MANAGEMENT BOARD S REPORT ON THE ACTIVITY OF POLNORD SA CAPITAL GROUP FOR THE FIRST HALF OF 2010

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MANAGEMENT BOARD’S REPORT

ON THE ACTIVITY OF POLNORD SA CAPITAL

GROUP FOR THE FIRST HALF OF 2010

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2. SHARES OF THE COMPANY AND SHARES AND INTERESTS IN COMPANIES FROM THE POLNORD CAPITAL GROUP, HELD BY THE MANAGEMENT BOARD AND SUPERVISORY BOARD MEMBERS AS OF 30.06.2010 AND AS OF THE DAY OF APPROVAL OF THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY FOR THE FIRST HALF OF 2010. ... 14

3. SHAREHOLDERS HOLDING AT LEAST 5% OF THE GENERAL NUMBER OF VOTES AT THE GENERAL MEETING OF THE COMPANY ... 15

IV. CAPITAL GROUP'S BUSINESS ACTIVITY ... 15

1. CORE PRODUCTS, GOODS AND SERVICES ... 15

2. MAIN SALES MARKETS ... 16

3. DEVELOPMENT PROJECTS INCLUDED IN THE INCOME STATEMENT ... 16

4. LAUNCHED PROJECTS ... 19

5. EVENTS AND AGREEMENTS MATERIAL TO THE COMPANY’S ACTIVITY ... 19

6. LOAN OR BORROWING GUARANTEES OR SURETIES GRANTED BY POLNORD SA AND ITS SUBSIDIARIES – IF TOTAL VALUE OF THE EXISTING GUARANTEES OR SURETIES EQUALS AT LEAST 10% OF THE EQUITY OF POLNORD SA ... 20

7. CHANGES IN CONTINGENT LIABILITIES OR CONTINGENT ASSETS ... 21

8. LITIGATIONS PENDING BEFORE COURT, RELEVANT ARBITRATION AUTHORITIES, OR PUBLIC ADMINISTRATION AUTHORITIES ... 21

9. INFORMATION ON ONE OR MORE TRANSACTIONS BETWEEN POLNORD SA OR ITS SUBSIDIARY AND RELATED ENTITIES, IF INDIVIDUALLY OR JOINTLY SUCH TRANSACTIONS ARE SIGNIFICANT OR HAVE BEEN EXECUTED ON TERMS OTHER THAN ARM’S LENGTH ... 21

10. OTHER INFORMATION SIGNIFICANT TO ASSESSMENT OF THE PERSONNEL, ECONOMIC AND FINANCIAL STANDING, FINANCIAL RESULT AND CHANGES THERETO, AS WELL AS INFORMATION SIGNIFICANT TO ASSESSMENT OF THE GROUP’S ABILITY TO MEET ITS LIABILITIES ... 21

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11. NOTES ON SEASONAL AND CYCLICAL NATURE OF THE GROUP’S OPERATIONS ... 21

12. ISSUE, REPURCHASE, AND REPAYMENT OF NON-EQUITY AND EQUITY SECURITIES ... 22

V. DEVELOPMENT PROSPECTS ... 24

1. MATERIAL RISKS AND THREATS ... 24

2. FACTORS WHICH WILL AFFECT THE FINANCIAL RESULTS OF THE GROUP IN THE PERSPECTIVE OF AT LEAST THE NEXT QUARTER ... 25

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I. GENERAL INFORMATION

POLNORD SA is the Parent Company in the POLNORD Group.

Full name (company): POLNORD Spółka Akcyjna

Registered Office: 81-310 Gdynia, ul. Śląska 35/37

KRS (National Court Register) number: 0000041271

NIP (tax identification number): 583-000-67-67

REGON (statistical registration number): 742457

Polish Classification of Activities (PKD) (2007): 4110 Z – development and sale of real estates

The core business of the POLNORD Capital Group is construction and sale of residential and commercial property. POLNORD SA delivers development projects either independently or through special purpose vehicles.

Unless the context requires otherwise, the terms used in the contents of these Financial Statements for the 2010 H1, such as 'the Company', 'POLNORD', 'the Parent Company', or other terms of similar meaning and any variations thereof, refer to POLNORD SA, whereas 'the Group', 'the POLNORD Group', or other terms of similar meaning and any variations thereof, refer to the Capital Group including POLNORD SA and entities subject to consolidation.

II. CAPITAL GROUP'S CHARACTERISTICS

1. Capital Group's composition

As at 30 June 2010, the Group, where POLNORD SA is the parent company, included the following subsidiaries, jointly controlled entities and associates:

No. Company name Registered

office Nominal value of shares (PLN) % of capital/ votes 1. POLNORD - ŁÓDŹ I Sp. z o.o. Łódź 2,750,000 100.00 % 2. POLNORD - ŁÓDŹ II Sp. z o.o. Łódź 50,000 100.00 %

3. POLNORD - ŁÓDŹ III Sp. z o.o. Łódź 50,000 100.00 %

4. POLNORD WARSZAWA - WILANÓW I Sp. z o.o. Warsaw 50,000 100.00 % 5. POLNORD WARSZAWA - WILANÓW II Sp. z o.o. Warsaw 50,000 100.00 % 6. POLNORD WARSZAWA - WILANÓW III Sp. z o.o. Warsaw 25,144,500 100.00 % 7. POLNORD WARSZAWA WILANÓW IV Sp. z o.o. Warsaw 700,000 100.00 % 8. CENTRUM HANDLOWE WILANÓW Sp. z o.o. Warsaw 97,739,000 100.00 %

9. PD DEVELOPMENT Sp. z o. o. Gdańsk 50,000 100.00 %

10. OSIEDLE TĘCZOWY LAS PD DEVELOPMENT Sp. z o.o. S.K.A.

Gdańsk 5,000,000 100.00 %

11. POLNORD - BALTIC CENTER Sp. z o.o. Gdańsk 50,000 100.00 %

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13. PROKOM - PROJEKT Sp. z o.o. Warsaw 100,000 100.00 %

14. LUBLIN PROPERTY I Sp. z o.o. Lublin 50,000 100.00 %

15. POLNORD INŻYNIERIA Sp. z o.o. Warsaw 50,000 100.00 %

16. POLNORD SZCZECIN I Sp. z o.o. Szczecin 50,000 100.00 %

17. POLNORD SOPOT II Sp. z o.o. Warsaw 50,000 100.00 %

18. POLNORD - INVEST Sp. z o. o. Warsaw 11,867,000 100.00 %

19. POLNORD - OSKAR Sp. z o. o. PUBLISHING HOUSE Gdańsk 50,000 100.00 %

20. STROJ-DOM ZAO Saratów

(Russia)

990 100.00 % 21. POMORSKIE BIURO PROJEKTÓW GEL Sp. z o. o. Sopot 226,000 90.22 %

22. POLNORD-KOKOSZKI Sp. z o.o. Gdańsk 1,500,000 50.00 %

23. PLP DEVELOPMENT GROUP ZSA Novosibirsk

(Russia)

1,103,525 50.00 %

24. FADESA POLNORD POLSKA Sp. z o.o. Warsaw 8,134,000 49.00 %

25. FPP POWSIN Sp. z o.o. * Warsaw 2,474,500 49.00 %

26. OSIEDLE INNOVA Sp. z o.o. * Warsaw 3,454,500 49.00 %

27. SKARBIEC NIERUCHOMOŚCI 3 Sp. z o.o. ** Warsaw 17,000 34.00 % 28. SKARBIEC NIERUCHOMOŚCI 3 Sp. z o.o. S.K.A. ** Warsaw 5,000,000 33.33 % 29. HYDROSSPOL Sp. z o.o. under liquidation Gdańsk 15,000 30.00 % * indirect subsidiary controlled through FADESA POLNORD POLSKA Sp. z o.o.

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Below a scheme of the Capital Group as at 30.06.2010 is presented:

Polnord Łódź I Sp. z o.o. Lublin Property I Sp. z o.o.

