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SEPARATE FINANCIAL STATEMENTS in accordance with the International Financial Reporting Standards for the fiscal year commenced October 1, 2015 and ended September 30, 2016

9 grudnia 2013

Sygnity S.A. Separate financial statements for the fiscal year commenced on October 1, 2015 and ended on September 30, 2016

Warsaw, December 16, 2016

Jan Maciejewicz

Roman Durka

Jakub Leśniewski

President of the Management Board

Vice-President of the Management Board

Vice-President of the Management Board for Finance

……………………………

……………………………

……………………………


Table of contents

Separate statement of comprehensive income .................................................................................................................. 5

Separate balance sheet ................................................................................................................................................... 6

Separate statement of changes in equity .......................................................................................................................... 7

Separate statement of cash flows .................................................................................................................................... 8

Supplemental information ............................................................................................................................................... 9

1. General information ........................................................................................................................................... 9

1.1 Sygnity S.A. ........................................................................................................................................... 9

1.2 Supervisory Board .................................................................................................................................. 9

1.3 Management Board .............................................................................................................................. 10

1.4 Auditor ................................................................................................................................................ 10

2. Basis for preparation of the financial statements ................................................................................................ 11

3. Basic accounting principles ............................................................................................................................... 13

3.1 Application of the new standards, changes to standards and interpretation ............................................. 13

3.2 Changes to accounting principles and to data presentation ..................................................................... 14

3.3 Relevant accounting principles .............................................................................................................. 14

4. Financial risk management ............................................................................................................................... 26

4.1 Financial risk factors............................................................................................................................. 26

4.1.1 Market risk .................................................................................................................................... 26

4.1.2 Credit risk ...................................................................................................................................... 26

4.1.3 Liquidity risk .................................................................................................................................. 27

4.2 Capital risk management ...................................................................................................................... 28

5. Important estimates and accounting assessments ............................................................................................. 29

6. Information on operating segments .................................................................................................................. 30

7. Approval of financial statements for the fiscal year 2014/2015 ........................................................................... 30

8. Sales revenues ................................................................................................................................................ 31

9. Costs by type and cost of goods and services sold ............................................................................................. 31

10. Other operating revenues ................................................................................................................................. 32

11. Other operating expenses ................................................................................................................................ 32

12. Financial revenues ........................................................................................................................................... 33

13. Financial expenses ........................................................................................................................................... 33

14. Income tax ...................................................................................................................................................... 33

14.1 Tax burden .......................................................................................................................................... 33

14.2 Effective tax rate reconciliation ............................................................................................................. 34

14.3 Deferred income tax............................................................................................................................. 35

14.4 Tax loss to be deducted in future periods .............................................................................................. 35

14.5 Tax settlements ................................................................................................................................... 36

15. Loss per share ................................................................................................................................................. 36

16. Tangible fixed assets ....................................................................................................................................... 37

17. Intangible assets ............................................................................................................................................. 39

18. Goodwill impairment test .................................................................................................................................. 41

19. Investments in codependent entities ................................................................................................................. 42


[all data in PLN thousands unless specified otherwise]

Supplemental information constitutes an integral part of these separate financial statements

4

20. Shares and interests in subsidiaries................................................................................................................... 43

21. Financial assets ............................................................................................................................................... 45

22. Inventory ........................................................................................................................................................ 45

23. Trade receivables and other receivables ............................................................................................................ 46

24. Long-term contracts......................................................................................................................................... 48

25. Cash and cash equivalents ............................................................................................................................... 49

26. Equity ............................................................................................................................................................. 49

26.1 Share capital ......................................................................................................................................... 49

Shareholder structure ...................................................................................................................................... 49

Treasury shares ............................................................................................................................................... 49

26.2 Shares of Sygnity S.A. held by Members of Management Board and Members of Supervisory Board ........... 50

26.3 Other capital items ................................................................................................................................ 51

27. Employee share schemes ................................................................................................................................. 51

2011 Program ................................................................................................................................................. 51

2013 Program ................................................................................................................................................. 51

28. Interest-bearing bank credits and loans ............................................................................................................ 52

29. Bond liabilities and other financial liabilities ....................................................................................................... 53

30. Provisions........................................................................................................................................................ 55

31. Trade liabilities and other liabilities ................................................................................................................... 56

32. Deferred income .............................................................................................................................................. 57

33. Associates and transactions with associates....................................................................................................... 57

34. Compensation of the top management.............................................................................................................. 58

35. Structure of employment .................................................................................................................................. 59

36. Contingent liabilities ......................................................................................................................................... 59

37. Seasonal or periodical nature of operations ....................................................................................................... 60

38. Claims and disputes ......................................................................................................................................... 60

39. Events after the reporting period ...................................................................................................................... 60




5

Separate statement of comprehensive income

Period:

Period:

from Oct. 1, 2015

from Oct. 1, 2014

Note to Sep. 30, 2016

to Sep. 30, 2015

Audited

Audited

Adjusted*

Net revenue from sales

Revenue from sales of products and services 8 337 605

368 612

Revenue from sales of goods and materials 8 59 862

39 910

397 467

408 522

Cost of products, goods and materials sold

Cost of producing the products and services sold 9 (288 830)

(308 686)

Value of goods and materials sold 9 (52 826)

(35 126)

(341 656)

(343 812)

Gross profit on sales

55 811

64 710

Cost of sales 9 (20 472)

(19 273)

Overhead costs 9 (36 810)

(43 707)

Other operating income 10 1 817

3 768

Other operating expenses 11 (303)

(1 618)

Operating profit

43

3 880

Financial income 12 585

373

Financial expenses 13 (4 030)

(4 543)

Result on financial operations

(3 445)

(4 170)

Write-down of joint-venture 19 (344)

-

Loss before tax

(3 746)

(290)

Income tax 14 (6 755)

(3 700)

Net loss

(10 501)

(3 990)

Other comprehensive income

-

-

Revaluation of provision for pension benefits

2

-

Total loss

(10 499)

(3 990)

Basic and diluted loss per share (in PLN) 15 (0.92)

(0.35)

* - adjusted data. For details see note 3.2




6

Separate balance sheet

As of:

As of:

Note Sep. 30, 2016

Sep. 30, 2015

Audited

Audited

ASSETS

Fixed assets

Tangible fixed assets 16 8 762

5 892

Intangible assets 17 32 856

39 308

Goodwill 18 156 528

156 528

Investments in joint-ventures 19 2 564

2 908

Shares and interests in subsidiaries 20 50 775

50 775

Long-term receivables 23 3 166

3 403

Deferred income tax assets 14 -

1 208

254 651

260 022

Current assets

Inventory 22 19 120

5 827

Trade receivables and other receivables 23 187 242

178 357

Short-term loans 21 2 404

904

Cash and short-term deposits 25 61 668

1 476

270 434

186 564

TOTAL ASSETS

525 085

446 586

LIABILITIES

Equity

Share capital 26.1 15 082

15 082

Treasury shares 26.1 (7 234)

(5 929)

Share premium 26.3 211 902

211 902

Spare capital 26.3 22 327

22 327

Reserve capital 26.3 6 238

6 238

Losses carried forward 26.3 (12 535)

(2 036)

235 780

247 584

Long-term liabilities

Long-term bond liabilities 29 39 885

39 793

Financial lease liabilities

-

98

Provisions 30 4 903

8 063

Trade liabilities and other liabilities 31 9 742

-

Deferred income tax provision

5 635

-

60 165

47 954

Short-term liabilities

Credits and loans 28 19 885

30 800

Trade liabilities and other liabilities 31 148 114

108 006

Income tax liabilities

-

46

Bond liabilities 29 486

499

Financial lease liabilities 29 95

1 271

Provisions 30 4 750

4 895

Deferred income 32 55 810

5 531

229 140

151 048

Total liabilities

289 305

199 002

TOTAL LIABILITIES

525 085

446 586




7

Separate statement of changes in equity

Share capital

Treasury shares

Share premium

Spare capital

Reserve capital

Retained earnings /

(losses carried

forward)

TOTAL EQUITY

As of October 1, 2014

15 082

(5 560)

211 902

16 090

-

14 429

251 943

Total comprehensive income:

- net loss

-

-

-

-

-

(3 990)

(3 990)

Allocation of part of net profit of previous year for the spare capital and reserve capital

-

-

-

6 237

6 238

(12 475)

-

Share buyback

-

(369)

-

-

-

-

(369)

As of September 30, 2015

15 082

(5 929)

211 902

22 327

6 238

(2 036)

247 584

As of October 1, 2015

15 082

(5 929)

211 902

22 327

6 238

(2 036)

247 584

Total comprehensive income:

- net loss

-

-

-

-

-

(10 501)

(10 501)

- revaluation of provision for retirement benefits

-

-

-

-

-

2

2

Share buyback

-

(1 305)

-

-

-

-

(1 305)

As of September 30, 2016

15 082

(7 234)

211 902

22 327

6 238

(12 535)

235 780



Supplemental information constitutes an integral part of these separate financial statements 8

Separate statement of cash flows

Period:

Period:

from Oct. 1, 2015

from Oct. 1, 2014

Note to Sep. 30, 2016

to Sep. 30, 2015

Audited

Audited

Cash flows from operating activities

Loss before tax

(3 746)

(290)

Adjustments for:

97 148

(12 733)

Depreciation 9 16 126

14 382

Interest income and expenses

3 416

4 236

Profits on investing operations

(252)

(2 392)

Other adjustments

-

(98)

Change in working capital *

77 858

(28 861)

Net cash generated from operating activities

93 402

(13 023)

