NOTES TO THE FINANCIAL STATEMENTS

1. GENERAL INFORMATION

Country of incorporation

IRF was incorporated on 8 September 2005 under the Bermuda Companies Act 1981. The Company was initially listed on AIM on 14 November 2005 and on 19 January 2009 transferred to the Specialist Fund Market (the "SFM"), a regulated market operated by the London Stock Exchange plc. The Company's registered office is at Canon's Court 22 Victoria Street, Hamilton HM12, Bermuda.

Principal Activities

The Group was initially engaged in the provision of banking, financial and insurance services. IRF was formed as an investing company to serve as a vehicle for the acquisition of one or more businesses in the financial services industry in Europe, with a primary focus on credit institutions and insurance companies in Greece, Bulgaria, Romania and Turkey.

IRF currently focuses its major investments in the Greek market. IRF acquired and continues to hold approximately 11% of the issued shares in Marfin Investment Group ('MIG') which, as at 30 June  2010, is the most significant investment in the company's portfolio. MIG invests in private equity, privatisations and infrastructure projects and principally operates in Greece, Cyprus and South East Europe. All Greek equity holdings are publicly listed on the Athens Stock Exchange. 

2. BASIS OF INTERIM FINANCIAL STATEMENT PREPARATION

2.1 Statement of compliance

The condensed consolidated interim financial statements for the six month period ended 30 June 2010 have been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting' and should be read in conjunction with the audited financial statements for the year ended 31 December 2009.

The financial information set out in this interim report does not constitute statutory financial statements pursuant to Section 84 of Bermuda Companies Act 1981. The Group's statutory financial statements for the year ended 31 December 2009 were approved by the Board of Directors on 26 Μarch 2010. The auditor's report on those financial statements was unqualified.

2.2 Functional and presentation currency

The current financial statements are presented in Euro, which is the functional currency of the Group. The functional currency is the currency of the primary economic environment in which an entity operates and is normally the one in which it primarily generates and expends cash. Management used its judgment to determine the functional currency that most faithfully represents the economic effects of the underlying transactions, events and conditions.

All amounts are presented in thousand Euros unless mentioned otherwise. Due to rounding, percentages and numbers presented throughout the condensed interim consolidated financial statements may not match the counterparts in the financial statements. All amounts expressed in dollars, are US dollars.

2.3 Comparative figures

For the preparation of the condensed consolidated statement of financial position, comprehensive income statement, and cash flow statement of the period ended 30 June 2010, comparatives as of 31 December and 30 June 2009 respectively, were used.

2.4 Use of estimates

The preparation of the financial statements in accordance with the IFRS requires management to make estimates, judgements and assumptions that affect the application of accounting policies and the reporting amounts of assets, liabilities, income and expenses.

Assumptions and estimates are reviewed on an ongoing basis and are revised based on experience and other factors. Revisions of the accounting estimated are recognised in the period in which estimates are revised and in any future periods affected. Assumptions and estimates include expectations on future event and outcomes that are considered as reasonable given the current conditions. Actual results may differ from these estimates.

3. SUMMARY OF IMPORTANT ACCOUNTING POLICIES

3.1 Change in accounting policies

These condensed consolidated interim financial statements have been prepared in accordance with the accounting policies adopted in the last annual financial statements for the year ended 31 December 2009.

3.2 Operating segments

IFRS 8 "Operating Segments" (issued in 2006 and applied by companies for periods starting on or after 01/01/2009), requires a "management approach" to the Group's presentation of financial information under segment reporting. Information disclosed is basically information that the management uses for internal reporting so as to assess the productivity of segments, as well as the manner in which resources are allocated. Such reporting might differ from information used during the preparation of the balance sheet and the income statement

The directors determined that IRF's continuing business, as an investment company, would be managed by the directors as a whole and no segmental information would be reported to the CEO. Therefore, IRF does not present segmental financial information.

3.3 New standards, amendments and interpretations with effective date as of 1 January 2010

During 2009, IASB issued the annual improvements to IFRS for 2009, a series of adjustments in 12 Standards, as a part of the annual improvement program. The annual improvement program of IASB aims to make necessary but not urgent adjustments to IFRS's and will not be a part of bigger revision program. The following standards are applicable from the period ending 31 December 2010:

(a) IFRS 3 (Revised) "Business Combinations" and IAS 27 (Amended) "Consolidated and Separate Financial Statements"; The revised IFRS 3 introduces a number of changes in the accounting for business combinations which will impact the amount of goodwill recognized, the reported results in the period that an acquisition occurs, and future reported results. Such changes include the expensing of acquisition-related costs and recognizing subsequent changes in fair value of contingent consideration in the profit or loss. The amended IAS 27 requires that a change in ownership interest of a subsidiary to be accounted for as an equity transaction. Furthermore the amended standard changes the accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. The changes introduced by these standards must be applied prospectively and will affect future acquisitions and transactions with minority interests. This revision will not have significant impact on the Group's financial statement.