Centrum Handlowe Wilanów Sp. z o.o. 100% of shares 100% of shares 100% of shares Polnord Łódź II Sp. z o.o. Polnord Szczecin I

Sp. z o.o.

Polnord - Invest Sp. z o.o.

100% of shares 100% of shares 100% of shares Polnord Łódź III Sp. z o.o. Polnord Inżynieria

Sp. z o.o.

Polnord - Wydawnictwo Oskar Sp. z o.o. 100% of shares 100% of shares 100% of shares Polnord Warszawa

Wilanów I Sp. z o.o.

PD Development

Sp. z o.o. Stroj Dom ZAO (Russia) 100% of shares 100% of shares 100% of shares Polnord Warszawa

Wilanów II Sp. z o.o.

Osiedle Tęczowy Las PD Development Sp. z o.o. SKA

Pomorskie Biuro Projektów GEL Sp. z o.o. 100% of shares 100% of shares 90.22% of shares Polnord Warszawa

Wilanów III Sp. z o.o.

Polnord - Baltic Center Sp. z o.o.

PLP Development Group ZSA (Russia) 100% of shares 100% of shares 50% of shares Polnord Warszawa Wilanów IV Sp. z o.o. Polnord Apartamenty Sp. z o.o. Polnord -Kokoszki Sp. z o.o.

100% of shares 100% of shares 50% of shares Polnord Sopot II Sp. z o.o. Fadesa Polnord Polska

Sp. z o.o.

Hydrosspol Sp. z o.o. in liquidation 100% of shares 49% of shares 30% of shares Prokom Projekt

Sp. z o.o. FPP Powsin Sp. z o.o. 100% of shares 100% of shares Skarbiec Nieruchomośći 3 Sp. z o.o. Osiedle Innova Sp. z o.o. 34% of shares 100% of shares Skarbiec Nieruchomośći 3 Sp. z o.o. SKA 33.33% of shares

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2. Effects of changes in the Group’s structure, including mergers, acquisitions or divestments of members of the Company’s group, long-term investments, restructuring and discontinuation of operations

In 2010 H1, the following changes in equity relations between POLNORD SA and other entities were recorded:

- on 09.04.2010, the Company purchased 1,500 shares with par value of PLN 1,000 each in Polnord-Kokoszki Sp. z o.o., constituting 50% share in share capital

- on 21.04.2010 the Company purchased 100% shares in share capital of Stroj-Dom ZAO Company in Russia, whose capital comprises 100 shares with par value of RUB 100 each, - on 06.05.2010 Polnord SA incorporated a company under the name Centrum Handlowe Wilanów Sp. z o.o. with the registered office in Warsaw, with share capital of 10,000.00 in which it took up 100% of shares.

On 07.06.2010, the share capital of Centrum Handlowe Wilanów Sp. z o.o. was increased to the amount of PLN 97,739,000.00.

After the balance sheet date, i.e. on 02.08.2010, Polnord SA, it disposed in favour of Globe Trade Centre SA, 50% of shares in the share capital of Centrum Handlowe Wilanów Sp. z o.o.

3. The companies covered by consolidation

Apart from POLNORD SA, the following companies were directly included into the consolidation for the period from 01 January 2010 to 30 June 2010:

a) full consolidation:

POLNORD - ŁÓDŹ I Sp. z o.o.

POLNORD - ŁÓDŹ II Sp. z o.o.

POLNORD - ŁÓDŹ III Sp. z o.o.

POLNORD WARSZAWA - WILANÓW I Sp. z o.o.

POLNORD WARSZAWA - WILANÓW II Sp. z o.o.

POLNORD WARSZAWA - WILANÓW III Sp. z o.o.

POLNORD WARSZAWA - WILANÓW IV Sp. z o.o. CENTRUM HANDLOWE WILANÓW Sp. z o.o.

PD Development Sp. z o.o.

Osiedle Tęczowy Las PD DEVELOPMENT Sp. z o.o. SKA POLNORD - BALTIC CENTER Sp. z o.o.

POLNORD - APARTAMENTY Sp. z o.o.

PROKOM - Projekt Sp. z o.o.

Lublin Property I Sp. z o.o.

POLNORD Inżynieria Sp. z o.o.

POLNORD Szczecin I Sp. z o.o. POLNORD Sopot II Sp. z o.o.

POLNORD - INVEST Sp. z o.o.

POLNORD - Wydawnictwo Oskar Sp. z o.o. Pomorskie Biuro Projektów GEL Sp. z o.o. Stroj-Dom ZAO.

b) proportional method: Polnord-Kokoszki Sp. z o.o.

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PLP Development Group Z.S.A. Fadesa Polnord Polska Sp. z o.o. FPP Powsin Sp. z o. o.

Osiedle Innova Sp. z o. o.

Skarbiec Nieruchomości 3 Sp. z o. o Skarbiec Nieruchomości 3 Sp. z o. o. SKA

4. Companies excluded from consolidation

In the consolidated financial statements, HYDROSSPOL Sp. z o.o. in liquidation, a company that had discontinued its operations was not included. Financial data of this company are insignificant from the perspective of the consolidated financial statements.

5. Rules of preparing consolidated financial statements

This semi-annual condensed consolidated financial statements have been prepared on a historical cost basis, except for investment property and derivative financial instruments which are recognised at their fair value. The financial statements do not include any items which would be measured using any other method under any principles adopted by the Group. The consolidated financial statements are presented in thousands of Polish zloty, unless specified otherwise.

Certain information and disclosures, which in accordance with the International Financial Reporting Standards approved by the European Union ("EU") are usually presented along with the annual consolidated financial statements, which were either condensed or excluded in accordance with IAS 34 "Semi-annual financial reporting"(IAS 34).

The presented semi-annual condensed consolidated balance sheet, semi-annual condensed consolidated income statement, semi-annual condensed consolidated statement of total income, semi-annual condensed consolidated cash flow statement and semi-annual condensed consolidated statement of movements in equity were not subject to the inspection by a statutory auditor, but they were subject to a review of an independent statutory auditor.

These semi-annual condensed consolidated financial statements do not cover all the information and disclosures required in the case of annual consolidated financial statements and should be read jointly with the consolidated financial statements of the Group drafted in

accordance with IFRS for the financial year ended on December 31st_{, 2009.}

The consolidated financial statements have been prepared based on an assumption that the Group’s companies will continue as a going concern. As at the date of approval of the financial statements, there are no circumstances indicating any threat to continuity of operations of the Group’s companies.

The principles of preparing consolidated financial statements have been set out in detail in the Consolidated Financial Statements for the first half of 2010, in the section entitled "Additional Information and Explanation”.

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6. Consolidated Report on Financial Condition (Balance-sheet) (excerpts)

Fixed assets of the Group as at 30.06.2010 constituted 24% of total assets and increased by PLN 34,100 thousand when compared to 2009. The most significant change took place under the item "Investment Property", where the Group records land and buildings, where the real property are not utilised in manufacturing, deliveries of goods, provision of services nor they are earmarked for sale within the regular activity of the Group. The item is described in more

Item 30.06.2010 Share in assets/ liabilities 31.12.2009 Share in assets/ liabilities (kPLN) (kPLN)

Fixed assets, including: 512 116 24% 478 016 24%

Investment property 291 653 13% 264 319 13%

Goodwill 139 983 6% 139 983 7%

Current assets, including: 1 652 660 76% 1 544 220 76%

Provisions 1 305 468 60% 1 300 613 64% Pecuniary means 176 938 8% 59 112 3% Total assets 2 164 776 100% 2 022 481 100% Equity, including: 1 152 854 53% 1 126 670 56% Initial capital 44 395 2% 44 357 2% Share premium _{955 636} _44% _{955 281} _47% Exchange rate differences on recalculation

of foreign entity 164 0% 21 0%

Other reserves in capitals 63 188 3% 56 402 3%

Retained profit/ uncovered loss 89 471 4% 70 609 3%

Long term liabilities, including: 579 383 27% _{449 069} 22%

Interest bearing bank loans, borrowings

and debt securities 531 269 25% 403 877 20%

Short term liabilities, including: 432 539 20% 446 742 22%

Liabilities due to deliveries and services 52 181 2% 30 192 1%

Current long term portion of bank loans

and borrowings 100 874 5% 149 326 7%

Short term revolving credits 19 000 1% 14 840 1%

Other short term credits and borrowings 140 592 6% 149 865 7%

Advance payments received 39 765 2% 48 794 2%

Total liabilities 1 011 922 47% _{895 811} 44%

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detail in the Semi-annual condensed consolidated financial statements, in Additional information and explanations.