Income tax paid

(3 256)

(2 846)

90 146

(15 869)

Cash flows from investing activities

Inflow from sales of tangible fixed assets and intangible assets

-

100 Purchase of tangible fixed assets and intangible assets

(6 942)

(3 426)

R&D expenses

(5 824)

(8 852)

Expenses for purchase of shares and interests

-

(1 085)

Loans granted

(1 500)

(330)

Loans repaid

-

7

(14 266)

(13 586)

Cash flows from financing activities

Expenses for purchase of shares and interests

(1 305)

(369)

Inflows from issue of debt securities 29 -

40 000

Expenses for redemption of debt securities 29 -

(40 000)

(Repayments) / inflows from credits and loans taken on

(10 915)

26 775

Repayment of financial lease liabilities

(456)

(1 810)

Interest paid

(3 012)

(3 231)

(15 688)

21 365

Total net cash flows

60 192

(8 090)

Cash at the beginning of the period

1 476

9 566

Cash at the end of the period

61 668

1 476

*Change in working capital

Change in provisions

(5)

(2 434)

Change in inventory

(13 293)

5 542

Change in receivables

(8 648)

(3 670)

Change in liabilities

49 433

(31 852)

Change in prepayments and accruals

50 371

3 553

Total

77 858

(28 861)




Supplemental information

1. General information

1.1 Sygnity S.A.

Sygnity S.A. (the “Parent company”, “Entity”, “Sygnity”, “Issuer” or “Company”) is a joint stock company incorporated in Poland, with its registered seat in Warsaw, ul. Franciszka Klimczaka 1, entered into the register of entrepreneurs of the National Court Register kept by the Regional Court, 13th Economic Division of the National Court Register, under KRS number KRS 0000008162. The Company has been assigned the REGON statistical number 190407926. The Company has been established for an indefinite term. Company’s fiscal year commences October 1, and ends September 30. The core business of the Company is software, and IT consultancy and related business. The Company’s offering includes the following IT services:

Software development and implementation,

IT projects consultancy,

Integration of IT systems,

Outsourcing services,

Hardware delivery and installation,

Construction of local and wide area computer networks (LAN and WAN),

Software, network and hardware maintenance services,

Training services.

The Company has been established for an indefinite term. The Company's shares have been listed at the Warsaw Stock Exchange since 1995.

1.2 Supervisory Board

As of September 30, 2016 the Supervisory Board consisted of the following members:

Mr Tomasz Sielicki - Chairman of the Supervisory Board

Mr Kristof Zorde - Vice-Chairman of the Supervisory Board

Mr Piotr Rymaszewski - Member of the Supervisory Board

Mr Piotr Skrzyński - Member of the Supervisory Board

Mr Ryszard Wojnowski - Member of the Supervisory Board

On November 16, 2016 the Extraordinary General Meeting of Shareholders appointed the Supervisory Board for a new three year-long term in office, consisting of the following members who were not replaced as on the day of preparation of these financial statements:

Mr Raimondo Eggink - Chairman of the Supervisory Board

Ms Beata Gessel - Kalinowska vel Kalisz - Member of the Supervisory Board

Mr Tomasz Sielicki - Vice-Chairman of the Supervisory Board

Mr Piotr Skrzyński - Member of the Supervisory Board

Mr Mariusz Bogdan Tokarski - Member of the Supervisory Board

Mr Paweł Zdunek - Member of the Supervisory Board




1.3 Management Board

As of the day of publication of these financial statements the Management Board of the Company was composed of:

Mr Jan Maciejewicz - President of the Management Board

Mr Roman Durka - Vice-President of the Management Board

Mr Jakub Leśniewski - Vice-President of the Management Board for Finance

During the fiscal year ended September 30, 2016 following changes to the composition of the Management Board occurred:

Between October 1, 2015 and February 12, 2016 the Company's Management Board was as follows:

Mr Janusz R. Guy - President of the Management Board

Mr Jakub Leśniewski - Vice-President of the Management Board for Finance

Ms Magdalena Bargieł - Vice-President of the Management Board for HR

Mr Roman Durka - Vice-President of the Management Board

Mr Bogdan Zborowski - Vice-President of the Management Board for Sales

On February 12, 2016 the Company's Supervisory Board adopted the resolution to appoint Mr Jan Maciejewicz as the Vice-President of the Management Board for the current term and adopted resolutions appointing the following persons as members of the Management Board of the Company:

Mr Janusz R. Guy as President of the Management Board;

Ms Magdalena Bargieł as Vice-President of the Management Board for HR;

Mr Roman Durka as Vice-President of the Management Board;

Mr Jakub Leśniewski as Vice-President of the Management Board for Finance;

