Spreadsheet: cbc9c50c-1671-4185-83d6-d2a5aa23f1ca
Sheet: Notes

Notes to the Financial Statements
1. GENERAL INFORMATION
History and incorporation
The company [NAME] ( hereinafter: the Company) was established in 1994 as Syskey d.o.o., while its principal operating activity and company name was changed to [NAME] d.o.o. on 22 April 2004.
The Company changed its legal status from a limited liability company to a joint stock company in July 2007. The Council of the Croatian Telecommunications Agency isssued a licence for public voice service in fixed networks for the company on  19November 2004,for a period of 30 years.
Principal Business Activities
The Company's principal business activity is the provision of telecommunications services to private and business users in the Croatian market. The Company began to provide its telecommunications services in May of 2005.
In the beginning, [NAME] focused on business users, but soon after starting business operations, it began to aim for the private users market offering quality voice packages.
To its business users, [NAME] offers services of direct access, internet services, as well as voice telecommunication services through its own network and/or migrated previously chosen services. Along with that, the leading services which [NAME] provides to business users is the IP Centrex solution, among the first of this kind in the Croatian market and IP VPN Services. The existing capacities enable [NAME] d.d.to provide services of collocation and hosting. To its large business clients, the Company also offers specifically designed solutions relying on  its exceptional skills in the field of IT technology.
Staff
On  31 March 2011. the Company employed 193 employees.
MANAGEMENT AND SUPERVISORY BOARD
Management Board of the Company in 2011:
[NAME] | Chairman of the Company
[NAME] | Member
Jadranka Suručić | Member
Supervisory Board of the Company:
[NAME] | Chairman
[NAME] | Member and Deputy Chairman
[NAME] | Member
REVIEW OF BASIC ACCOUNTING POLICIES
Basis of Preparation
The Financial Statements of the Company have been prepared in accordance with International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS). [NAME] have been prepared under the historical cost convention, except for the valuation of certain financial instruments.
Financial Statements as per 31 March 2011 have been prepared on the basis of accounting policies presented and published in the Audited Consolidated Financial Statements of the Group on 31 December 2010 which were made available on Zagreb Stock Exchange d.d. on 06 April 2011.
In the period January - March 2010, there were no changes in accounting policies and accounting estimations based on which the financial reports for the indicated period have been prepared.
Reporting Currency
The Financial Statements of the Group are presented in Croatian kunas (HRK). The applicable exchange rate of the Croatian currency on 31 December 2010 was HRK 7,382807 for EUR 1 and HRK 5,244216 for USD 1.
112.  SALES INCOME
 | 31 Mar 2011 | 31 Mar 2010
Public voice services | 64738940 | 68510094
Interconnection services | 19948236 | 17097620
Internet services | 16236880 | 12955388
Data services | 5080930 | 4928402
Multimedia services | 2071164 | 270899
Lease and sale of equipment | 561400 | 520177
Other services | 1174099 | 972254
113. OTHER OPERATING INCOME
 | 31 Mar 2011 | 31 Mar 2010
Write off old trade payables | 810294 | 578176
Income from rent - billing system | 444661 | 328363
Income from collected penalties etc. | 0 | 76630
Income from in kind payments | 65346 | 0
Other income | 164637 | 548790
116. MATERIAL COSTS
 | 31 Mar 2011 | 31 Mar 2010
Costs of raw material and supplies | 434379 | 361054
Costs of goods sold | 1174639 | 1645074
Costs of services | 0 | 897997
Costs of maintenance | 3427562 | 3835522
Marketing services | 2071351 | 538923
Billing costs | 1729018 | 2695725
Line lease costs | 10747272 | 11233734
Intellectual and other services | 519470 | 475143
Utilities | 2211047 | 779151
Customer attraction costs | 3702042 | 5147255
Pair connection fees | 16436211 | 14870932
Telecommunications costs | 33095941 | 33104922
Residential sales services | 5904465 | 3767100
Other costs | 325087 | 756915
120. STAFF EXPENSES
 | 31 Mar 2011 | 31 Mar 2010
Net salaries | 4853338 | 4713410
Taxes and contributions from salaries | 2824812 | 2864832
Taxes and contributions on salaries | 1304468 | 1259326
Number of employees on 31 Mar 2011 | 193 | 182
124. AMORTIZATION OF TANGIBLE AND INTANGIBLE ASSETS
 | 31 Mar 2011 | 31 Mar 2010
Amortization of intangible assets | 2429463 | 2595073
Amortization of fixed tangible assets | 10709913 | 9923637
125.  OTHER OPERATING EXPENSES
 | 31 Mar 2011 | 31 Mar 2010
Compensations to employees | 306076 | 259258
Representation | 138552 | 98689
Insurance premiums | 428434 | 500300
Bank charges | 931822 | 593488
Taxes, contributions and membership fees | 264296 | 436357
Costs of sold and written off assets | 0 | 412178
Gifts and sponsorships | 73280 | 38000
Subsequently determined operating expenses | 0 | 0
Other expenses | 375354 | 200675
Costs reimbursed to employees comprise of daily allowances, overnight accommodation and transport related to business travels, commutation allowance, reimbursement of costs for the use of personal cars for business purposes and similar.