Current assets as at 30.06.2010 totalled PLN 1,652,660 thousand. The most important change in value was under item "Pecuniary means", which increased from PLN 59,112 thousand to PLN 176,938 thousand.

The equity of the Group increased by the amount of PLN 26,184 thousand mainly due to the generated net profit.

Total liabilities of the Group run at the level of PLN 1,011,922 thousand of which PLN 791,735 thousand were constituted by financial liabilities. It should be noted that net financial liabilities (financial liabilities decreased by balance of pecuniary means) decreased in 2010 H1 by PLN 43,999 thousand (from the level of PLN 658,796 thousand as at 31.12.2009 up to the level of PLN 614,797 thousand as at 30.06.2010).

7. Consolidated income statement (excerpts)

In 2010 H1, the Polnord Group worked out net profit in the amount of PLN 25,642 thousand and achieved revenues from sales at the level of PLN 96,348 thousand. Revenues from sales the Polnord Group generated almost in total from the sales of residential and service premises (PLN 92,464 thousand, i.e. 96%). Nine residential projects localised in Warsaw, Tricity and Olsztyn contributed to the revenues from sales in 2010 H1.

Gross profit on operating activity went up on the analogical period of the preceding year, from the level of PLN 25,081 thousand to PLN 29,595 thousand. The activities undertaken by

Item (kPLN) 2010 H1 2009 H1 Change in %

Revenues from sales 96 348 103 551 -7,0%

Prime cost of sales -81 185 -87 329 -7,0%

Gross profit (loss) on sales 15 163 16 222 -6,5%

Investment property revaluation 24 586 38 963 -36,9%

Result on sales of investment property 25 865 0

-Costs of sales -10 084 -1 862 441,6%

Costs of general administration -25 562 -28 562 -10,5%

Other operating revenues 1 541 13 167 -88,3%

Other operating costs -1 914 -12 847 -85,1%

Gross profit (loss) on operating activity 29 595 25 081 18,0%

Financial revenues 21 055 6 194 239,9%

Financial costs -14 361 -10 767 33,4%

Profit on disposal of subsidiary 0 55

-Gross profit (loss) 36 289 20 563 76,5%

Income tax -10 344 -5 166 100,2%

Net profit (loss) on continued activity 25 945 15 397 68,5%

Net profit (loss) on discontinued activity -303 -288 5,2%

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the Polnord Group (e.g. launching six new development projects in the first half of the present year) should therefore make it possible for the Company to maintain that positive trend. The gross profit from operating activity should be positively influenced by the following factors: (i) growing demand for residential premises manifesting itself with higher volumes of sold finished flats, (ii) premises from the new offer to be commissioned in 2011 are characterised by fairly lower costs of development, ensuring better profitability.

In 2010 H1, the Polnord Group finalised a transaction of sale of the office building developed within the Wilanów Office Park project for the total amount of PLN 77,840 thousand (the above sale is described in more detail in section IV. 5). The said transaction made it possible for the Polnord Group to generate PLN 25,865 thousand of profit, which is recorded under the "Result of sales of investment property" item. Moreover, the result for the first half of the year was influenced by the revaluation of investment property (described in more detail in the semi-annual condensed consolidated financial statements under Additional Information and Explanations.)

Significant growth in financial revenues when compared to the first half of 2009 was influenced by, inter alia, exchange rate differences connected with borrowings granted for the purposes of implementation of projects in Russia.

In result of the events described above the net profit of the Polnord Group for the first half of 2010 went up by 70% on the first half of 2009 and totalled PLN 25,642 thousand.

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9. Assessment of financial assets management of the Capital Group Profitability indicators

Liquidity ratios

Indebtedness indicators

10. Differences between financial results and the last published forecast

The forecast of results of the Capital Group for 2010 was not published.

11. Factors and events, particularly of extraordinary nature, which significantly affect the financial results

In 2010 H1, there were no factors or events of extraordinary character with influence on presented financial results within the POLNORD Capital Group.

12. Information about the distributed (or declared) dividends

The General Shareholders Meeting of the Company, by means of the resolution 9/2010 of 12.07.2010, decided to earmark for dividend the amount of PLN 19,089,722.72, which accounts for 0.86 grosz per one share.

RATIO

Gross profit on operating activity Revenues from sales

Net profit Net profit from sales

2009 H1 24.22% 14.59% 26.61% 2010 H1 30.72% x 100 x 100 FORMULA

Gross profit margin on operating activity (in %)

Net profit margin (in %)

RATIO

Current assets Short term liabilities

Current assets - inventories

Short term liabilities 0.80 Quick ratio FORMULA 2010 H1 3.82 Current liquidity 2009 3.46 0.55 RATIO Liabilities in total Assets in total Equity Assets in total 44.3% 55.7% 2009

Assets coverage with

equity (%) x 100

46.7%

53.3% General indebtedness level

(%) x 100

2010 H1 FORMULA

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The number of shares covered with the dividend totals 22,197,352. The record date was determined for 26.07.2010.

The dividend was paid up in 09.08.2010.

13. Material events reported after the financial statements date

• Due

to the dividend passed by the 19th General Shareholder Meeting in 12.07.2010 in the amount of PLN 19,089,722.72, constituting 30% of the net profit of the Company in the Consolidated Financial Statements for 2009, the price of conversion of Q shares of the Company handed over in return of convertible bonds is decreased from PLN 40.00 to PLN 39.03 ("Conversion Price"). Given the current Conversion Price, the number of Q shares issued in return for one convertible bond totals 6.504 shares (whereon the Company informed in the current report no. 29/2010 of 13.07.2010).

• On 02.08.2010, Polnord and Globe Trade Centre SA ("GTC") concluded the agreement,

under which GTC purchased from Polnord 50% of shares in the share capital of Centrum Handlowe Wilanów Sp. z o.o. company, in which Polnord held 100% of shares (whereon the company informed in the current report no. 34/2010 of 02.08.2010).

CH Wilanów is the owner of a real estate property with the area of 7.5 hectare, located in the Wilanów district in Warsaw, where the parties plan to construct one of the most modern shopping centres in Europe.

According to Polnord and GTC's estimates, the costs of the project execution shall equal ca. EUR 170 million, while the value thereof shall exceed EUR 250 million. The execution of this project shall ensure the partners a high rate of return on the investment.

The date of commencement of construction works depends on the Office of the Capital City of Warsaw that is to issue all necessary administrative decisions.

III. COMPANY'S AUTHORITIES, SHAREHOLDING STRUCTURE

1. Authorities of POLNORD SA

• Supervisory Board

The General Shareholders Meeting of the Company held on 30.06.2010 elected the Supervisory Board for another 3-year term of office.

Into the composition of the Supervisory Board of the Company the following persons were appointed: 1) Ryszard Krauze, 2) Tomasz Buzuk, 3) Maciej Grelowski, 4) Bartosz Jałowiecki, 5) Marek Modecki, 6) Barbara Ratnicka-Kiczka, 7) Wiesław Walendziak, 8) Rafał Juszczak, 9) Andre Spark.

Except from Mr Rafał Juszczak and Mr Andre Spark, remaining persons acted as members of the Supervisory Board during the last term of office.

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• Management Board

As at 30.06.2010, the composition of the Management Board of POLNORD SA was as follows:

1) Wojciech Ciurzyński - President of the Management Board

2) Andrzej Podgórski - Deputy President of the Management Board

3) Piotr Wesołowski - Deputy President of the Management Board

4) Michał Świerczyński - Deputy President of the Management Board

Until the day of approval of the condensed consolidated financial statements for 2010 H1, the composition of the Management Board did not change.