Mr Jan Maciejewicz as Vice-President of the Management Board;

for the new common three year term of office that commenced on the day of the General Meeting of Shareholders approving the financial statements for the fiscal year ended September 30, 2015, i.e. on March 24, 2016. On March 24, 2016, on the day the General Meeting of Shareholders that approved the financial statements for the fiscal year ended September 30, 2015 was held the term in office of Mr Bogdan Zborowski as Member of the Management Board has expired. On May 30, 2016 the Supervisory Board of the Company has made a decision to recall Mr Janusz R. Guy – President of the Management Board and Ms Magdalena Bargieł – Vice-President of the Management Board for HR from their positions in the Management Board. At the same time the Supervisory Board of the Company has on May 30, 2016 decided to appoint Mr Jan Maciejewicz, then the Vice-President of the Management Board, as the President of the Management Board of Sygnity. The above listed changes to the Management Board of the Company have no influence on the duration of the present common term of office of the Management Board of Sygnity.

1.4 Auditor

PricewaterhouseCoopers Sp. z o. o.

Al. Armii Ludowej 14

00-638 Warszawa




2. Basis for preparation of the financial statements

These separate annual financial statements were drawn up in compliance with the International Financial Reporting Standards ("IFRS") approved by the EU. The IFRS include standards and interpretations approved by the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC).

The separate financial statements were drawn up in accordance with the historical cost principle, except for derivative financial instruments and financial assets held for sale which are measured at fair value.

Preparation of separate financial statements compliant with IFRS requires application of relevant accounting estimates. Furthermore, it requires the Management Board to use its own judgment while applying the adopted accounting principles. Issues which require a more thorough judgment, more complex issues, as well as assumptions and estimates relevant for the separate financial statements have been presented in Note 5. These separate financial statements should be read in combination with the consolidated financial statements for the fiscal year ended on September 30, 2016.

These annual separate financial statements were drawn up on going concern assumption. The Management Board of the Company has drawn-up the Company’s cash flow plan for the next fiscal year commencing on October 1, 2016 and ending on September 30, 2017, that takes into account the access to sources of financing allowing funding, implementation and maintenance of large scale IT projects, timely settlement of liabilities and continuing growth of the Entity. Management Board expects the Company to be capable of settling all its liabilities: repayment of interests, credit, loan and bond installments, as well as accounts due to the suppliers when due. As of the date of these interim condensed consolidated financial statements, the Company has met the terms and conditions for continuation of credit agreements in regard to covenants and other liabilities resulting out of the credit agreements and bonds issued.

Pursuant to the resolution of the Extraordinary General Meeting of Shareholders of the Company of November 28, 2014 Management Board of Sygnity S.A obtained consent for execution of the short- and medium-term bond issue program, which will be carried out in a period not extending beyond December 31, 2017. Maximum Program value is 100 000. In addition, the Management Board of the Company intends to refinance the debt or extend the existing lines of credit with the banks for subsequent term.

Due to formal requirements, including those concerning the use of prudent valuation principle and going concern principle, the Management Board points to the following issues. The Company is a party to external financing agreements for a total amount of 52 851 (of which 39 885 are long-term bond liabilities due on December 19, 2017 and 13 685 is the debt in renewable credits maturing on March 31, 2017) as of the balance sheet date (see notes 28 and 29), subject to covenants concerning, among others, its financial results.

Changes in valuations of long-term contracts (see notes 23 and 24) may influence (both positively and negatively) the financial result and profitability of the Company. In the negative case they may result in breach of covenants of credit agreements and bond issue agreements, which in turn may result in increased costs of financing, necessity to renegotiate financing terms and conditions or the liabilities being called in for immediate repayment, thus may constitute significant uncertainty as to continuation of business by the Company in foreseeable future. The valuations of long-term contracts and their performance in subsequent reporting periods depends on many factors, including external factors, beyond the Parent company’s control.




With respect to one of such contracts being performed by the Company the Ordering Party (a public sector client) declared that it will not be continuing the already commenced work in the initially agreed scope. As a result, the Company is currently in the process of negotiating the way of contract termination as well as potential participation in execution of the renewed project in a new formula, the final result of which cannot be clearly determined as of the date of drawing up these financial statements. Considering the valuation of the contract on the balance sheet date (not yet invoiced receivables for work items resulting from long-term contracts in amount of 16 715) the Management Board of the Company – to its best knowledge of the status of the negotiations in progress and based on review of rights and obligations of the parties resulting out of their agreement – adopted various scenarios taking into account the probabilities of occurrence of results of contract settlement. Due to the ongoing negotiations, the real final valuation of the contract may differ from the one disclosed in these financial statements.

Concerning another key contract, there are also negotiations in progress with respect to changes to the method of its execution, thus the future valuation of this contract may differ from the one disclosed in these statements. Moreover, during performance of this contract the Management Board of the Company decided to formulate and put forward claims against a subcontractor for a maximum amount of 37 000. Based on negotiations being conducted with the supplier and contract analysis the Management Board assesses that the amount likely to be recovered through settlement or litigation is approximately 18 000. The cost budget of this project takes into account the adjustment for this amount.