(b) IFRS 2 (Amendment) - "Group Cash-settled Share-based Payment Arrangements"; The amendment clarifies how an individual subsidiary in a group, in its own financial statements, should account for some share-based payment arrangements that are settled in cash on group level. This amendment is not applicable for the Group.

(c) IAS 39 (Amended) "Financial Instruments: Recognition and Measurement" - Eligible Hedged Items;  This amendment clarifies how the principles that determine whether a hedged risk or portion of cash flows is eligible for designation should be applied in particular situations.. The standard does not apply to the Group.

(d) IFRS 1(Amendment)  "First time adoption - Additional exemptions for first time adopters"; The amendments exempt retrospective application of IFRS to assets measurement for oil, gas and lease sectors. This amendment does not apply to the Group.

(e) IFRS 8 "Operating Segments"; the amendment provides clarifications on the disclosure of information about segment assets.

(f) IAS 7 "Statement of Cash Flows"; the amendment requires that only expenditures that result in a recognized asset in the statement of financial position can be classified as investing activities.

(g) IAS 17 "Leases" ; The amendment provides clarification as to the classification of leases of land and buildings as either finance or operating. The standard does not apply to the Group.

(h) IAS 18 "Revenue"; the amendment provides additional guidance regarding the determination as to whether an entity is acting as a principal or an agent.

(i) IAS 36 "Impairment of Assets"; the amendment clarifies that the largest cash-generating unit to which goodwill should be allocated for the purposes of impairment testing is an operating segment as defined by paragraph 5 of IFRS 8.

(j) IAS 38 "Intangible assets"; The amendments clarify (a) the requirements under IFRS 3 (revised) , regarding accounting for intangible assets acquired in a business combination and (b) the description of valuation techniques commonly used by entities when measuring the fair value of intangible assets acquired in a business combination that are not traded in active markets.

(k) IAS 39 "Financial Instruments: Recognition and Measurement"; The amendments relate to (a) clarification on treating loan pre-payment penalties as closely related derivatives, (b) the scope exemption for business combination contracts and (c) clarification that gains or losses on cash flow hedge of a forecast transaction should be reclassified from equity to profit or loss in the period in which the hedged forecast cash flow affects profit or loss.

(l) IFRIC 9 "Reassessment of embedded derivatives";  This amendment clarifies that IFRIC 9 does not apply to possible reassessment, at the date of acquisition, to embedded derivatives in contracts acquired in a business combination between entities under common control.

(m)IFRIC 12 - Service Concession Arrangements (EU endorsed for periods beginning 30 March 2009); This interpretation applies to companies that participate in service concession arrangements.  This interpretation is not relevant to the Group's operations.

(n) IFRIC 16 -" Hedges of a net investment in a foreign operation" (effective for annual periods beginning on or after 1 July 2009); This interpretation applies to an entity that hedges the foreign currency risk arising from its net investments in foreign operations and qualifies for hedge accounting in accordance with IAS 39. The interpretation provides guidance on how an entity should determine the amounts to be reclassified from equity to profit or loss for both the hedging instrument and the hedged item. This interpretation is not relevant to the Group as the Group does not apply hedge accounting for any investment in a foreign operation.

(o) IFRIC 17: "Distribution of non-cash assets to owners"; this interpretation provides guidance to an entity in order to recognize and subsequently measure a liability arising from the distribution of non-cash assets to owners;

(p) IFRIC 18 "Transfers of assets from customers" (effective for transfers of assets received on or after 1 July 2009); This interpretation clarifies the requirements of IFRSs for agreements in which an entity receives from a customer an item of property, plant and equipment that the entity must then use to provide the customer with an ongoing supply of goods or services. In some cases, the entity receives cash from a customer which must be used only to acquire or construct the item of property, plant and equipment.  This interpretation is not relevant to the Group.

3.4 New standards, amendments and interpretations effective for periods beginning 1 January 2011 and own wards.

(a) I.F.R.S 9 - Financial Instruments; In the primary issuance of IFRS 9 from IASB at November 12, 2009, the standard replaces IAS 39 only in the stipulations regarding classification and measurement of financial assets. In its final form, which is expected to be completed by the end of 2010, the new standard will lead to complete replacement of IAS 39. The new standard negates the four classification categories of IAS 39 and imposes the classification of all financial assets in two categories (amortized cost and fair value), according to the business model of each corporate entity and the characteristics of the financial asset. IFRS 9 eliminates the requirement of IAS 39, for the separation of embedded derivates in financial assets. The standard imposes the overall evaluation of both derivative and financial asset for the determination of cash flows being capital and capital on interest. IFRS permits reclassifications between fair value and amortized cost categories only if there is a change in the business management model of the financial assets.

