenting the financial statements is the Bulgarian Lev.The precision of the numbers in the financial statement is thousands of Bulgarian Leva.Foreign currency is any currency other than the functional currency of the enterprise.The transactions in foreign currency are entered initially in functional currency, by applying to the foreigncurrency sum the central exchange rate of the Bulgarian National Bank (BNB) for the respective currency, by thetransaction date. The exchange rate differences, arising in the settlement of monetary positions, or in recalculatingsuch monetary positions at exchange rates other than the ones under which they were filed or recalculated before,are accounted for as financial receipts or financial expenses for the period where they arise.The enterprise makes a revaluation of monetary positions in foreign currency by the date of the financial statementfor the period, and on a current basis monthly during the accounting period.12

“Elmec Sport Bulgaria” ЕООDReport and Financial Statements for the year ended 31 December 2008____________________________________________________________________The non-monetary positions which are filed by fair value in foreign currency, are recalculated by using theexchange rates of the date when the fair value was determined.The positions in foreign currency by 31 December 2008 are appraised in this financial statement by the conclusiveexchange rate of the BNB.Accounting Assumptions and Approximate Accounting EstimatesAs a result of the uncertainty inherent to the business activities, many items of the financial statements are notsubject to accurate appraisal, but only to an approximate appraisal. The approximate appraisals are evaluated onthe basis of the most up-to-date available and reliable information.The application of the International Financial Reporting Standards requires from the management to apply someaccounting assumptions and approximate accounting estimates in drawing up the financial statements and indetermining the value of some of the assets, liabilities, revenue and expenses. All of them are carried out on thebasis of the best evaluation, which has been made by the management by the date of drawing up the financialstatements. The effective results could differ from the ones presented in the financial statements.The approximate assumptions are subject to revision, should changes arise in the circumstances on which they arebased, or as a result of the obtained new information, or additionally accumulated experience.The effect of the change in approximate accounting estimates is recognised prospectively through its inclusion inthe profit or loss for the period of change, if the change affects only that period, or the period of change and futureperiods, if the change affects both.Whereas the change in the accounting approximate estimates brings about changes in the assets and liabilities, orrefers to a component of the capital, it is recognised through an adjustment of the balance sheet value of the relatedasset, liability or component of the capital during the period of change.Related parties and related parties transactionsThe enterprise observes the provisions of the IAS 24 in determining and announcing the related parties.A deal between related parties is a transfer of resources, services or obligations between related parties,irrespective of whether a price is applied or not.LeasingAccording to the IAS 17 a leasing contract is classified as a financial leasing, if it transfers substantially all therisks and benefits from the title on the asset. The leasing contract is classified as an operating leasing, if it does nottransfer substantially all the risks and benefits to the asset.Recognition and accounting for an operating leasing contract, under which the company is the lesseeThe leasing payments on operating leasing are recognised as an expense in the account of the incomes according tothe straight-line method for the whole period of validity of the leasing contract, unless another system basis isrepresentative for the time, during which the enterprise uses the benefits of the hired asset.Post Balance Sheet EventsThe events after the balance sheet date are those, both favourable and unfavourable, which arise between thebalance sheet date and the date on which the financial statements are approved for publication.Two kinds of events are distinguished:• ones that prove conditions existing by the balance sheet date (adjusting events following the balance sheetdate);and• ones that are indicative for conditions, emerging after the balance sheet date (non-adjusting eventsfollowing the balance sheet date).The company adjusts the sums recognised in the financial statements, in order to reflect the adjusting events afterthe balance sheet date and update the notifications.The company does not adjust the sums recognised in the financial statements, in order to reflect the non-adjustingevents after the balance sheet date.Expenses for LoansThe expenses for loans are interests and other expenses, effected by the company in connection with the borrowingof financial resources. The loan expenses are recognised as an expense for the period, in which they were made.13

“Elmec Sport Bulgaria” ЕООDReport and Financial Statements for the year ended 31 December 2008____________________________________________________________________Notes to the Financial Statements1. Income statement1. 1. 1 RevenueRevenuetype 2008 2007Sales of goods 19,094 12,261Rendering of services - 12Other revenue 154 -Total 19,248 12,2731. 1. 2 Other profitsOther incometype 2008 2007Gain from sale of non- current assets 4Total 41. 1. 3. Finance incomeFinance incometype 2008 2007Interest income 8 2Exchange profit 57 4Total 65 61. 2. Expenses1. 2. 1. MaterialsExpenses for materialstype 2008 2007Maintenance and repair of tangible assets 1Office consumables 95 34Advertising materials 103 143Total 199 17714

