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ARMENIAN SOCIAL INVESTMENT FUND

FINANCIAL STATEMENTS AND

INDEPENDENT AUDITOR'S REPORT

for the year· ended 31 December 2013

YEREVAN May 2014

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TABLE OF CONTENT

Page

THE BOARD OF THE ASIF ................. .. ............ ............................ ............................... .... ............... ...... 3

INDEPENDENT AUDITOR'S .REPORT ............................................................................................... 4

STATEMENT OF FINANCIAL POSITION .......................................................................................... 6

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME ......................... ?

STATEMENT OF CHANGES IN EQUITY ........................................................................................... &

STATEMENT OF CASH FLOWS ...................................................................................................... .. . 9

NOTES TO THE FINANCIAL ST A TEMENTS ................................................................................... l 0

Armenian Socia/ Investment Fund Firwncial Stmements for the year endt•d 31 December 2013 2 /9

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The Chairman Hovik Abrahamyan

Members

Annen Gevorgyan

Gagik Khachatryan

Narek Sargsyan

Artem Asatryan

Annen Ashotyan

Taron Margaryan

Jirayr Markosyan

Ara V ardanyan

Levon Karaqashyan

Arpi V ardanyan

Ashot Kirakosyan

Armenian Socia/lnl'estment Fund

THE BOARD OF THE ASIF

Prime Minister of the Republic of Annenia

Deputy Prime minister of the Republic of Armenia, Minister of Territorial Administration

Minister of Finance of the Republic of Armenia

Minister of Urban Development of the Republic of Armenia

Minister of Labor and Social Affairs of the Republic of Armenia

Minister of Education and Science of the Republic of Armenia

Mayor of Yerevan

General Director of representation in Armenia of charitable organisation "Aznavour pour 1 'Armenia"

Executive Director of All-Armenian Fund

Representative of organization "Knights ofVardan"

Director of AGBU Armenia representation

Executive director of Armenian Social Investment Fund

Financial Statements for the yea1· ended 31 December 2013 3: f9

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"80S-AUDIT" LTD

INDEPENDENT AUDITOR'S REPORT N 33

On the financial stateme.nts of Armenian Social Investment Fund for the year ended 31 December 2013

To the Management of the Armenian Social Investment Fund

We have audited the accompanying financial statements of the Armenian Social Investment Fund (the ASIF) which comprise the statement of financial position as at 31 December 2013, the statement of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows for the year then ended and a summary of significant accounting policies and other explanatory notes.

Management's Responsibility for the Financial Statements

The ASIF' s Management of the Fund is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of special purpose financial statements that are free from material misstatements, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain reasonable audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment including the assessment of the risk of material misstatement of the financial statements, whether due to fraud or error. In making those assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statement in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

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11; p. tpuwG 0037, U.SrqpwGJwG 38/55; 1bn." (+37410) 20 11 51; !bwpu" (+3741 0) 20 11 50; www.sosaudit.am; tL-Ljmulll · info@sosaudit.am

An Associate of the Crowe Horwath Business Alliance

38/55 A.Tigranyan, 0037 Yerevan, RA; Tel. : (+37410) 20 11 51; Fax: (+37410) 20 11 50; www.sosaudit.am; E-mail : info@sosaudit.am

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"SOS-AUDIT" LTD

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Opinion

In our opinion the accompanying financial statements present fairly in all material respects the financial position of the Armenian Social Investment Fund as of 31 December 2013, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

SOS-Audit LLC 7 May 2014

Gnel K.hachatryan, FCCA Auditor

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11; J!. b(luwO 0037, U.S~q(lWOJwO 38/55; "'bn.' (+37410) 20 11 51; :bwJ!u· (+37410) 20 11 50; www.sosaudit.am; tL-ltmuu,. info@sosaudit.am

An Associate of the Crowe Horwath Business Alliance

38/55 A.Tigranyan, 0037 Yerevan, RA; Tel.: (+3741 0) 20 11 51; Fax: (+37410) 20 11 50; www.sosaudit.am; E-mail: info@sosaudit.am

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STATEMENT OF FINANCIAL POSITION

Armenian Social Investment Fund As at31 December 2013

Note 31.12.2013 31.12.2012 USD USD

ASSETS Non-current assets Property and equipment 3 30,624 22,747 Funds receivable 4 __ _iJ 65,98_!_ 11,081,831 Total non-current assets 4,196,605 11,104,578