126. VALUE ADJUSTMENT
Value adjustment is performed at the end of the reporting period if there is evidence that there are uncollectible trade receivables arising from significant financial difficulties on the clients' side, cancellation of contracts and forced execution, pending bankruptcy etc.
131. FINANCIAL INCOME
 | 31 Mar 2011 | 31 Mar 2010
Interest income related to affiliated undertakings | 284383 | 500590
Interest income | 1377910 | 1297077
Foreign exchange gains | 285040 | 304148
137. FINANCIAL EXPENSES
 | 31 Mar 2011 | 31 Mar 2010
Interest expenses | 17912880 | 22226806
Fee | 172063 | 179834
Foreign exchange losses | 199132 | 729420
Interest expenses consist of interests accrued on credits, bonds issued by the Company and default interest for untimely settlement of trade payables.
By reducing interest expense occurred due to the decrease in interest rates that are achieved with reprogram in year 2010
003. INTANGIBLE ASSETS
 | CONCESSIONS AND RIGHTS | SOFTWARE | ASSETS IN PROGRESS | TOTAL
PURCHASE VALUE
As at 01 Jan 2011 | 8187690 | 75756560
Additions
Transfer from assets in progress
Disposals and retirements
As at 31 Mar 2011
VALUE ADJUSTMENT
As at 01 Jan 2011 | 1385174 | 50947625
Amortization of the current year | 68162 | 2361301
Disposals and retirements
Amortization as at 31 Mar 2011
NET ACCOUNTING VALUE
As at 31 Mar 2011
010. FIXED ASSETS
 | LAND | BUILDINGS | PLANT, EQUIPMENT, TOOLS AND PRODUCTION INVENTORY | VEHICLES | WORK OF ARTS | ASSETS IN PROGRESS | LEASEHOLD IMPROVEMENTS | TOTAL
PURCHASE VALUE
As at 01 Jan 2011 | 23269 | 16514322 | 474276111 | 126055 | 46822 | 41904067 | 3767834
Additions |  |  | 805342 |  |  | 3755304 | 15500
Transfer from assets in progress |  |  | 9758819 |  |  | -9758819
Disposals and retirements
As at 31 Mar 2011
VALUE ADJUSTMENT
As at 01 Jan 2011 |  | 2216110 | 155555408 | 72997 |  |  | 3209931
Amortization of the current year |  | 103214 | 10517008 | 6303 |  |  | 83388
Disposals and retirements
Amortization as at 31 Mar 2011
NET ACCOUNTING VALUE
As at 31 Mar 2011
020. LONG-TERM FINANCIAL ASSETS
 | 31 Mar 2011 | 31 Mar 2010
Loans to majority shareholder | 4589813 | 4238057
Loans to third party companies | 30466827 | 3996317
Long term deposits | 3418445 | 3368568
Value adjustment | -1542147 | -1516288
Loans to affiliated undertakings | 19297604 | 23566921
Loans and deposits
Shares in affiliated undertakings | 19280973 | 19279891
Loans to third party companies refer to the loans granted to company OSN INŽENJERING d.o.o. with interest rate of 11,5% and due dates 13 August 2012 (loan in the amount of HRK 2,75 million) and 30 April 2013 (loans in the amount of HRK 26,18 million)
Long term deposits comprise of two guarantee deposits with Zagrebačka banka d.d. for purchase and installation of telecommunications equipment and they come due on 16 February 2015 and 20 February 2015, respectively, as well as one deposit with BKS bank, coming due on 31 March 2012.