2. Shares of the Company and shares and interests in companies from the POLNORD Capital Group, held by the Management Board and Supervisory Board Members as of 30.06.2010 and as of the day of approval of the Condensed Consolidated Financial Statements of the Company for the first half of 2010.

The following members of the Management Board and the Supervisory Board of the Company were owners of POLNORD SA shares:

Type of occupation Number of held shares (amount)

Wojciech Ciurzyński - President of the Management Board

2,447

Andrzej Podgórski - Deputy President of the Management Board,

1,523

Marek Modecki - Member of the Supervisory Board 1,700

According to the information possessed by the Company, other persons included into the composition of managing and supervisory bodies of POLNORD SA do not hold any shares of the Company.

Within the Management Options Scheme realised at the Company, the Management members are the holders of subscription warrants convertible to H shares of POLNORD SA:

Type of occupation Number of held warrants (amount)

H share issue price (conversion price) (PLN)

Term of execution of rights of warrants

Wojciech Ciurzyński –

President of the Management Board

147,237 21.24 31.12.2012

Piotr Wesołowski - Deputy President of the Management Board

21,034 21.24 31.12.2012

When compared to data as at 17.05.2010, as at the day of approval of the Condensed Consolidated Financial Statements for 2010 H1, the shares and subscription warrants owned by the above mentioned shareholders were not subject to movements.

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On 28.06.2010 the deadline lapsed for the exercise the rights stemming from the subscription warrants held by members of the Supervisory Board of the Company, that is Mr Wiesław Walendziak and Ms Barbara Ratnicka - Kiczka.

3. Shareholders holding at least 5% of the general number of votes at the general meeting of the Company

As at June 30th, 2010, at least 5% of the total number of votes at the General Meeting of Shareholders was held by the following shareholders:

*) Customers and funds managed by Templeton Asset Management Ltd. with the registered seat in Singapore

From among shares owned by customers and funds managed by Templeton Asset Management Ltd., more than 5% in the share capital and general number of votes in the Company is owned by FTIF Templeton Eastern Europe Fund.

Changes in the shareholding structure composition in the first half of 2010:

In 2010 H1, in result of issuing within the registered conditional share capital of 18,929 H shares of the Company and following the exercise of rights by authorised persons under 18,929 subscription warrants issued within the MO Scheme, the shareholding of the above shareholders in the general number of votes has changed slightly.

Until the day of approval of the semi-annual condensed consolidated financial statements

for 2010 H1, the composition of the shareholders did not change.

IV. CAPITAL GROUP'S BUSINESS ACTIVITY

1. Core products, goods and services

The main source of revenues of the Group is sales of residential premises. Distribution of sales revenues of the Capital Group is presented below:

First half of 2010 First half of 2009

Income source sales share sales share

(in kPLN) (in %) (in kPLN) (in %)

Number of shares/ Par value %

No. Shareholder votes (items) of shares of capital/

votes

1. PROKOM Investments SA in Gdynia 7 477 959 14 955 918 33.69%

2.

Osiedle Wilanowskie Sp. z o.o. in Gdynia (a subsidiary of Prokom Investments SA)

2 582 949 5 165 898 11.64%

3. Templeton Asset Management Ltd.

in Singapore* 3 091 382 6 182 764 13.93%

4. Other shareholders in total 9 045 062 18 090 124 40.74%

IN TOTAL 22 197 352 44 394 704 100.00%

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First half of 2010 First half of 2009

Income source sales share sales share

1. Sales of residential premises 92.464 96,0 66.945 64,7

2. Construction of industrial and

commercial premises 872 0,9 0 0,0

3. Sales of plots – land 495 0,5 34.120 32,9

4. Other 2.517 2,6 2.486 2,4

In total 96.348 100,0 103.551 100,0

2. Main sales markets

The main area of activity of POLNORD Capital Group in 2010 H1 was Poland. The Capital Group's activity on the domestic market was conducted primarily in Warsaw, Olsztyn and Tricity, while the export activity covered Russian market via PLP Development Group ZSA. company.

Income from sales by market area is presented in the following table:

_{First half of 2010} _{First half of 2009}

sales share sales share

Poland 94,645 98.2 91,815 88.7

Export (Russia) 1,703 1.8 11,736 11.3

In total 96,348 100.0 103,551 100.0

3. Development projects included in the income statement

Below development projects are presented along with the number of commissioned premises which were accounted for in the financial result of the Group for 2010 H1:

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The table below presents the information on the number of residential premises sold by the Polnord Group within individual projects as well as offers of the Group as at 30.06.2010, in split into commissioned projects and projects in development.

until until until until 31.12.2009 31.12.200931.12.2009 31.12.2009 2010 2010 2010 2010 H1 H1H1

H1 until 31.12.2009until 31.12.2009until 31.12.2009until 31.12.2009 2010 2010 2010 2010 H1 H1 H1 H1 Wilanowska V Wilanowska V Wilanowska V Wilanowska V (Gdańsk, Rogalińska St.) Srebrzysta Podkowa (build. 1 i 2) Srebrzysta Podkowa (build. 1 i 2) Srebrzysta Podkowa (build. 1 i 2) Srebrzysta Podkowa (build. 1 i 2) (Gdańsk - Kowale)

Kamienica pod Wrzosem Kamienica pod Wrzosem Kamienica pod Wrzosem Kamienica pod Wrzosem (Gdańsk, Wita Stwosza St.) Apartamenty Albatros Apartamenty AlbatrosApartamenty Albatros Apartamenty Albatros (Gdynia, Wiejska St.) Osiedle T Osiedle TOsiedle T

Osiedle Tęczowy Las (Stageczowy Las (Stageczowy Las (Stageczowy Las (Stage I) I) I) I) (Olsztyn, Tęczowy Las St.) City Park (Stage I) City Park (Stage I)City Park (Stage I) City Park (Stage I) (Łó_dź, Żeligowskiego St.)

Kryszta KrysztaKryszta Kryształ_Wilanowa_Wilanowa_Wilanowa_Wilanowa

(Warszawa Wilanó_{w, Klimczaka St.)}

Kr KrKr

Kró_{lewskie Przedmie}_{lewskie Przedmie}_{lewskie Przedmie}_{lewskie Przedmie}ście cie cie cie (Warszawa Wilanó_w,

Rzeczypospolitej Av.) Ostoja Wilan Ostoja WilanOstoja Wilan Ostoja Wilanó_{w (Stage II)}_{w (Stage II)}_{w (Stage II)}_{w (Stage II)}

Ostoja Wilan Ostoja WilanOstoja Wilan Ostoja Wilanó_{w (Stage III)}_{w (Stage III)}_{w (Stage III)}_{w (Stage III)}

Ostoja Wilan Ostoja WilanOstoja Wilan Ostoja Wilanó_{w (Stage IV)}_{w (Stage IV)}_{w (Stage IV)}_{w (Stage IV)}

Ostoja Wilan Ostoja WilanOstoja Wilan Ostoja Wilanó_{w (Stage V) *}_{w (Stage V) *}_{w (Stage V) *}_{w (Stage V) *}

153 353 153 353 153 353

153 353 1 9271 9271 9271 927 942942942942 289289289289 67 47267 47267 47267 472 21 71121 71121 71121 711 204204204204 * whole stage V includes 297 premises (28,498 UA) –_{planned term of accomplishment 2013 QII.}

** for these premises preliminary agreements were signed No/

No/ No/

No/ Project name and locationProject name and locationProject name and locationProject name and location

Usable Usable Usable Usable areaareaareaarea

(s (s (s (sq.m.)q.m.)q.m.)q.m.) Number Number Number Number of flats of flats of flats of flats Developing Developing Developing Developing

company company company company Share ofShare ofShare ofShare of Polnord (%) Polnord (%)Polnord (%) Polnord (%) Commissioning Commissioning Commissioning Commissioning termtermtermterm