“Elmec Sport Bulgaria” ЕООDReport and Financial Statements for the year ended 31 December 2008____________________________________________________________________1. 2. 2. Hired servicesHired servicestype 2008 2007Logistic expenses 404 257Repairs and maintenance 7 6Marketing expenses 745 658Communication services 50 41Other professional fees 162 511Insurances 13 17Taxes and charges 5 8Subscription 5Rents 1,277 1,136Central heating 10 12Water supply 1 1Electricity 65 41Total 2,744 2,6881. 2. 3. DepreciationDepreciationExpense type 2008 2007Expenses for depreciations of selling 209 132tangible assets 144 115intangible assets 65 17Expenses for depreciations of administrative 7 5tangible assets 6 5intangible assets 1Total 216 1371. 2. 4. PersonnelExpenses for salaries and social security contributionsExpenses for: 2008 2007Salaries, including such for 1,071 514the selling personnel 588 385the administrative personnel 483 129Social security contributions, includingsuch for 143 109the selling personnel 109 83the administrative personnel 34 26Unused annual leaves 5 1Total 1,214 62315

“Elmec Sport Bulgaria” ЕООDReport and Financial Statements for the year ended 31 December 2008____________________________________________________________________1. 2. 5 Devaluation of assetsDevaluation of assetstype 2008 2007inventories devaluation 87 298Total 87 2981. 2. 6. Other expensesOther expensesExpense type 2008 2007Overseas and inland travelling 103 70Entertaining 13Scrap 19Other expenses 37 65Lacks 278 255Total 450 3901. 2. 7. Balance sheet value of sold assetsCost of salestype 2008 2007Cost of sales 9,099 5,924Total 9,099 5,9241. 2. 8 Finance costsFinance coststype 2008 2007Interests expense 12 16loan 9 16lease 3Other 60 50Exchange loss 73 14Total 145 801. 2. 9 TaxThe corporation tax rate is 10%.Deferred tax is calculated in full on all temporary differences under the liability method using theapplicable tax rates.Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be availableagainst which the temporary differences can be utilized.Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current taxassets against current tax liabilities and when the deferred taxes relate to the same fiscal authority.16

“Elmec Sport Bulgaria” ЕООDReport and Financial Statements for the year ended 31 December 2008____________________________________________________________________Taxtype 2008 2007Income tax expenses (563) (245)Deferred tax 6 (11)Total (557) (256)2. Balance sheet2. 1. Property, plant and equipmentProperty, plant and equipmentBuildingsMachineryMotorvehiclesFurniture,fixtureand officeequipmentFixedassets inprogressImprovementsof leased assetsTotalCostBalance as at 31.12.2006 263 1,010 178 1,451Additions 86 17 103Disposals (2) (2)Balance as at 31.12.2007 263 86 1,025 178 1,552Additions 1 519 205 236 961Disposals (88) (179) (1) (268)Balance as at 31.12.2008 263 1 86 1,456 26 413 2,245DepreciationBalance as at 31.12.2006 5 206 112 323Charge for the year 5 81 34 120Disposals 2 2Balance as at 31.12.2007 10 289 146 445Charge for the year 5 9 136 48 198Disposals (49) (6) (55)Balance as at 31.12.2008 15 9 376 188 588Net book valueNet book value as at31.12.2007 253 86 736 32 1,107Net book value as at31.12.2008 248 1 77 1,080 26 225 1,65717

“Elmec Sport Bulgaria” ЕООDReport and Financial Statements for the year ended 31 December 2008____________________________________________________________________2. 2 Intangible assetsIntangible assetsComputersoftwareLeaserightsTrademarksand licensesTotalCostBalance as at 31.12.2006 41 10 80 131Balance as at 31.12.2007 41 10 80 131Additions 3 3Corrective (26) (10) (36)Balance as at 31.12.2008 15 - 83 98DepreciationBalance as at 31.12.2006 18 1 16 35Additions 4 1 12 17Balance as at 31.12.2007 22 2 28 52Charge for the year 2 16 18Corrective (17) (2) 3 (16)Balance as at 31.12.2008 7 - 47 (54)Balance sheet valueBalance sheet value as at 31.12.2007 19 8 52 79Balance sheet value as at 31.12.2008 8 - 36 442. 3 Deferred tax assetsDeferred tax assets31 December 2007 Movement 31 December 2008Tax basisTemporarydifferenceTax basisTemporarydifferenceTax basisTemporarydifferenceUnused annual leaves 148 15 148 15Total: 148 15 148 1518