SHARES IN AFFILIATED UNDERTAKINGS
On 6 July 2006 OT-Optima Telekom d.d. acquired 100% of interest in [NAME], which changed its name to [NAME] d.o.o.
Glavna djelatnosti [NAME] d.o.o. [NAME] i pružanje raznovrsnih [NAME] se većinom odnose na sektor telekomunikacija.
The main business activities of Optima Direct d.o.o. are trading and providing various services which mainly relate to telecommunications sector.
As a sole member-founder, the Company established [NAME] d.o.o. Kopar, Slovenia in 2007.
Investments in affiliated companies as on 31 December 2011:
Subsidiaries | Shareholding
[NAME] d.o.o., Croatia | 1
[NAME], Slovenia | 1
Transactions within the group are carried out at fair maket terms and conditions.
043. RECEIVABLES
 | 31 Mar 2011 | 31 Mar 2010
Trade receivables | 75853899 | 72926667
Employee receivables | 2901 | 72861
Receivables from the state and other institutions | 323662 | 1639106
Interest receivables | 360443 | 729926
Advance payments receivables | 1653974 | 1777482
Other receivables | 44956 | 97889
045. TRADE RECEIVABLES
 | 31 Mar 2011 | 31 Mar 2010
Receivables from affiliated undertakings | 87842538 | 76844591
Domestic trade receivables | 287295 | 337620
Foreign trade receivables | 11418802 | 5280122
Value adjustment | -23694736 | -9535666
Movement of value adjustment for doubtful receivables:
 | 31 Mar 2011
1 January 2011 | 22485387
Write off during the year | -1091167
Collected during the year | -821351
Reserved during the year | 3121867
Closing balance
Aging of trade receivables of the Company:
 | 31 Mar 2011
Undue | 52654883
Up to 120 days | 28408515
120-360 days | 6393628
over 360 days | 12091609
056. [NAME] AND DEPOSITS
 | 31 Mar 2011 | 31 Mar 2010
Loans | 160000 | 23507123
Deposits | 400881 | 1561741
Value adjustment | -160000 | -160000
058. CASH IN BANK AND REGISTER
 | 31 Mar 2011 | 31 Mar 2010
Kuna accounts balance | 889984 | 652767
Foreign currency accounts balance | 987919 | 606664
Cash in register | 13670 | 3927
059. PAID EXPENSES FOR FUTURE PERIOD AND UNDUE INCOME PAYMENT
 | 31 Mar 2011 | 31 Mar 2010
Differed customer related expenses | 47876202 | 50653793
Bond issuing expenses | 1559032 | 2318978
Prepaid expenses | 3596288 | 3616198
Accrued income | 0 | 0
Insurance premiums | 0 | 0
Prepaid maintenance expenses | 0 | 327398
063. SUBSCRIBED CAPITAL
On 24 August 2007, the sole shareholder at that time Mr. [NAME] paid up the amount of HRK 20 million in the Company's share capital. In this way, the share capital of the Company has been increased from HRK 201 thousand to HRK 20.201 thousand. The Company has undergone transformation from limited liability company to joint stock company. The total number of shares amounted to 2.020.070 of ordinary shares with nominal value of HRK 10 each. The sole shareholder remained [NAME].
In December 2007, the Company increased the share capital through initial public offering. The Company issued 800.000 shares with nominal value of HRK 10 each. In this way, the total number of shares has been increased to 2.820.070. By subscribing the new shares, the Company realized capital gain of HRK 194.354 thousand representing the difference between the nominal value and the price determined on the initial public offering.
At 31 Mar 2011, loss per share is as follows:
Net result  - loss | 14554790
Number of shares | 2820070
Loss per share
In the same period last year, loss per share amounted to HRK 7,20
Price of shares realized on the stock exchange within the current quarter (1 Jan - 31 Mar 2011)  varied from HRK 25,04 (the lowest price) to HRK 42,39  (the highest price). Market capitalization in thousands of HRK on 31 March 2011 amounted to HRK 94.049 thousand.
In the period from January to March 2011 the Company did not buy-out the issued shares i.e. it does not hold treasury shares.