Premises delivered and included into the financial Premises delivered and included into the financial Premises delivered and included into the financial Premises delivered and included into the financial

result result result

result _{sold, to be}_{sold, to be}_{sold, to be}_{sold, to be}PremisesPremisesPremisesPremises delivered delivered delivered delivered (amount) ** (amount) ** (amount) ** (amount) ** (amount) (amount) (amount) (amount) (sq. m.) (sq. m.) (sq. m.) (sq. m.) 1 152 62 24 2 929 1 6 069 120 Polnord 50% IV 2008 - IQ ₂₀₁₀ 4

2 2 675 56 _ApartamentyPolnord 100% IVQ 2008

4 Polnord Apartamenty 100% IIQ 2009 42 6 1 893 339 229 2 25 4 1 741 4 3 631 60 _ApartamentyPolnord 100% IQ 2010 3 2 692 38 10 639 27 185 Osiedle Tęczowy Las 100% IIIQ 2008 0 35 0 1 931 1 528 11 0 7 6 4 306 60 Polnord Łó_dź II 100% IVQ 2009 143 25 8 183 5 29 0 1 492 40 18 2 793 1 792 2 8 34 017 439 Skarbiec Nieruchomości 3 33% 330 19 23 783 1 476 17 7 9 103 95 Polnord W-wa Wilanó_{w I} 100%

9 20 541 225 Fadesa Polnord 49% IVQ 2008/ IQ

2009 IVQ 2008 IIIQ 2009 12 10 19 606 231 Fadesa Polnord 49% IQ 2009 176 26 15 570 2 686 46 17 3 579 1 494 0 11 22 337 228 Fadesa Polnord 49% 78 46 7 000 4 639 81 12 17 738 190 Fadesa Polnord 49% IQ 2010 II-IIIQ 2009 37 0 40 0 2 953

(18)

The Polnord Group executes also the "Wilanów Office Park" in the Wilanów District. Within the investment, under the concluded preliminary lease agreement, works are conducted with an

to 31.12.2009 to 31.12.2009 to 31.12.2009 to 31.12.2009 H1 H1 H1 H1 2010 2010 2010 2010 Offer as at Offer as at Offer as at Offer as at 30.06.2010 30.06.2010 30.06.2010 30.06.2010 Wilanowska V Wilanowska V Wilanowska V Wilanowska V (Gdańsk, Rogalińska St.)

Srebrzysta Podkowa (build. 1 i 2) Srebrzysta Podkowa (build. 1 i 2) Srebrzysta Podkowa (build. 1 i 2) Srebrzysta Podkowa (build. 1 i 2) (Gdańsk - Kowale)

Kamienica pod Wrzosem Kamienica pod Wrzosem Kamienica pod Wrzosem Kamienica pod Wrzosem (Gdańsk, Wita Stwosza St.)

Apartamenty Albatros Apartamenty Albatros Apartamenty Albatros Apartamenty Albatros (Gdynia, Wiejska St.) Osiedle T Osiedle T Osiedle T

Osiedle Tęczowy Las (Stageczowy Las (Stageczowy Las (Stage I) czowy Las (StageI) I) I) (Olsztyn, Tęczowy Las St.) City Park (Stage City Park (Stage City Park (Stage City Park (Stage I)I)I)I) (Łó_dź, Żeligowskiego St.) Kryszta

Kryszta Kryszta

Kryształ_Wilanowa_Wilanowa_Wilanowa_Wilanowa _{IIIQ 2009}

Kr Kr Kr

Kró_{lewskie Przedmie}_{lewskie Przedmieście}_{lewskie Przedmie}_{lewskie Przedmie}_cie_cie_cie

(Warszawa Wilanó_{w, Rzeczypospolitej Av.)}

Ostoja Wilan Ostoja Wilan Ostoja Wilan Ostoja Wilanó_{w (Stage II)}_{w (Stage II)}_{w (Stage II)}_{w (Stage II)}

Ostoja Wilan Ostoja Wilan Ostoja Wilan Ostoja Wilanó_{w (Stage III)}_{w (Stage III)}_{w (Stage III)}_{w (Stage III)}

Ostoja Wilan Ostoja Wilan Ostoja Wilan Ostoja Wilanó_{w (Stage IV)}_{w (Stage IV)}_{w (Stage IV)}_{w (Stage IV)}

Ostoja Wilan Ostoja Wilan Ostoja Wilan Ostoja Wilanó_{w (Stage V) *}_{w (Stage V) *}_{w (Stage V) *}_{w (Stage V) *}

153 353 153 353153 353

153 353 1 9271 9271 9271 927 1 3121 3121 3121 312 123123123123 492492492492 No.

No.No.

No. Project name and locationProject name and locationProject name and locationProject name and location

Usable Usable Usable Usable area area area area

(sq.m. (sq.m. (sq.m. (sq.m.)))) Number Number Number Number of flats of flats of flats

of flats Developing Developing Developing Developing company company company company Share of Share of Share of Share of Polnord Polnord Polnord Polnord (%) (%) (%) (%) Commissioning CommissioningCommissioning Commissioning termtermtermterm

Premises sold (net Premises sold (net Premises sold (net Premises sold (net ---- after after after after

annulment)annulment)annulment)annulment)

71 19 30

COMMISSIONED PROJECTS COMMISSIONED PROJECTSCOMMISSIONED PROJECTS COMMISSIONED PROJECTS 1 6 069 120 Polnord 50% IV 2008 - IQ 2010 49 3 4 3 2 692 38 Polnord Apartamenty 100% IIQ 2009 2 2 675 56 Polnord Apartamenty 100% IVQ 2008 4 7 4 3 631 60 Polnord Apartamenty 100% IQ 2010 27 161 14 10 14 5 10 639 185 Osiedle Tęczowy Las 100% IIIQ 2008 37 9 41 15 4 7 9 103 95 Polnord W-wa Wilanó_{w I} 100% 6 4 306 60 Polnord Łó_dź II 100% IVQ 2009 352 14 73 35 8 34 017 439 Skarbiec Nieruchomości 3 33% IVQ 2008 48 12 207 7 11 10 19 606 231 Fadesa Polnord 49% IQ 2009

9 20 541 225 Fadesa Polnord 49% IVQ 2008/IQ 2009

0 168

11 22 337 228 Fadesa Polnord 49% II-IIIQ 2009

63

83 -6 113

23

12 17 738 190 Fadesa Polnord 49% IQ 2010

173 32

Srebrzysta Podkowa (build. 3) Srebrzysta Podkowa (build. 3) Srebrzysta Podkowa (build. 3) Srebrzysta Podkowa (build. 3) (Gdańsk - Kowale) Sopocka Rezydencja Sopocka Rezydencja Sopocka Rezydencja Sopocka Rezydencja (Sopot, Ł_{okietka St.)}

City Park (Stage II) City Park (Stage II) City Park (Stage II) City Park (Stage II) (Łó_dź, Żeligowskiego St.) Ostoja Wilan Ostoja Wilan Ostoja Wilan

Ostoja Wilanó_{w (Stage VI) **}_{w (Stage VI) **}_{w (Stage VI) **}_{w (Stage VI) **}

Dobry Dom Dobry Dom Dobry Dom Dobry Dom

(Warszawa Wilanó_{w, Kazachska St.)}

Ku S Ku S Ku S Ku Sł_oooońcu (Stage I)cu (Stage I)cu (Stage I)cu (Stage I) (Szczecin, Ku Sł_ońcu St.) Os. Jab

Os. Jab Os. Jab

Os. Jabł_{oniowa (bu}_{oniowa (bu}_{oniowa (bu}_{oniowa (build. No.}_{ild. No.}_{ild. No.}_{ild. No. 1 i 2)}_{1 i 2)}_{1 i 2)}_{1 i 2)}

(Gdańsk, Jabł_{oniowa St.)}

Ostoja My Ostoja My Ostoja My Ostoja Myśliwskaliwskaliwskaliwska (Gdańsk, Myśliwska St.)