Current assets Advances 5 265,380 680,922 Cash 6 1 '159,575 1,315,436 Total current assets 1,424,955 1,996,358 TOTAL ASSETS 5,621,560 13,100,936

LIABILITIES AND EQUITY Equity Founders' contribution 7 151,631 151,631 Accumulated deficit (178,0692 (169,785) Total equity (26,438) (18,154)

Non-current liabilities Government grants 8 5,155,841 12,908,855 Total non-current liabilities 5,155,841 12,908,855

Current liabilities Accounts payable 9 492,157 210,235 Total current liabilities 492,157 210,235 TOTAL LIABILITIES AND EQUITY 5,621,560 13,100,936

The financial statements were approved by the management ofthe Armenian Social Investment Fund on 7 May 2014 and signed on its behalf The accompanying notes form an integral part of these financial statements.

L{> Executive Director

Armenian Social Investment Fund Financiai Statemellls for the year ended 31 December 2013 6/ /9

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STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

Armenian Social Investment Fund For the year ended 31 December 2013

Note

Cost of the Projects 10

Income from Gr11nts 8

Other income/(expense), net

Exchange gain/(loss), net (USD/ AMD)

Results of the year before income tax

Income tax

Results of the year

Other comprehensive income

Comprehensive result for the year

Armenian Social Investment Fund Financial Statements for the year ended 31 December 2013

2013 USD

(7 ,922,942)

7,922,942

1,172

{9,456)

(8,284)

(8,284}

{8,284}

2012 USD

(4,768,327)

4,768,327

10,781

(3,801)

6,980

6,980

6,980

7/19

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STATEMENT OF CHANGES IN EQUITY

Armenian Social Investment Fund For the year ended 31 December 2013

Founders contribution

USD

Balance as at 1 January 2012 151,631

Results of the year

Balance as at 31 December 2012 151,631

Results of the y~ar

Balance as at 31 December 2013 151,631

Armenian Social Investment Fund Financial Statements for the year ended 31 December 20/3

Accumulated Total deficit

USD USD

(176,765) (25,134)

6,980 6,980

(169,785) (18,154)

(8,284) (8,284)

(178,069) {26,438}

8/19

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NOTES TO THE FINANCIAL STATEMENTS

Armenian Socia/ Investment Fund For the year ended 31 December 2013

1. Background

1.1 Organization and its operations

The Armenian Social Investment Fund (the ASIF) has been established by a Decree N 162 dated 11.04.2000 ofthe Government ofthe Republic of Armenia, the sole founder, as an autonomous non­profit agency to assist in the rehabilitation of small-scale infrastructure through community initiated and demand-based activities. The Board, chaired by the Prime-Minister of the Republic of Armenia, is a supreme governing body of the ASIF.

The Annenian Social Investment Fund was registered in accordance with resolution N 988 of the Ministry of Justice ofthe Republic of Annenia dated on 13 September 2000.

The major projects implemented by ASIF since its incorporation are ASIF I, ASIF II and ASIF III projects (The Projects) with objective to raise the living standards of the poor and vulnerable groups in the Republic of Armenia through:

a) improving the quality and access, and increasing the coverage of community infrastructure and services in poor communities, and for the most vulnerable groups in response to critical emerging needs; and

b) promoting complementary institutional capacity building at the community and municipal level so as to improve the quality and sustainability of service delivery and municipal investments, increase accountability, and enhance greater stakeholder empowerment at local level.

The Projects financing was provided by the Government of the Republic of Armenia through funds received from international donors, the largest creditor being International Development Association (the IDA) and International Bank of Reconstruction and Development (the IBRD). The Projects co­financing was provided by:

• Government of the Republic of Armenia, • Local Communities, • Other sponsors.

The ASIF registered address is: 31 Ulnetsy Street, Yerevan, 0037, Republic of Armenia.

Armenian Socia/lnvestmellf Fund Financial Statemellfsfor the year ended 31 December 2013 /0//9

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2. Summary of significant accounting policies

2.1 Bases ofpr~paration

These financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Federation of Accountants.

The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the periods presented.

The financial statements consist of: Statement of financial position, Statement of profit and loss and other comprehensive income, Statement of changes in equity, Statement of cash flows, Notes to the financial statements, including significant accounting policies.

2.2 Basis of measurement

These financial statements are prepared on the historical cost basis.