Ten major shareholders as on 30 March 2011:
Shareholder | in 000 HRK | %
MARTIĆ MATIJA (1/1) | 18596 | 65.94
RAIFFEISENBANK [NAME] | 1345 | 4.77
HANŽEKOVIĆ MARIJAN (1/1) | 1340 | 4.75
[NAME] D.D./ZBIRNI SKRBNIČKI RAČUN ZA UNICREDIT BANK AUSTRIA AG | 1305 | 4.63
RAIFFEISENBANK AUSTRIA D.D./RBA | 979 | 3.47
SOCIETE GENERALE-SPLITSKA BANKA D.D./ AZ OBVEZNI MIROVINSKI FOND (1/1) | 766 | 2.72
[NAME] D.D. (1/1) | 428 | 1.52
RAIFFEISENBANK AUSTRIA D.D. (1/1) | 365 | 1.29
ŽUVANIĆ ROLAND (1/1) | 303 | 1.07
SOCIETE GENERALE-SPLITSKA BANKA D.D./ AZ PROFIT DOBROVOLJNI MIROVINSKI FOND (1/1) | 229 | 0.81
083. LONG-TERM LIABILITIES
 | 31 Mar 2011 | 31 Mar 2010
Loan based liabilities | 44421646 | 62430100
Liabilities towards credit institutions | 530207965 | 200540302
093. SHORT-TERM LIABILITIES
 | 31 Mar 2011 | 31 Mar 2010
Loan based liabilities | 1833521 | 0
Liabilities towards credit institutions | 0 | 271437332
Interest liabilities | 5262784 | 56376483
Liabilities for bonds issued | 249747188 | 248285938
Receivables tooward affiliated undertakings | 8793100 | 3658624
Trade payables | 160870065 | 125146781
Liabilities towards employees | 1710118 | 1584388
Taxes, contributions and other levies | 5080960 | 6094227
Other liabilities | 18471 | 1002709
099. BONDS ISSUED
On 5 February 2007, the Company issued bonds (OPTE-O-124A) with nominal value of HRK 250 million. The bonds have been issued on Zagreb Stock Exchange with interest rate of 9,125% and maturity date on 1 February 2014. The bonds have been issued with the price of 99,496%. The interest rate is paid on annual basis on 1 February 2011.
 | 31 Mar 2011 | 31 Mar 2010
Nominal value | 250000000 | 250000000
Compensations for issuance of bonds | -4018437 | -5479687
Liabilities based on calvulated interest | 3765625 | 3765625
098. LIABILITES TOWARDS SUPPLIERS
 | 31 Mar 2011 | 31 Mar 2010
Domestic trade payables | 144967588 | 117387716
Foreign trade payables | 4931361 | 6092567
Invoice accrual | 10971116 | 1666498
102. LIABILITIES FOR TAXES, CONTRIBUTIONS AND SIMILAR LEVIES
 | 31 Mar 2011 | 31 Mar 2010
VAT Liabilities | 3082196 | 3479824
Taxes and  contributions on and from salaries | 1382131 | 1415154
Other taxes and contributions | 616633 | 1199249
106. DEFERRED PAYMENTS AND FUTURE INCOME
 | 31 Mar 2011 | 31 Mar 2010
Domestic payables for which invoices have not been received | 8712755 | 14852966
Foreign payables for which invoices have not been received | 1501471 | 1586417
Income deferred due to uncertainty | 1067354 | 829402
3. FINANCIAL INSTRUMENTS
During the reporting period, the Company used most of its financial instruments to finance its operations. Financial instruments include loans, bills of exchange, cash and liquid assets and other various instruments, such as trade receivables and trade payables arising directly from ordinary business activities.
Currency Risk Management
Currency risk may be defined as risk of fluctuation of value of financial instruments due to changes in the exchange rates. The Company's major exposure relates to long-term borrowings denominated in a foreign currency and converted to [NAME] at the exchange rate applicable on the balance sheet date. Gains and losses resulting from conversion are credited and charged to the income statement, but do not affect the cash flow.
The carrying amounts of the Company's foreign currency denominated monetary assets and monetary liabilities at the reporting date are given in the following table.
 | Liabilities |  | Assets
 | 31 Mar 2011 | 31 Mar 2010 | 31 Mar 2011 | 31 Mar 2010
 | in 000 HRK | in 000 HRK | in 000 HRK | in 000 HRK
EUR | 578765 | 189670 | -23000 | -17532
USD | 264 | 4602 | -109 | -109
CHF
GPB
Foreign currency sensitivity analysis
The Company is mainly exposed to the fluctuations in the exchange rate of [NAME] to Euro and US Dollar.