Osiedle T Osiedle T Osiedle T

Osiedle Tęczowy Las (Stageczowy Las (Stageczowy Las (Stage II)czowy Las (StageII)II)II) (Olsztyn, Tęczowy Las St.)

Osiedle Innova (Stage I) Osiedle Innova (Stage I) Osiedle Innova (Stage I) Osiedle Innova (Stage I) (Wrocł_{aw, Jesionowa St.)}

100 427 100 427100 427 100 427 1 6661 6661 6661 666 21212121 115115115115 1 5301 5301 5301 530 TOTAL TOTALTOTAL TOTAL 253 781253 781253 781253 781 3 5933 5933 5933 593 1 3331 3331 3331 333 238238238238 2 0222 0222 0222 022

* The whole stage V comprises 297 premises (28,498 UA) planned completion term IIQ 2013. ** The whole stage VI comprises 398 premises (30,815 UA) - planned completion term IQ 2013.

0 2 26 PROJECT IN DEVELOPMENT PROJECT IN DEVELOPMENT PROJECT IN DEVELOPMENT PROJECT IN DEVELOPMENT 1 1 322 28 Polnord

Apartamenty 100% IVQ 2010 (planned)

0 10 151

3 5 800 87 Polnord Łó_dź II 100% IQ 2011 (planned)

2 9 617 161 Polnord Sopot II 100% IIQ 2011 (planned)

7 80

4 17 964 272 Fadesa Polnord 49% IIIQ 2011 (planned)

0

0 12 143

182

5 10 496 155 Polnord W-wa

Wilanó_{w I} 100% IIIQ 2011 (planned)

21 69

0 15 207

7 7 274 137 Polnord Kokoszki 50% IIQ/IVQ 2011 (planned)

6 12 277 222 Polnord Szczecin I 100% IVQ 2011 (planned)

0 137

8 13 770 229 Polnord

Apartamenty 100% IIIQ2011/IIQ2012 (planned)

0

0 0 139

229

9 6 751 139 Osiedle Tęczowy

Las 100% IVQ2011 (planned)

0 0

0 0 236

(19)

aim of developing the office building to be leased to Pol Aqua SA. The planned term of commissioning of the building is 2010 Q4/2011 Q1.

4. Launched projects

In 2010 H1, the Group launched the execution of the following projects: -"Dobry Dom" (Warsaw, Kazachska St.)

Within the "Dobry Dom" project, Polnord Warszawa – Wilanów I company, a 100% subsidiary of Polnard, develops a residence and service building with the usable area of 10,496 sq.m. (155 premises). The execution of the project was launched in February 2010, and it is to be finished in 2011 Q3. The project is developed on a real property with the area of 8,440 sq. m. localised in Warsaw, in Miasteczko Wilanów

- "Ku Słońcu" Stage I (Szczecin, Ku Słońcu St.)

In March 2010, Polnord Szczecin I Sp. z o.o. company, a 100% subsidiary of Polnord, launched execution of the 1st Stage of the investment, within which 222 premises will be developed with the total area of 12,277 sq.m. The completion of works is planned for 2011 Q4. The whole project provides for the development, on a real property with total area of 37,543 sq.m., of 800 residential premises and 30 utility premises with the total area of approx. 40,000 sq.m. -"Osiedle Jabłoniowa" Stage II, build. 1 and 2 (Gdańsk, Przywidzka St.)

Within the project (2nd Stage, build. 1 and 2), Polnord – Kokoszki Sp. z o.o. company, in which Polnord holds 50% of shares, intends to erect a residential development estate of multi-family houses

with the usable area of 7,274 sq.m. (137 premises). The execution of the project was launched in March 2010, and it shall be finished in 2011 Q2 (build. 1) and 2011 Q4 (build. 2).

- "Ostoja Myśliwska” (Gdańsk, Myśliwska St.)

Within the project, Polnord Apartamenty Sp. z o.o. company, a 100% subsidiary of Polnord) intends to develop 229 premises with total area of 13,770 sq.m. . The completion of the first stage of the investment with the usable area of approx. 6,400 sq.m. is planned for 2011 Q3. The whole project should be finished in 2012 Q2.

- "Osiedle Tęczowy Las” 2nd Stage, build. 1 (Olsztyn, Tęczowy Las St.)

The project is executed by a special purpose vehicle, Osiedle Tęczowy Las PD Development Sp. z o.o. SKA. Within the 2nd Stage, 139 premises with total usable area of 6,751 sq.m. shall be developed.

In the building no. 1, whose development shall be completed in 2011 Q2, there will be 57 residential premises with total usable area of 2,514 sq.m., while in the building 2, 82 residential premises shall be developed with the total usable area of 4,237 sq. m.

- "Osiedle Innova" (Wrocław, Jesionowa St.)

The project is developed by Osiedle Innova Sp. z o.o. company, a 49% co-subsidiary of Polnord (indirect subsidiarity through Fadesa Polnord Polska Sp. z o.o., where POLNORD SA holds 49% of shares). In 2010 H1 the execution of the 1st stage of the investment shall be launched (236 premises, 15,156 sq.m. of usable area). Execution of the whole investment is divided into five stages.

5. Events and agreements material to the Company’s activity

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• on 30.03.2010, POLNORD SA concluded an agreement on transfer of perpetual usufruct of

land ("Transfer Agreement") of the total area of 19,232 m2, located on the terrain of Miasteczko Wilanów in Warsaw ("Property") with Podkarpacki Fundusz Nieruchomości Sp. z o.o. with the register office in Rzeszów ("Buyer") a 100% subsidiary of Asseco Poland SA.

The conclusion of the Transfer Agreement with regard to non-exercising the pre-emption right by the Commune of the Capital City of Warsaw, finalised the transaction of disposal of the developer project at the preliminary stage of execution, comprising the Property, legally valid construction permit and rights stemming from the agreement concluded with an architectural studio (hereinafter jointly referred to as "Developer Project").

The parties set the total price for the Development Project at mPLN 77.8 net.

More detailed information is presented in the Current Report no. 9/2010 of 30.03.2010.

• On 28.04.2010, the results of architectural and urban competition were announced as

regards the development of the northern promontory of Wyspa Spichrzów. The competition was organised at the beginning of February 2010 by POLNORD SA who, via negotiations, was selected by the City of Gdańsk as the investor who will develop, with participation of the City, this unique localisation. The first award was granted to Biuro Architektoniczne MAT Sp. z o.o. seated in Gdańska.

The competition was organised in result of the agreement concluded on 31.12.2009 by the City of Gdańsk and POLNORD SA in the scope of the development of northern promontory of Wyspa Spichrzów. To that aim, the City of Gdańsk and POLNORD SA shall establish a joint venture in which the City shall take a 49%, and POLNORD SA 51% stake.

More detailed information is contained in the Current Report no. 81/2009 of 31.12.2009 In July 2010, The City of Gdańsk approved the urban and architectural concept of development of the northern promontory of Wyspa Spichrzów.

6. Loan or borrowing guarantees or sureties granted by POLNORD SA and its subsidiaries – if total value of the existing guarantees or sureties equals at least 10% of the equity of POLNORD SA

In 2010 H1, POLNORD SA granted sureties to one entity. The amount of the sureties exceeded 10% of the share capital of the Company and totalled PLN 132,700 thousand.

The aforementioned guarantees were granted to companies fully controlled by POLNORD SA.