2.3 Functional a11d presentation currency

The ASIF's functional currency is the national currency of the Republic of Armenia, Dram (AMD). The presentation currency of these financial statements is United States Dollar (USD).

2.4 Foreign currency transactions

Foreign currency is a currency other than the functional currency of the ASIF. Transactions in foreign currencies are translated to functional currency at exchange rates at the dates of the transactions. Settlement rate of foreign currency over functional currency established by the Central Bank of the Republic of Armenia is taken as the exchange rate.

The ASIF's accounts are maintained and transactions are made in USD and Armenian Drams (AMD). Transactions denominated in local currency are translated into USD as follows:

Contributions of the Republic of Armenia expressed in AMD are presented in USD at the official exchange rate defined by the Central Bank of Armenia at the date of transfer. Payments to contractors and suppliers expressed in AMD are presented in USD at the exchange rates defined by the CBA at the date of payment.

The exchange rate defined by the CBA as at 31 December 2012 is: USD 1 = 403.58 AMD. The exchange rate defined by the CBA as at 31 December 2013 is: USD 1 = 405.12 AMD,

Credits agreed between IDA and the Republic of Armenia Govenunent for ASIF III project, as well as residual amounts, determined at Special Drawing Rights (SDR) and translated into USD at the year end rates determined by World Bank Group.

The exchange rate defined by the WB as at 31 December 2012 is: SDR 1 = USD 1.53692, Armenian Social Investment Fund Financial Statemelllsfor the year ended 31 December 2013 11:19

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The exchange rate defined by the WB as at 31 December 2013 is: SDR 1 = USD 1.54000.

2.5 Government grt~nts

Grants from the government in return for past or future compliance with certain conditions relating to operating activities of ASIF are recognized at their fair value where there is reasonable assurance that: a) the ASIF will comply with the conditions attached to them; and b) the grants will be received.

Government grants relating to the purch~se of property, plant and equipment are deferred and are recognized in the income statement on a straight line basis over the expected lives of the related assets. Grants relating to costs are deferred and recognized in the income statement over the period necessary to match them with the costs that they are intended to compensate.

2.6 Property, plant and equipment

Property, plant and equipment are stated at cost, less accumulated depreciation and provision for impairment, where required. Costs of minor repairs and maintenance are expensed when incurred. Cost of replaci~g major parts or components of property, plant and equipment items are capitalized and the replaced part is retired. Depreciation is calculated on a straight-line basis in accordance with the following annual depreciation rates:

Machinery and equipment Transportation means Operational fixtures

2.7 Cash

Cash comprise cash balances and bank accounts balances.

2.8 Advances

20% 20% 20%

Advances are carried at cost less provision for impairment. If there is an indication that the assets, goods or services relating to an advance will not be received, the carrying value of the advance is written down accordingly and a corresponding impairment loss is recognised in the income statement.

Armenian Saciallnvestmellt Fumi Financial Stmemellts for the year endE·d 31 Decem her 2013

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3. Property and equipment

Property, plant and equipment represent assets acquired in the scope of the ASIF III project for use at ASIF.

Machinery Transportation Operational Total and equipment means fixtures

USD USD USD USD Cost As of 1 January 2012 142,754 156,175 7,519 306,448 Acquisitions - - - -As of 31 December 2012 142,754 156,175 7,519 306,448 Acquisitions 23,389 - 372 23,761 As of 31 December 2013 166,143 156,175 7,891 330,209 Accumulated depreciation As of 1 January 20 12 127,545 127,542 5,229 260,316 Annual charges 8,991 13,784 610 23,385 As of 31 December 2012 136,536 141,326 5,839 283,701 Annual charges 5,235 10,046 603 15,884 As of 31 December 20 13 141,771 151,372 6,442 299,585 Carrying value As of 1 January 2012 15,209 28,633 2,290 46,132 As of 31 December 2012 6,218 14,849 1,680 22,747 As of31 December 2013 24,372 4,803 1,449 30,624

As at 31.12.2013 the property and equipment with cost of 240,356 USD are fully depreciated (31.12.2012: 189,523 USD).