IFRS 9 obligatory adoption is for periods beginning at or after January 1st 2013 and has a retrospective effect. Early adoption is permitted, but it has not been adopted by the European Union. The effect from the application of IFRS 9 is evaluated by the Group because it is expected these changes affect its Equity and results.

(b) IFRS 1 (Amendment)  "First time adoption - Limited Scope Exemption for IFRS 7 Disclosures"; (effective for annual periods beginning on or after 1 July 2010). This amendment provides exemptions for first time adopters relating to presentation of comparative financial information that is required from IFRS 7. This amendment does not apply to the Group.

(c) IAS 24 (Amendment) "Related Party Disclosures"; The aforementioned amendment clarifies the definition of related parties and reduces disclosures regarding related parties of the State. In particular, it rescinds the obligation of State entities t disclose details of all transactions with other State parties, it clarifies and simplifies the definition of a related party and endorses the disclosure not only of transactions and balances between related parties, but also undertakings, both in separate and consolidated statements. The aforementioned amendment has not been endorsed yet by the European Union and has obligatory adoption from January 1st 2011. This amendment is not expected to have significant impact on the financial statements. 

(d) IFRIC 14 (Amendment) - "Prepayments of a Minimum Funding Requirement" (effective date for mandatory adoption 1st  January 2011); The amendment applies in the limited circumstances when an entity is subject to minimum funding requirements and makes an early payment of contributions to cover those requirements. The amendment permits such an entity to treat the benefit of such an early payment as an asset. This amendment does not apply to the Group.

(e) IFRIC 19 "Extinguishing Financial Liabilities with Equity Instruments"; IFRIC 19 considers the accounting treatment when an entity renegotiates the terms of a financial liability with its creditor and the creditor agrees to accept the entity's shares or other equity instruments to settle the financial liability fully or partially.  Before the issuance of IFRIC 19, there were multiple choices in accounting treatment of these transactions.

The interpretation is effective for annual periods beginning on or after 1 July 2010 with earlier application permitted. IFRIC 19 is relevant only for the debtor's accounting treatment for these transactions. It does not apply when the creditor is also an immediate or intermediate stock holder and acts upon his status, or the debtor and the entity are controlled by the same party after the transaction, and the substance of the transaction relates to a capital return from or to the entity. Financial liabilities that are extinguished with equity instruments in accordance with the initial terms of the financial liability are also outside the scope of this IFRIC.

(f) IAS 32 (Amendment) - "Financial instruments: Presentation - Classifications of rights issues"; The amendment revises the definition of financial liability of IAS 32 in order to classify options or rights on stocks as debt instruments. The amendment is effective for periods beginning on or after 1 February 2010.

During 2010, IASB issued the annual improvements to IFRS for 2011. The following standards are applicable from the period ending 31 December 2011:

(a) IFRS 3 "Business combinations";  The amendments  provide additional guidance with respect to : (i) contingent consideration arrangements arising from business combinations with acquisition dates preceding the application of IFRS 3 (2008) , (ii) measuring non- controlling interests and (iii)accounting for share-based payment transactions that are part of a business combination , including un -replaced and voluntarily replaced share-based payment awrds.

(b) IAS 1 "Presentation of Financial Statements"; The amendment clarifies that entities may present an analysis of the components of other comprehensive income either in the statement of changes in equity or within the notes.

(c) IFRIC 13 " Customer Loyalty Programmes": The amendment clarifies the meaning of the term fair value in the context of measuring award credits under customer loyalty programmes.

4. STRUCTURE OF THE GROUP

The structure of the Group as at 30 June 2010 and 31 December 2009:

The following table indicates the Group structure as at 30 June 2009:

Information on consolidation

MIMOSA TRADING SA: This company is duly incorporated and filed articles of incorporation under the provisions of the Marshall Islands Business Corporation Act on 6 July 2007. IRF is the owner of five hundred (500) fully paid and non-assessable shares of the capital stock of the corporation. The aggregate number of shares of stock that this company is authorized to issue is five hundred (500) registered and/or bearer shares without par value.

MYRTLE TRADING COMPANY: This company is duly incorporated and filed articles of incorporation under the provisions of the Marshall Islands Business Corporation Act on 6 July 2007. IRF is the owner of five hundred (500) fully paid and non-assessable shares of the capital stock of the corporation. The aggregate number of shares of stock that this company is authorized to issue is five hundred (500) registered and/or bearer shares without par value.