In the opinion of the Management Board the described events that potentially may form grounds for establishment of a valuation write-down of estimated receivables require an ongoing analysis from the point of view of their impact on Company’s financial standing, however as of the day of drawing up these statements in the opinion of the Management Board of the Company no premises occurred that would substantiate the need to perform write-downs for the abovementioned long-term contracts. Regardless of the above the Company, taking into account the results of such analysis and the market situation as well as standpoints of the contracting parties shall consider commencing measures to assure undisturbed functioning of the Company. Unless the circumstances described above as significant uncertainty occur, in the opinion of the Management Board all covenants and obligations resulting from under the credit agreements and bonds issues will continue to be met in the foreseeable future. These statements do not account for any adjustments related to lack of possibility to continue business operations, as in the opinion of the Management Board the statements should be drawn-up on going concern principle. In the opinion of the Management Board the working capital of the Company and possibilities to renegotiate current agreements or obtaining alternative sources of financing allow for assuring continuation of its business and maintaining liquidity for at least 12 months following the date of preparation of these financial statements. These separate financial statements of Sygnity S.A. cover data for the period of 12 months ended September 30, 2016 and as of September 30, 2016, contain comparable data for the period of 12 months ended September 30, 2015 and as of September 30, 2015. Financial data contained in these financial statements are stated in Polish zlotys (“PLN"), and all values are in PLN thousands, unless otherwise specified. These financial statements were approved for publication by the Management Board on December 16, 2016.




3. Basic accounting principles

3.1 Application of the new standards, changes to standards and interpretation

In these financial statements the Company has for the first time applied the new and amended standards and interpretations applicable to financial statements for fiscal years commencing January 1, 2015 and beyond:

a) Improvements to IFRS 2011-2013

b) Defined benefits plans: Employee contributions - Amendments to IAS 19

c) Improvements to IFRS 2010-2012

In these financial statements the Company did not decide on early adoption of the following new and amended standards and interpretation, which entered into force for financial statements for the fiscal years commenced on January 1, 2016:

a) Annual amendments to IFRS 2012-2014

b) Amendments to IFRS 11 concerning acquisition of interest in joint operations

c) Amendments to IAS 16 and IAS 38 on depreciation

d) Amendments to IFRS 10, IFRS 12 and IAS 28 on "Investment entities: Applying the Consolidation

Exception"

e) Amendments to IAS 27 on equity method in separate financial statements

f) Amendments to IAS 1

In these financial statements the Company did not decide on early adoption of the following published standards, interpretations or amendments to existing standards before their entry into force: a) IFRS 9 "Financial instruments: Classification and measurement and hedge accounting"

b) IFRS 15 - "Revenue from Contracts with Customers"

c) Amendments to IFRS 10 and IAS 28 “Sales or contribution of assets between the investor and its

associate or joint venture”

d) IFRS 16 ”Leases”

e) Amendments to IAS 12 “Recognition of deferred tax assets for unrealised losses”

f) Amendments to IAS 7 “Disclosure initiative”

g) Amendments to IFRS 2 “Classification and valuation of share-based payment transactions”

Assessment of influence of the above amendments on the financial statements:

In the opinion of the Management Board application by the Company of the new or amended standards and

interpretations did not have significant influence on the financial statements of the Company.

The Management Board of the Company is analyzing the expected influence of adoption of the standards not used so far, however at the present stage it does not seem that adoption of these standards, except for IFRS 15 – “Revenue from Contracts with Customers”, would have a significant influence on Company’s financial statements.

In the opinion of the Management Board of the Company the IFRS 15 will have a significant influence on the financial statements as the model of recognizing the revenue from contracts with clients changes. As on the date of preparation of these financial statements the Company has not completed its analysis of influence of the new standard.




3.2 Changes to accounting principles and to data presentation

In the fiscal year ended September 30, 2016 the Company has not made any changes to the accounting

principles and to data presentation except for a change of classification of part of overhead expenses and cost of

producing the products and services sold to cost of sales to better reflect the amounts of costs of the Company as

per where they occur.

As the result of change of classification of part of overhead expenses and cost of producing the products and

services sold to cost of sales, the overhead expenses in the fiscal year ended September 30, 2015 decreased by

1 034, cost of producing the products and services sold decreased by 385 and the cost of sales plus the sum of

the above two amounts, namely 1 419.

There were no other changes of accounting principles, presentation of items in the separate balance sheet and the separate statement of comprehensive income with respect to the status as on September 30, 2015.

3.3 Relevant accounting principles

The key accounting principles applied when drawing up these separate financial statements are presented below. These principles were applied in all presented periods on continuous basis, unless specified otherwise.

3.3.1 Functional and reporting currency

The functional and reporting currency of these annual separate financial statements is the Polish zloty (PLN).