“Elmec Sport Bulgaria” ЕООDReport and Financial Statements for the year ended 31 December 2008____________________________________________________________________2. 4 Non –current trade and other receivablestype 31.12.2008 31.12.2007Guarantees and prepayments 181 196Total 181 1962. 5 InventoriesInventoriestype 31.12.2008 31.12.2007Materials 93 55Auxiliary materials 93 55Goods (net) 6,316 3,378Goods 6,605 3,378Devaluation of goods (289)Total 6,409 3,4332. 6. Current trade and other receivablesCurrent trade and other receivablestype 31.12.2008 31.12.2007Trade receivables 2,426 806Advances 225 164Other receivables, including: 409 22Prepayments 408 6Other claims 1 1Refundable VAT 15Total 3,060 9922. 7. Cash and cash equivalentsCash and cash equivalentstype 31.12.2008 31.12.2007Cash in hand 57 45In Leva 57 45Cash in current accounts 448 918In Leva 426 898In foreign currency 22 20Short term deposits 1,670Total 2,175 96319

“Elmec Sport Bulgaria” ЕООDReport and Financial Statements for the year ended 31 December 2008____________________________________________________________________2. 12. EQUITY AND LIABILITIES2. 12. 1 Share capitalPartnerNumberof sharespar valueShare capital31.12.2008 31.12.2007Issued andfully paid% ShareNumber ofsharespar valueIssued andfully paid% ShareElmec Sport S.A. 302,000 10 3,020,000 100% 302,000 10 3,020,000 100%Total: 302,000 10 3,020,000 100% 302,000 10 3,020,000 100%2. 12. 2 Retained earningsFinancial resultNet profit for the year 2006 698Net profit for the year 2007 1,706Net profit for the year 2008 4,606At 31 December 2008 7,0102. 13 Non-current financial liabilitiesNon-current financial liabilitiesNon-current financial liabilities 31.12.2008 31.12.2007Borrowings 144Finance lease 24 40Total 24 1842. 14 Deferred tax liabilitiesTemporary difference31 December 2007TemporarydifferenceMovementincreaseTemporarydifference31 December 2008TemporarydifferenceTax basisTax basisTax basisDeferred tax LiabilitiesDepreciations 100 10 90 9 190 19Total liabilities: 100 10 90 9 190 192. 15. Current trade and other payablestype 31.12.2008 31.12.2007Payables to related parties, including 1,578 385Debts on supplies 1141 43420

“Elmec Sport Bulgaria” ЕООDReport and Financial Statements for the year ended 31 December 2008____________________________________________________________________Liabilities on advance payments 4Salaries and wages 195Total 2,918 8192. 16 Current financial liabilitiesCurrent financial liabilitiesCurrent financial liabilities 31.12.2008 31.12.2007Borrowings 37Finance lease 22 20Total 22 572. 17 Current tax liabilitiesType 31.12.2008 31.12.2007Corporation tax 347 195Value added tax 160 81Personal income tax 21Total 528 2762. 18 PersonnelType 31.12.2008Salaries and wages 173including unused annual leaves liabilities 132Social insurance 22including unused annual leaves liabilities 4Total 19521

“Elmec Sport Bulgaria” ЕООDReport and Financial Statements for the year ended 31 December 2008____________________________________________________________________Other disclosureRelated parties transactionsAmounts due to related partiesName Nature of transactions 2008 2007Elmec Sport SA trade 6 353Elmec Romania SRL trade 109 23Total 115 376Purchases from related partiesName Nature of transactions 2008 2007Elmec Sport SA trade 10,085 5,340Total 10,085 5,340Amounts due from related personsName 31.12.2008 Guarantees 31.12.2007 GuaranteesElmec Sport SA 1,577 385Total 1,577 385Director’s remunarationGiven name, surnamePosition heldCalculated amounts for:Remunerations and social securitycontributions for the periodMihail Katsibiris Manager 268,307Total: 268,307Going concernThe company management believes that the Company will continue operating on a going concern basis.22