IRF US INVESTMENTS INC: During 2009, IRF US Investments inc. (IRF US) was organized as a wholly owned subsidiary under the laws of the State of Delaware.  IRF US's only activity is to hold the 49% interest in S.Goldman Asset Management LLC (SGAM). IRF US is fully consolidated in IRF's Group financial statements. 

S.Goldman Asset Management LLC (SGAM) is a limited liability company formed in 2009, under the law of the State of Delaware.  IRF US holds a 49% interest in SGAM. SGAM is an investment manager on a "managed account" and fund basis. SGAM is classified as an associate company and it is consolidated under the equity method.

One of  IRF's non - executive directors controls the aforementioned company, which provides investment advisory services to IRF and receives a management fee under an investment advisory agreement.

5.  IMPAIRMENT LOSSES

Under IAS 39, the amount of any decline in the fair value of an "available for sale" financial asset is recognized in the profit and loss.  The amount of such profit or loss is determined based on the difference between the new fair value and the previous evaluation of fair value. 

During the second quarter of 2010, the Company recognized an impairment loss of €62,837,754.32.  This impairment reflects the deterioration in value of investments in securities available for sale (primarily shares in MIG) from the prior valuation date as of 31 March 2010.  The impairment loss for the six-month period ending 30 June 2010 was €88.818.754,32.

6. CASH AND OTHER EQUIVALENTS

7. TRADING PORTFOLIO AND OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT & LOSS

In January 2010, the Company transferred a managed account valued at $23.8 million to the SG Aurora Fund Ltd (the "Aurora Fund) in exchange for units in the Aurora Fund. The managed account had initially been funded with $20.0 million. The Aurora Fund is an investment fund incorporated under the Companies Act of the Cayman Island. In Q2 2010, the Company invested $5.0 million in the Aurora Fund for additional units

On 19 March 2010, the Company purchased a convertible bond loan issue of MIG with a five-year term. Under the terms of the issue, the Company acquired 10,482,180 bonds for a price of €4.77 per bond, paying approximately €50 million. The bonds bears 5% fixed annual interest and are convertible into common registered shares of MIG.  On 26 March 2010, the bonds commenced trading on the Athens Stock Exchange.

8.  INVESTMENT PORTFOLIO

Investment in MIG constitutes the major investment in IRF's portfolio as at 30 June 2010.

9. INVESTMENTS IN ASSOCIATES

In 2009, IRF invested a nominal sum in exchange for a 49% interest in "S.Goldman Asset Management LLC".  Some brief financial information as at 30 June 2010 is given below:

10. OTHER ASSETS

The Group's other assets and the company's other assets account are analysed as follows:

11. SHORT TERM LOANS

On 8 April  2010, the Company repaid €40 million in reduction of the principal amount of the outstanding loan.  On 20 July 2010 the Company signed an agreement to refinance  €160 million loan for a 5-year period.

The loan refinancing is expected to occur in the third quarter of 2010

12. OTHER LIABILITIES

13. SHARE CAPITAL & SHARE PREMIUM

The Company's Special General Meeting held on 19 April 2010, resolved to reduce the Company's share premium from US$495,378,160.37 to US$457,928,442.17, enabling an amount of US$0.30 per common share to be paid to holders of the Company's common shares. The amount was paid to shareholders on 6 May 2010. The reduction of share premium reduces neither the authorised or issued share capital of the Company nor the nominal value of the shares of the Company.

14. CASH AND CASH EQUIVALENTS - CASH FLOW STATEMENT

15. EARNINGS PER SHARE

Basic earnings per share are calculated by dividing the net profit attributable to shareholders by the weighted average number of shares in issue during the year.

16. RELATED PARTIES TRANSACTIONS

16.1 Transactions between companies included in consolidation

The aforementioned balances of the Company have been eliminated from the consolidated financial statements.

16.2 Transactions with Associates

16.3 Transactions with Management and Members of the Board of Directors

No salaries or loans were paid to the Directors of the Company for the period, apart from salaries paid to the CEO of the Company.

17. COMMITMENTS, CONTINGENT ASSETS AND LIABILITIES

17.1 Contingent legal liabilities

As at 30 June 2010, there was no litigation pending against the Group in connection with its activities.

17.2 Assets given as collateral

All investment portfolio and cash accounts of IRF are assigned as collateral to IRF's short term loan. 

18. POST-BALANCE SHEET EVENTS

On 29 July 2010, IRF received the amount of €8,958,834.90 in the form of capital refund from the investment in MIG.

19. APPROVAL OF INTERIM FINANCIAL STATEMENTS

Athens, 31 August 2010