Moreover, after the balance-sheet date:

- on 15.07.2010, Polnord SA guaranteed repayment of the loan of Polnord Szczecin I Sp. z o.o., its full subsidiary ("Special Purpose Vehicle"), which the Special Purpose Vehicle raised with the

From To

1 Polnord Warszawa -

Wilanów IV Sp. z o.o.

credit with PKO BP SA in

the amount of mPLN 129.1 10.03.2010 31.03.2025 129 100

2 Polnord Warszawa -

Wilanów IV Sp. z o.o.

credit with PKO BP SA in

the amount mPLN 3.6 10.03.2010 30.09.2012 3 600

No. Company Subject of guarantee

Term of validity

(21)

bank PKO BP SA („Bank”) under the loan agreement signed on 11.06.2010. The surety (repayment) was granted up to the amount of PLN 137,958, valid until 30 December 2013. The Bank granted to the Special Purpose Vehicle a loan in the amount of PLN 91,972 thousand, earmarked for partial financing of the 1st_{and 2}nd_{stage of development project} entitled "Ku Słońcu” in Szczecin,

- on 23.07.2010, Fadesa Polnord Polska Sp. z o.o., a co-subsidiary in whom Polnord holds 49% of shares („Fadesa”), granted a surety to FPP Powsin Sp. z o.o. (a 100% subsidiary of Fadesa). The subject of surety are credit liabilities stemming from the credit agreement concluded with Bank Polska Kasa Opieki SA in the total amount of PLN 148,279.8 thousand. The surety (repayment) was granted up to the amount of PLN 192,763.8 thousand, valid until 30 December 2013.

The amount of the above sureties granted to a single entity exceeded 10% of the Company's equity.

7. Changes in contingent liabilities or contingent assets

As at 30 June 2010, conditional liabilities arising from guarantees granted by POLNORD SA to subsidiaries totalled PLN 347,085, compared to PLN 415.332,000 as at 31 December 2009. In the first half of 2010, the decrease in liabilities was due mainly from the lapse of granted sureties for credit liabilities in the total amount of PLN 200,950 thousand, with simultaneous granting sureties by the Company to a subsidiary in the amount of PLN 132.700 thousand. As at 30.06.2010, POLNORD SA disposed of sureties in the amount of PLN 7,000 thousand.

As at June 30th_{, 2010, conditional liabilities of the Capital Group amounted to PLN 2,237,000,}

compared to PLN 13,520,000 as at December 31st_{, 2009.}

As at 30.06.2010, guarantees granted to the Group totalled PLN 20,240,000.

8. Litigations pending before court, relevant arbitration authorities, or public administration authorities

In the first half of 2010, there were no litigation proceedings conducted before court, the relevant arbitration authorities or public administration authorities, in relation to liabilities or receivables of POLNORD SA or its subsidiaries, with the total value representing minimum 10% of POLNORD SA's equity.

9. Information on one or more transactions between POLNORD SA or its subsidiary and related entities, if individually or jointly such transactions are significant or have been executed on terms other than arm’s length

Not applicable.

10. Other information significant to assessment of the personnel, economic and financial standing, financial result and changes thereto, as well as information significant to assessment of the Group’s ability to meet its liabilities

This information is provided in items IV and V.

11. Notes on seasonal and cyclical nature of the Group’s operations

Considering the fact that the real estate development projects are measured based on the completed contract method under the IAS 18, the amount of income from sales of apartments depends on dates of completing the housing development projects and handing over the apartments to buyers. Following the change of the accounting policy in 2009 for measurement of real estate development contracts,

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the Group no longer applies the percentage of completion method (IAS 11), and therefore, the financial statements as of 2009 do not reflect the progress of construction works and advance sales of premises.

12. Issue, repurchase, and repayment of non-equity and equity securities

• Share issues

In 2010 H1 the Company issued, within the registered conditional share capital, 18,929 H shares as a result of exercising the rights under 3,505 subscription warrants issued within the Management Options Scheme by authorised persons.

• Bond issues

As at 30.06.210, the indebtedness due to all the issued bonds was as follows:

The debt of the Group as at 30.06.2010 due to all the issued bonds totalled PLN 327.6 million. In 2010 the redemption term for bonds totalling mPLN 10 falls. In 2012, the bonds of total value of mPLN 160.5, of which mPLN 120.5 constitute the value of bonds convertible into shares, should be redeemed. The above amount constitutes the par value of bonds issued by the Company and convertible to shares, which should be redeemed within such time limits, provided that no bonds are converted into Q shares. If the holders will exercise the right to convert a part or all the convertible bonds held, the said amount to be repaid that constitutes the par value of the convertible bonds, shall be accordingly lower or may not occur at all.

In 2013 the redemption term for bonds totalling mPLN 157.1 falls.

• Debt due to loans

The debt due to loans of companies from the Group as at 30.06.2010 along with the repayment schedule is as follows:

3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 2013 14.10.2009 Bearer bonds 10,0 10,0 10,0 12.03.2010 Bearer bonds 25,0 25,0 25,0 26.03.2010 Bearer bonds 10,0 10,0 10,0 28.04.2010 Bearer bonds 5,0 5,0 5,0 18.06.2010 Bearer bonds 40,0 40,0 40,0 22.01.2010 Bearer bonds 75,0 75,0 75,0 21.05.2010 Bearer bonds 42,1 42,1 42,1 06.11.2009 Bonds convertible into shares 110,0 110,0 110,0 20.11.2009 Bonds convertible_{into shares} 10,5 10,5 10,5

327,6 327,6 327,6 327,6 10,0 25,0 10,0 125,5 157,1 327,6 327,6 327,6 327,6 Limit (mPLN) Limit (mPLN) Limit (mPLN) Limit (mPLN) Debt as at Debt as at Debt as at Debt as at 30.06.2010 in 30.06.2010 in 30.06.2010 in 30.06.2010 in m m m mPLNPLNPLNPLN

Capital repayments schedule Capital repayments schedule Capital repayments schedule Capital repayments schedule Issue date

Issue date Issue date

(23)

The gross credit debt of the Group as at 30.06.2010 run at the level of mPLN 424, while along with the debt stemming from the issued bonds it totalled mPLN 751.6. The net debt (after including the monies in the accounts totalling mPLN 176.9) amounted to mPLN 574.7 which constituted 49.8% of the Group's equity.

Polnord SA finances its ongoing activity inter alia with overdraft facilities and a revolving credit, that are renewed each year by the Company. Until the date of approval of the Statements, the Company annexed repayment of all the said credits by one year as well as increased the credit limit up to the amount of mPLN 57 with DZ Bank Polska SA.

The credits incurred by companies of the Group for the purposes of realisation of development projects are repaid from inflows from sales of residential and service premises.

3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 after 2012 Polnord SA BRE Bank SA overdraft facility 25,0 25,0 _25,0

Polnord SA BRE Bank SA revolving 19,0 19,0 _19,0

Polnord SA DZ Bank Polska SA overdraft facility 57,0 48,0 _48,0 Polnord SA BRE Bank SA investment (land) 18,4 18,4 6,1

6,1 6,1 investment (land) 0,4 0,4 0,4 development 3,4 3,4 3,4 Polnord Apartamenty Sp. z o.o. (Srebrzysta Podkowa)

Nordea Bank Polska

SA development 3,5 3,5 0,7 2,8 development _10,0 _5,2 _1,2 _2,0 _2,0 investment (land) 25,0 25,0 9,0 4,0 4,0 4,0 4,0 investment (land) 10,7 34,2 development 42,5 18,7 18,7 VAT 3,8 3,8 3,8 development 129,1 0,0 VAT 3,6 0,0

Polnord Invest Sp. z o.o. _HipotecznyBPH Bank Investment 4,0 4,0 0,1 0,1 0,1 0,1 0,1 0,1 0,1 0,1 0,1 0,1 2,9

investment (land) 44,8 44,8 44,8

development 23,5 6,5 6,5

Polnord Szczecin I Sp. z

o.o. PKO BP SA development 92,0 0,0 Polnord Szczecin I Sp. z

o.o. PKO BP SA investment (land) 25,6 25,6 25,6

development 365,7 148,5 72,4 59,4 16,7 investment (land) 77,5 77,5 22,5 55,0 VAT _35,0 _0,0 Development 1 40,8 0,0 Development 2 51,3 0,0 investment (land) 35,0 35,0 35,0 VAT 21,1 0,0 10,7 10,710,7 10,7 32,532,532,532,5 83,983,983,983,9 31,131,131,131,1 139,0139,0139,0139,0 29,729,729,729,7 57,657,657,657,6 0,10,10,10,1 44,944,944,944,9 34,334,334,334,3 93,393,393,393,3 93,3 93,3 93,3 93,3 10,7 10,710,7 10,7 32,532,532,532,5 46,946,946,946,9 31,131,131,131,1 108,7108,7108,7108,7 29,729,729,729,7 28,328,328,328,3 0,10,10,10,1 44,944,944,944,9 34,334,334,334,3 56,756,756,756,7 56,7 56,7 56,7 56,7 FPP Powsin Sp. z o.o Debt Debt Debt Debt weighed weighedweighed weighed

wit witwit with share ofh share ofh share ofh share of

Polnord: Polnord:Polnord: Polnord: Debt not Debt notDebt not Debt not weighed weighed weighed weighed with share of with share ofwith share of with share of Polnord: Polnord:Polnord: Polnord: Nordea Bank Polska