4. Funds receivable

It represents funds receivable for implementation of ASIF III project:

31.12.2013 31.12.2012 Sources of Funds USD USD

International Development Association (IDA 5071-AM)- 3n1

additional financing 3,685,801 8,786,239 Republic of Annenia Government - 122,367 Republic of Annenia Government -3ra additional financing 480,180 2,173,225

Total 4,165,981 11,081,831

Armenian Socia! Jnvestme111 Fu11d Fintmcial Stateme/1/s for the year ended 31 December 2013 )].: )9

--. - ~ ~. ,_ ---. r-- ~ - C""J - r---'j ,_., --, :--::1 -, -

4.1 Roll-forward of funds receivable on ASIF III project USD

IDA IBRD IDA 4548-AM 7847-AM- 5071-AM- RA RA RA Commu-

- 2nd 3nl Government Government- Government- nity IDA additional additional additional RA - additional 2nd additional 3n1 additional contribu-

4238-AM financing financing financing Government financing financing financing tions Sponsors Total

01.01.2012 - - 1,645,599 - 138,946 - 49,596 - - - 1,834,141

Granted - - - 11,000,000 - - - 2,900,000 700,000 - 14,600,000

Received/refund 5.722 - {1,645,5~) (2, 115,503) (16,580) - (193,711) (726,775) (668,192) 3 (5.360,635) Other increase/ (decrease) (5,722) - - - - 144,115 - (31,808) (3) 106,582

Revaluation (SDRIUSD) - - - (98,257) - - - - - - (98,257)_

31.12.2012 - - - 8,786,240 122,366 - - 2,173,225 - - 11,081,831

Granted - - - - - - - - - - -Received/refund - - - (5,056,585) 1,401 298 - (I ,693,045) (275, 127) (62,720) (7 ,085, 778) Other increase/ (decrease} - - - - (123,767} (298) - - 275,127 62,720 213,782 '

Revaluation (SDRIUSD) - - - (43,854) - - - - - - (43,854)

31.12.2013 - - - 3,685,801 - - - 480,180 - - 4165,981

Armenian Socia/ Investment Fund Financial Statements for the year ended 31 December 2013 14 19

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4.2 IDA funds revaluation

IDA 5071-AM Additional Financing Funds 31.12.2013 31.12.2012 Revaluation

Receivable in SDR 2,393,378 5,716,784

Exchange Rate SDRIUSD 1.54000 1.53692

Equivalent in USD 3,685,801 8,786,240

Total in USD 3,729,655 8,884,497

Revaluation gain/(loss} for the ~ear (USD) (43,854) (98,257)

5. Advances

31.12.2013 31.12.2012 USD USD

Advances for Works-ASIF III 264,937 680,478 Other advances 443 444 Total Advances 265,380 680,922

6. Cash

31.12.2013 31.12.2012 USD USD

IBRD 7847-AM 2nct additional financing Designated account (USD) -ASIF III - 63,176 IDA 5071-AM third additional financing Designated account (USD) -ASIF III 173,626 362,224 Current accounts (AMD)-ASIF III 978,184 881,688 Other accounts (AMD) 7,699 8,332 Cash on hand (AMD) 66 16

1,159,575 1,315,436

7. Founders' contribution

The Government of the Republic of Armenia is the sole founder of ASIF. The Founder contributed Property, Plant and Equipment with the valued amount of USD 151,631. Those assets were fully depreciated as at 31 December 2006.

Armenian Social investment Fund Financial Statements for the year ended 31 December 2013 15119

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8. Government grants

Mostly relates to received grants for implementation of ASIF III project.

2013 ASIFID ASIFll Total ASIFill

USD USD USD USD

Opening balance 12,908,855 - 12,908,855 3,068,857 r--

Grants received - - - 14,600,000 Other increase/( decrease) 213,782 - 213,782 106,582 Revaluation (SDRIUSD) (43,854) - (43,854) (98,257) Income corresponding to compensated costs (7,922,942) - (7 ,922,942) (4,768,327)

Closing balance 5,155,841 - 5,155,841 12,908,855

Armenian Social Investment Fund Financial Statements for the year ended 31 December 2013

2012 ASIFll Total

USD USD

- 3,068,857

- 14,600,000

- 106,582

- (98,257)

- (4,768,327)

- 12,908,855

16/19

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8.1 Roll-forward of ASIF III grant

IDA 4548-AM

IDA additional Item/Financing 4238-AM financing

01.01.2012 6,807 8,099

Grants - -Increase/ (decrease) (5,722) -Revaluation (SDRIUSD) - -Income corresponding to compensated costs (22,225) 6

31.12.2012 (21,140) 8,105 Grants - -Increase/ (decrease) 37,422 (8,105) Revaluation (SDRIUSD) - -Income corresponding to compensated costs (9,258) -31.12.2013 7,024 -