Exchange rates used for the

purposes of balance sheet valuation Average arithmetic exchange rates for

individual fiscal years were

Currency Sep. 30, 2016 Sep. 30, 2015

fiscal year commenced Oct. 1,

2015 and ended Sep. 30, 2016

fiscal year commenced Oct. 1,

2014 and ended Sep. 30, 2015

EUR 4.3120 4.2386 4.3348 4.1707

USD 3.8558 3.7754 3.9268 3.6419

3.3.2 Measurement of foreign currency denominated items

Foreign currency denominated transactions are converted into the functional currency at the rate prevailing on the transaction date. Foreign exchange gains and losses under settlement of those transactions and resulting from balance sheet valuation of foreign currency denominated assets and liabilities are recognized accordingly in the profit and loss account.

Foreign exchange gains and losses relating to financing activities are recognized in the profit and loss account in the "Financial revenues" or "Financial expenses" items. All other foreign exchange profits or losses are recognized in the profit and loss account in the “Other operations” item.




3.3.3 Investments in subsidiaries, associates and jointly controlled entities

Subsidiary entities are all entities (including special purpose vehicles) in relation to which the Company has the right to manage their financial and operating policies, which is usually accompanied by possession of the number of shares / interest granting over half of the total number of voting rights, unless such ownership does not provide the control. While assessing whether the Company controls a given entity the existence and effect of potential voting rights which can be exercised at a given time or changed for shares/interest are taken into account. Investments in subsidiary entities are recognized at their purchase price less possible impairment write-offs.

Associated entities are those entities on which the Company can exert significant influence but has no control over. Typically this is equivalent to having between 20% and 50% of voting rights at the General Meeting of the Company. The investments in the associates are recognized in the balance sheet at their purchase price less possible impairment write-offs.

Jointly controlled entities are joint ventures requiring appointment of a legal person, partnership or any other entity wherein every partner to the joint venture holds interest. The interest of the Company in such joint-venture is recognized in the balance sheet at value of contribution.

3.3.4 Fixed assets, current assets and offsetting

Assets the realization of which is expected within 12 months following the balance sheet date are recognized as current assets. The other assets are recognized as fixed assets. Neither assets, liabilities, revenue or expenses are offset unless this is allowed by a standard or an interpretation.

3.3.5 Tangible fixed assets

Buildings, machinery and equipment, means of transportation and other fixed assets are recognized at their purchase price/cost of producing less any subsequent depreciation and all impairment write-downs and plus any improvements made. Land is recognized at its purchase price and not subsequently depreciated.

Expenditures for improvements are recognized in the balance sheet value of the fixed asset or as a separate fixed asset (where appropriate) only when it is likely that this will result in economic benefit to the Company, while the costs of the asset can be reliably measured. The balance sheet value of replaced parts is removed from the balance sheet. All other expenditures incurred for repairs and maintenance are posted to the profit and loss account in the financial period in which they were incurred.

Depreciation is applied to the purchase price or the cost of producing the asset concerned, less the residual value of that asset and plus the amount of improvements made to the asset concerned. The depreciation rates used reflect the useful lifetime of the tangible fixed assets. Depreciation is calculated using the straight-line method. The depreciation rates for particular groups of tangible fixed assets are:

- computer sets and servers: 20% - 30%

- facsimiles, copiers and similar office equipment: 10% - 20%

- other technical equipment: 10%

- telephone exchanges: 10%

- means of transportation: 14% - 33%

- buildings and structures: 10% - 20%

The residual value, useful lifetime and method of depreciation of assets are reviewed on annual basis and, if required – adjusted, effective at the beginning of the next fiscal year.




A given tangible fixed asset may be removed from the balance sheet following its disposal or in the event when no economic benefits resulting from further use of that asset are expected. All profits or losses resulting from removal of a given tangible fixed asset from the balance sheet are recognized in the profit and loss account in the period when it was written-off.

In the event the balance sheet value of a fixed asset exceeds its estimated recoverable value, its balance sheet value is immediately reduced to the recoverable value ("Impairment of non-financial assets"). Impairment write-downs on non-financial assets are recognized in other operating costs, while reversal of write-downs is recognized in other operating income.

3.3.6 Impairment of non-financial assets

Assets with unspecified useful lifetime, such as goodwill, are not subject to depreciation, but are tested on an annual basis for possible impairment. Assets subject to depreciation are tested for impairment whenever any events or changed circumstances indicate a possibility of failure to realize their balance sheet value. A loss due to impairment is recognized in the amount by which the balance sheet value of a given asset exceeds its recoverable value. The recoverable value is the higher of: the assets’ fair value less cost to sell, or the usable value. For the purposes of impairment tests assets are grouped at the lowest level with reference to which separate cash flows (cash generating units) may be identified. Non-financial assets, other than goodwill, in relation to which impairment has been determined earlier on, are assessed as of each balance sheet date for premises indicating the possibility of reversal of a given write-down.