SA Polnord Łó_{dź II Sp. z o.o.}

(City Park)

Polnord Warszawa

Wilanów IV Sp. z o.o. PKO BP SA

424,0 424,0 424,0 424,0 43,3 43,3 43,3 43,3 216,4216,4216,4216,4 107,6107,6107,6107,6 Polnord Sopot II Sp. z o.o.

(Rezydencja Ł_okietka) PKO BP SA Borrower Borrower Borrower Borrower PEKAO SA Polnord Warszawa

Wilanó_{w III Sp. z o.o.} BOŚ Bank

Bank Zachodni WBK SA

Polnord Warszawa Wilanó_{w I Sp. z o.o.}

FADESA POLNORD

POLSKA Sp. z o.o. PEKAO SA

Debt as at Debt as at Debt as at Debt as at 30.06.2010 30.06.2010 30.06.2010 30.06.2010 Without interest Without interestWithout interest Without interest (not (not (not (not

weighed with shares)) weighed with shares)) weighed with shares)) weighed with shares))

557,2 557,2 557,2 557,2 44,9 44,9 Polnord Apartamenty Sp. z o.o. (Apartamenty Albatros)

Nordea Bank Polska SA Limit (mPLN) Limit (mPLN) Limit (mPLN) Limit (mPLN) Type Type Type Type Bank BankBank Bank Repayment schedule Repayment schedule Repayment schedule Repayment schedule 43,3 43,3 43,3 43,3 283,7283,7283,7283,7 136,9136,9136,9136,9

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In accordance with the presented table, in the second half of 2010, the companies of the Group have to repay the amount of mPLN 43.3. In 2011, the Group should return to banks the amount of mPLN 283.7 (including mPLN 92 of liabilities due to revolving credits of Polnord SA, which, as it was said above, are annexed every year), while in 2012 - mPLN 136.9.

V. DEVELOPMENT PROSPECTS

1. Material risks and threats

The main threats of material significance to activities of the Company and POLNORD Capital Group include:

banking sector policy towards developers.

The banks, in significant part, influence the number of launched projects with their decisions related to granting financing to development projects. POLNORD SA, leveraging funds from issues of shares and bonds, may realised the strategy of the Company and has the possibility to launch new development projects.

the banking sector’s policy towards natural persons in the area of mortgage credits.

The increase in mortgage crediting is of key importance for the market stabilisation. Prolonged strict requirements of banks with regard to creditability of borrowers, collateral and bank margins, may decrease the effective demand for apartments With the beginning of 2010, the conditions of granting mortgage credits were slowly mitigated, which means their broader availability. The Banks lowered price of credits, and renewed granting credits up to the amount of 100% of value of properties. On the other side however, the Polish Financial Supervision authority, taking into account the safety of banking sector, issued a T Recommendation in February 2010. The aim of the T Recommendation is improvement of the risk management quality at the banks while at the same time preventing excessive indebtedness of borrowers. The new recommendation defines the level of creditability inter alia by way of determination of the proportion of credit instalments to the monthly income as the main determinant of the credit amount, which may possibly negatively impact the borrowers' creditability.

apartments prices level.

the main factor that guarantees success of realised investments is sales of completed development projects (apartments, houses) at the assumed prices that ensure the developer's planned margin. There is a risk that the Company will not sell all of its investments at the assumed prices. Lately, the Company is observing a stabilisation of the apartment prices level and a recovery on the flat sale market.

the oversupply of flats stemming from the flats developed and not sold in 2009 as well as

development projects being implemented may limit the Group's revenues.

a possibility of a loss of qualified subcontractors due to their insolvency stemming from bad financial condition. The aforementioned phenomena cause a restriction of availability of services and therefore may drive an increase in the Company's operating costs.

leveragin terrain for future development projects.

When acquiring land for new investments, it cannot be ruled out that even despite earlier analyses during implementation there may occur unexpected factors delaying the project completion and significantly reducing the cost of land. This may substantially impact the costs of realised projects.

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One of the characteristics of the Polish tax system is its instability. Tax regulations change very frequently. What is more, tax authorities are taking into account not only tax law regulations but also tax interpretations issued by other authorities or provided in court rulings. Such interpretations, decisions of other revenue authorities or courts are often not unanimous in terms of the line of solutions and they vary depending on the time and place of issue of such interpretation or decision. Therefore, the amounts quoted in financial statements may change following control by tax authorities. The Company may need to pay additional taxes of substantial value, together with interest and penalties.

obtaining the required administrative decisions.

In order to be effective in the real estate development sector, it is necessary to obtain administrative permits, licences or decisions required to execute construction projects. There is a risk that inability to obtain the relevant administrative decisions or their annulment when projects are in progress may hinder the ability to either continue or complete the real estate development projects.

macro-economic factors.

A possible secondary global economic downturn, the consequences of which would be by far more severe for Poland that of the previous one, resulting in drastic decelleration of the economic growth, increase of unemployment, would lead to a drop in demand for products offered by the Company.

2. Factors which will affect the financial results of the Group in the perspective of at least the next quarter

The key factors which may affect the Group’s financial standing include:

- economic condition of residential market,

- availability of external sources of financing for development companies,

- availability of mortgage credits for natural persons,

- apartments prices level,

- timely, on-schedule execution of development projects and timely commissioning,

- amendments in legal and tax regulations of possible influence onto the demand on the

market of products offered by the Company.

In 2010, the Company and the Capital Group have the following priorities:

- efficient and cost effective launch of the execution of new development projects,

- raise the level of sales to 800 residential premises,

- adjustment of the Group's offer to the effective demand by offering less spacious flats

(with the area up to 75 sq. m.), meeting the requirements of the "Family at their own" government programme.

- maximise use of its own bank of land

- ensuring the continuity and best possible development projects financing conditions on

the market.

The strategy of the Company and POLNORD Capital Group provides for further dynamic growth of the operating activity (development activity). The Company, through its special purpose vehicles, has already launched on the substantial part of the owned land, of new development projects, both residential and commercial. Thanks to the launching of further development projects within 2 nearest years a leap increase of the offer is planned, that would enable significant growth in revenues from and profit on the operating activity.

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The aim of increase of the number of realised projects is to take an advantage of decisive improvement of situation on the Polish residential real estate market by Polnord Group starting in 2011.

The aim of POLNORD Capital Group is to execute new development projects mainly on the basis of the owned bank of land comprising very attractive locations. Thanks to that, the increase in revenues from operating activity in the years to come shall be accompanied by high positive operating flows from core activity, which will enable the Company to service the present debt, while at the same time keeping the investment potential in restoration of the bank of land.

The Company also conducts business activity in Russia, where it realises development projects via 2 special purpose vehicles. Until the economic conditions on the local marked is stabilised, the Group limited its activity on the Russian market.

Gdynia, 31.08.2010

Andrzej Podgórski Michał Świerczyński Piotr Wesołowski Wojciech Ciurzyński

Deputy President Deputy President Deputy President President

of the Management of the Management of the Management of the Management

MANAGEMENT BOARD S REPORT ON THE ACTIVITY OF POLNORD SA CAPITAL GROUP FOR THE FIRST HALF OF 2010