Armenian Socia/ Investment Fund

IBRD 7847-AM

2nt additional financing

2,296,300

-

-

-

(2,29{180)

2,120

-

(2,111)

-

(9)

-

Financial Statements for tl1e .vear ended 31 December 2013

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IDA 5071-AM-

3nd additional RA financing Government

- ll7,273

11,000,000 -

- 144,115

(98,257) -

(1 ,322,584) {25,958)

9,579,159 235,430

- -

- (223,549)

(43,854) -

(5,805,343) (10,443)

3,729,962 1,438

-- LJ ;---; - ~

USD RA RA

Govern me Government RA nt- -2nd Government- Community

additional additional 3nt additional contribu-financing financing financing tions Sponsors Total

14,975 343,803 - 213,082 68,518 3,068,857

- - 2,900,000 700,000 - 14,600,000

- - - (31,808) (3) 106,582

- - - - - (98,257)

(18,686) (469,119) (328,756) (222,218) (64,607) . (4,768,327)

(3,711) (125,316) 2,571,244 659,056 3,908 12,908,855

- - - - - -3,711 122,154 - 220,202 64,058 213,782

- - - - - (43,854)

- 3,791 (1,508,761) (524,953) (67,966) (7,922,942J

- 629 1,062,483 354,305 - 5,155,841

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9. Accounts payable

ASIF Ill Project I. Works (LOG*) 2. Goods (LOG*)

3. Consultants' services and Training (LOG*) 6. Works, Goods, Consultants' services and Training (LOG*)-IBRD 7847-AM

Payable on interest accrued on local account

Tota_l

*Liquidated damages guaranty

10. Cost ofthe PI'Ojects

2013 ASIF III ASIF II Total

USO USO USD

Works 6,221,120 - 6,221,120

Goods 799,024 - 799,024

Consultants' services and Training 253,899 - 253,899

Operating costs 633,015 - 633,015

l:""'ciatioo of PPE 15,884 - 15,884

nt-end fee - - -

al 7,922,942 - 7,922,942

Armenian Social investment Fund Financial Statements _lor the year ended 31 December 2013

31.12.2013 31.12.2012 USO USO

444,940 134,898

- 1,012

166 -

- 64,502 47,051 9,823

492,157 210,235

2012 ASIF III ASIF II Total

USD USO USO

3,268,425 - 3,268,425

508,494 - 508,494

385,815 - 385,815

582,208 - 582,208

23,385 - 23,385

- - -4,768,327 - 4,768,327

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11. Cash Flows

2013 2012 ASIF ASIF III ASIF Total AS IF ASIF III ASIF Total other 11 other II USD USD USD USD USD USD USD USD

Funds received/ (returned) - 7,085,778 - 7,085,778 - 5,359,578 - 5,359,578 IDA - 5,056,585 - 5,056,585 - 3,754,323 - 3,754,323 RA Government - 1,691,346 - 1,691,346 - 937,066 - 937,066 Community Contributions - 275,127 - 275,127 - 668,192 - 668,192 Other SQonsors - 62,720 - 62,720 - (3) - (3)

Expenditures on Projects - (7,280,159) - (7,280,159) - (5,396,070) - (5,396,070) Works - (5,563,903) - (5,563,903) - (3,922,547) - (3,922,547) Goods - (829,507) - (829,507) - (498,790) -Consultant Services and Training - (253,734) - (253,734) - (392,525) -Operating Costs - (633,015) - (633,015) - (582,208) -Front-end fee - - - - - - -

Other operating cash flows (net) (588) 37,265 - 36,677 (810) - -

Exchange difference (45) 1,888 - 1,843 (440) (I ,855) -

Net cash result (633) (155,228) - (155,861) (1,250) (38,347) -Opening cash balance 8,332 1,307,104 - 1,315,436 9,582 1,345,451 -Closing cash balance 7,699 1,151,876 - 1,159,575 8,332 1,307,104 -

12. Taxes

Applicable taxes are paid in accordance with tax regulations of the Republic of Armenia.

Income tax rate in the Republic of Armenia is 20%.

13. Litigations and contingencies

No claims were received against the ASIF as at 31.12.2013.

Armenian Socia/ Investment Fund Financial Statements for the year ended 31 December 2013 19/19

(498,790)

(392,525) (582,208)

-

(810)

(2,295)

(39,597)

1,355,033

1,315,436