3.3.7 Goodwill

The goodwill resulting out of acquisition of a business entity is initially recognized at the price of acquisition being the surplus cost of acquisition of business entities over the share of the acquiring entity in the net fair value of identifiable assets, liabilities and contingent liabilities. Following initial recognition, the goodwill is recognized at purchase price less any accumulated impairment write-downs. Goodwill is tested for possible impairment on an annual basis or more frequently - in case circumstances or changes occur that indicate possible impairment. Goodwill impairment write-downs are irreversible. Profits and losses from sale of the operations belonging to cash generating units to which goodwill has been allocated account for relevant part of the company’s balance sheet value, concerning the sold operations.

In order to carry out a the impairment tests, the goodwill is allocated to cash generating units (CGUs). Allocations are performed for such cash generating units or groups of cash generating units that are expected to benefit from the combination that resulted in the goodwill being generated.

3.3.8 Other intangible assets

Intangible assets acquired within a separate transaction are initially recognized at purchase price. Intangible assets acquired by takeover of an economic entity are initially recognized at fair value as of the takeover date. Following initial recognition the other intangible assets are measured at the cost less amortization write-downs and impairment. The useful life of intangible assets is assessed at the time of initial recognition, and it is deemed definite or indefinite.




Intangible assets with a specific useful life are amortized using the straight-line method throughout their useful life which is reflected in the amortization rates for particular groups of other intangible assets presented below:

cost of completed research and development work: 20% - 50%

concessions, patents, licenses, software and similar values: 5% - 50%

other intangible assets: 10% - 20%

relations with clients: 20%

order book: 50%

product brands: 10%

trademarks: 10% - 20%

Expenditures for research and development are capitalized provided the criteria specified in section "Costs of research and development works" are met.

Useful lifetimes are subject to annual reviews and, if required, adjusted beginning with the next fiscal year.

3.3.9 Research and development expenses

Costs of research and development work are posted to the profit and loss account at the time they are incurred. The costs which may be allocated directly, but are capitalized as part of a product in the form of software, include payroll costs related to research and development work on software and a relevant part of indirect applicable costs. Expenditures made on research and development work performed within a given project are capitalized provided it is possible to determine that:

from the technical point of view it is possible to complete an intangible asset so that it becomes fit for use,

the entity's management intends to complete an intangible asset for use or for sale,

it is possible for a given intangible asset to be used or sold,

it is possible to demonstrate how the intangible asset concerned will be generating likely future economic benefits,

there are appropriate technical, financial and other resources available that are necessary for a given intangible asset to be completed so that it will be fit for use or sale,

it is possible to reliably determine the amount of expenditures incurred in the course of research and development work that may be allocated to that intangible asset.

Following initial recognition of expenditures incurred for research and development work, the cost model requiring assets to be recognized at the purchase price/manufacturing cost less the accumulated amortization and accumulated impairment write-downs is applied. Capitalized costs of research and development work are amortized throughout the foreseeable period of generating revenues from sale of a given project.

The costs of research and development work are assessed for possible impairment of value on an annual basis - if an asset has not been rendered for use yet, or more often - if in the course of the reporting period there is a premise of impairment of value indicating that their balance sheet value may be impossible to recover.

3.3.10 Borrowing costs

In case of incurring borrowing costs concerning qualified assets the Company capitalizes the borrowing costs related directly to purchase, construction or manufacture of a qualified asset component within the cost of production of such an asset component.




3.3.13 Financial instruments

The Company divides its financial assets into the following categories: recognized at fair value in the financial result, loans and receivables, as well as financial assets held for sale. The classification is based on the criterion of the aim of financial asset acquisition. The Management Board specifies the classification of its financial assets at their initial recognition.

Financial assets and liabilities are recognized in the Company’s balance sheet when the Company becomes party to a binding agreement. Financial assets are written-off the books when the rights to obtain cash flow due to them have expired or have been transferred, and the Company has transferred the total risk and all benefits resulting from the ownership title to them. A financial liability is written-off the books when it has been settled, annulled or when it has expired.

Loans and receivables

Loans and receivables are financial assets not included in derivatives, of determined or determinable payments, which are not quoted on any active market. They are included in current assets provided that their maturity date is not longer than 12 months following the balance sheet date, or when it is not longer than the regular operation cycle related to long-term contracts exceeding 12 months. The principles of valuating loans and receivables are presented in the section “Trade receivables and other receivables”.

Financial assets recognized at fair value in the financial result

The Company includes derivative instruments in instruments held for sale. Assets included in that category are current assets if they are sold within 12 months; if they are held for a longer period then they are recognized as fixed assets.

Financial assets held for sale

Financial assets held for sale are financial instruments which are not derivative instruments and are to be included in this category or ones which are not included in any other category. They are considered fixed assets unless the Management Board does not intend to dispose of them within 12 months from the balance sheet date.