The following table details the Company's sensitivity to a 10% decrease of Croatian Kuna exchange rate in 2010 against the relevant foreign currency. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their conversion at the end of the period on the basis of percent change in foreign currency rates. The sensitivity analysis includes monetary assets and monetary liabilities in foreign currencies. A negative number below indicates decrease in profit and other equity where [NAME] changes for above-mentioned percentage against the relevant currency. For a reverse proportional change of [NAME] against the relevant currency, there would be an equal and opposite impact on the profit and other equity.
 | Liabilities |  | Assets
 | 31 Mar 2011 | 31 Mar 2010 | 31 Mar 2011 | 31 Mar 2010
 | in 000 HRK | in 000 HRK | in 000 HRK | in 000 HRK
EUR | 57877 | 18967 | -2300 | -1753
USD | 26 | 460 | -11 | -11
CHF
GPB
Exposure to the currency exchange for 10% mainly relates to received loans, trade payables and receivables from affiliated companies indicated in [NAME] (EURO) and US Dollars (USD).
Interest Rate Risk
Long-term liabilities arising from credits and loans with variable interest rates amount to HRK 371,67 million, and therefore, the Company's exposure to the interest rate risk is  significant.
Other assets and liabilities, including bonds issued, are not exposed to to interest rate risk.
Credit Risk
Credit risk is the risk that the Company's customers will default on their contractual obligations causing possible financial loss to the Company. The Company has adopted procedures which are applied in dealing with customers and it requests and collects payment security instruments, where appropriate, in order to mitigate possible financial risks and losses resulting from a default in payment and fulfilment of contractual obligations.
Trade receivables are monitored continuously in order to determine their risk level and apply the appropriate procedures. Customers' credit ratings are also monitored on a continuous basis in order to establish the Company's credit exposure, which is reviewed at least once a year.
The Company operates with a large number of customers from various industries and of various sizes as well as with individuals who have a specific credit risk. The Company has developed procedures for each particular group of customers in order to ensure that the credit risk is addressed in the most appropriate way.
Liquidity Risk Management
The ultimate responsibility for liquidity risk management rests with the Management Board which is in charge of setting up the appropriate framework for liquidity risk management, all with the purpose of satisfying short-term, medium-term and long-term funding and liquidity management requirements. The Company manages liquidity risk by maintaining adequate reserves and credit lines, by continuous comparison of planned and realized cash flows and by matching the maturity profiles of financial assets and liabilities.
Liquidity Risk and Interest Rate Risk Table Review
The following tables detail maturity of the Company's contractual liabilities indicated in the balance sheet at the end of the reporting period.
Tables have been created on the basis of undiscounted cash flows of financial liabilities on their due date. The tables include both interest and principal cash flows.
in 000 HRK | Up to one year | From 1 to 5 years | Over 5 years | Total
31 Mar 2011
Non-interest bearing liabilities | 171392
Interest bearing liabilities | 51172 | 777865 | 2436
31 Mar 2010
Non-interest bearing liabilities | 137487
Interest bearing liabilities | 356154 | 450314 | 32603
The majority of non-interest bearing liabilities of the Company maturing within one year account for trade payables in the amount of HRK 160.870 thousand for the period from January to March 2011 (HRK 125.147 thousand for the same period last year).
Interest bearing liabilities include short-term and long-term borrowings, bonds issued and financial lease.
The following tables detail maturity of the Company's financial assets indicated in the balance sheet at the end of the reporting period.
Tables have been created on the basis of undiscounted cash flows of financial assets on their due date. The tables include both interest and principal cash flows.
in 000 HRK | Up to one year | From 1 to 5 years | Over 5 years | Total
31 Mar 2011
Non-interest bearing liabilities | 79808
Interest bearing liabilities | 452 | 39306 | 16874
31 Mar 2010
Non-interest bearing liabilities | 78653
Interest bearing liabilities | 24909 | 5849 | 4238
The balance of cash and cash equivalents is indicated under non-interest bearing financial assets due to the low interest rate on these assets.
 | [NAME] | [NAME]