“Elmec Sport Bulgaria” ЕООDReport and Financial Statements for the year ended 31 December 2008____________________________________________________________________ACTIVITIES REPORTFor the year ended 31 December 2008THIS REPORT ON THE ACTIVITIES HAS BEEN DRAWN UP IN COMPLIANCE WITH THEPROVISIONS OF ART. 33 OF THE ACCOUNTANCY ACT, AND THE REQUIREMENTS OFTHE COMMERCE ACTThe management is presenting its annual report and its annual financial statements as at 31December 2008, drawn up in compliance with the International Financial Reporting Standards,adopted by the European Union. The financial statements have been audited by Baker Tilly Klitouand Partners Ltd.DESCRIPTION OF THE ACTIVITIESThe company is registered in Bulgaria. Its core activity is related to the distribution of sportcommodities in Bulgaria. The company has continued its core activity this year, too, involved in thedistribution of the brands NIKE and CONVERSE.The financial result of the company for year 2008 after tax is profit amounting to BGN 4 606 thousand.The taxation of the company is carried out in accordance with the local legislation.OVERVIEW OF THE ACTIVITIESResults for the current periodThe Company has increased the sales during the current year, by 56.8%, realising sales amounting toBGN 19.2 million, vs. BGN 12.3 million in 2007.The Company has realised a gross profit margin from the sales at the rate of 52.7%, vs. 51.7% for 2007during the previous year.The achieved profit increase after taxation is due to the considerable growth of the sales.Dividends and profit distributionThe management proposes that no dividends be paid for the fiscal year 2008, in order for theCompany to be able to maintain its growth rate.Shared capital structurePartners Ownership Number of shares Nominal valueElmec Sport SA Greece 100% 302 000 10ECONOMIC GOALS FOR 2008The management has set to itself the following main goals, that should be achieved in 2008:o We should be on the top in all the sectors where we are developing, and generatesatisfactory profits and return on the investmentso The Company has a sizable network of retail shops in Bulgaria, which comprises inlate 2008 nine shops, and has planned to open another four shops in 2009o As regards the commercial product range – we will go on working in the direction offurther establishing the brands represented by the Company, and towards a largershare of the respective market sector, as wellManagement responsibilities23

“Elmec Sport Bulgaria” ЕООDReport and Financial Statements for the year ended 31 December 2008____________________________________________________________________According to the Bulgarian legislation, the management should draw up the financial statements forevery fiscal year, which will give a true and fair view of the Company financial condition by the end ofthe year, of its financial performance and monetary flows.The management confirms the fact that it has consistently applied adequate accounting policies in thepreparation of the annual financial statement by 31 December 2008, and has made reasonable andprudent evaluations, assumptions and approximate appraisals.The management also confirms that it has adhered to the accounting standards in force, the financialstatement being drawn up according to the going concern principle.The management shall be held responsible for the correct maintenance of the accounting registers, ofthe appropriate control of the assets, and for undertaking the necessary measures to avoid anddisclose possible abuses or other irregularities.Human resourcesPersonnelThe Company has by 31 December 2008 a workforce of 92 employees available, as compared with the60 employees by 31 December 2007.SalaryThe funds calculated and paid up for salaries during the elapsed year, are in the amount of BGN 1 071thousand.Analysis of the revenue and structure of the expensesThe main share of the Company revenue has come from the sale of sports goods.The structure of the revenue coming from the core activity is as follows: sale of sports goods – 100%.The expenses for the core activity are in the amount of BGN 4 910 thousand.Investment projectsThe Company has tangible assets available of the following groups: lands and buildings, vehicles,equipment, expenses for the acquisition of tangible assets, improvements on hired assets.The intangible assets amount to BGN 98 thousand, and consist mainly of trade marks and licences andsoftware.Capital structureThe Company share capital is BGN 10 030 thousand.No events have happened after the date of financial statement preparation, which would reflect on theCompany result during the next accounting period.The management does not envisage changes in the development of the Company core activity within thenear future.Fair value:24

“Elmec Sport Bulgaria” ЕООDReport and Financial Statements for the year ended 31 December 2008____________________________________________________________________The balances presented as “cash and cash equivalents”, “receivables” and “short-term debts”, are nearto the fair value.Currency risk:This risk arises from the fact that the Company buys goods in US Dollars, and realises its sales in localcurrency (Bulgarian Leva). Management of the risks is carried out by the Financial Department, incooperation with the Trade Directors. The decision whether and up to what extent the Company coversthe exchange rate, is made by the Board of Directors of the Parent Company. The Trade Directorsaccount for the currency risk in fixing the commodity prices.Liquidity riskThe responsibility of how to handle this risk, and for providing liquidity to the Company, lies with theFinancial Department.ConclusionThe Company has managed to increase the sales during 2008 by nearly 57% and the net profit by 270%.The Company will aspire in the next years to increase the wholesale clients and to expand its retail salenetwork, imposing in the meantime as a priority suitable financial and operating control.25