Derivative instruments and hedge accounting

Due to its operations, the Company bears financial risks related to changes in currency exchange rates and interest rates. In order to hedge against these risks, the Company applies currency forward contracts. The Company does not apply hedge accounting.

Rules applicable while using derivatives are included in the Company’s risk management policy approved by the Management Board.

Derivatives are included in the category of “marketable” which are initially recognized at fair value and then they are measured at their fair value in the profit and loss account.

Investments in securities

Where a market convention assumes the provision of a security after a precisely defined period of time following the transaction date, investments in securities are recognized in account books and are written-off the books on the date of concluding a purchase or sale transaction. Investments in securities are initially valued at their fair value (plus transaction costs in case of financial assets held for sale).

Investments in securities are classified as valued at their fair value through the financial result or as held for sale and they are measured as of the balance sheet date at their fair value. When securities have been classified as valued at their fair value by the financial result, profits and losses resulting from the change of the fair value will be recognized in the profit and loss account for a given period. In case of assets held for sale, profits and losses resulting from the change of their fair value are recognized directly in capitals until the asset component is sold or the impairment is recognized. Accumulated profits and losses previously recognized in capitals are then transferred to the profit and loss account for a given period.




3.3.14 Impairment of financial assets The Company assesses as of each balance sheet date whether there is objective evidence that the financial assets component or a group of financial assets is impaired.

The policy concerning impairment of receivables and loans is presented in section “Trade receivables and other receivables”. When determining whether securities included in the held for sale category have been impaired, a significant or continuing loss of the fair value of a given security below its cost is taken into consideration. If such evidence exists (in the case of financial assets held for sale), total losses incurred to date – determined as the difference between the purchase price and current fair value, less possible losses due to impairment already recognized in the profit and loss account – are excluded from the equity and recognized in the profit and loss account. The impairment losses already recognized in the profit and loss account and the losses due to capital instruments are not subject to reversal by the financial result.

3.3.15 Inventory Inventory is disclosed at its purchase price or at its production costs not higher than the net sales price. The production costs are made up of direct material costs and, as required, of the direct payroll costs and a justifiable part of indirect costs. Outgoing inventory of materials and goods is valued at actual prices. The net sales price corresponds to the estimated sales price less all costs necessary to complete the production and costs of rendering the inventory saleable or finding a purchaser (i.e. sales and marketing costs, etc.).

3.3.16 Trade receivables and other receivables Trade receivables and other receivables are initially recognized at fair value, and then, once they have been decreased by impairment write-downs they are recognized at adjusted acquisition price (amortized cost) with application of the effective interest rate. Impairment write-downs are made when there is objective evidence that the Company will not be able to receive all its receivables in accordance with the original settlement terms and conditions. In order to measure receivables at amortized cost, the debtor's major financial problems, probability of its insolvency or financial reorganization, as well as its failure to settle or delayed settlement of liabilities are taken into account, and these are recognized as indicators of trade receivable impairment. The amount of the write-downs is equal to the difference between the balance sheet value of a given asset and its value measured at amortized cost. The write-down amount is recognized in the profit and loss account. The balance sheet value of a given asset is decreased by revaluation write-downs, and the loss amount is posted to the profit and loss account (sales expenses). In case of bad trade receivable it is written off the account of provisions for trade receivables. Amounts recovered later after being written off are credited to the cost of sales item in profit and loss account.

Contract receivables The Company recognizes among assets within trade receivables, in the "Uninvoiced receivables from clients resulting from agreements" item the amounts due from clients for contract deliverables, with respect to all contracts in progress, in case of which the costs incurred – plus the recognized profits (less the recognized losses) – exceed the invoiced amounts.




3.3.17 Deferred income Deferred income is accounted for while observing the prudence principle and accrual principle. In particular the deferred income includes the equivalent of amounts received or due from the trading partners for deliverables that shall be provided in future reporting periods.

The Company recognizes among deferred income within the "Deferred income" item an amount due to clients for

contract deliverables, with respect to all contracts in progress, in case of which the amounts invoiced exceed the

costs recognized.

3.3.18 Cash and cash equivalents Cash and short-term deposits recognized in the balance sheet include cash at the banks and on hand, as well as short-term deposits with the original maturity date of maximum three months. Balance of cash and cash equivalents recognized in the statement of cash flow consists of cash and cash equivalents specified above. Balances of un-repaid overdraft facilities are recognized in the balance sheet in the credits and loans item.

3.3.19 Assets held for sale Fixed assets or groups of assets classified as assets held for sale are measured at their balance sheet value or fair value less sales expenses, whichever is lower.

3.3.20 Equity

Equity of the Company is recognized at nominal value in accordance with the principles stipulated in legal regulations and the provisions set forth in the Articles of Association.

Share capital of the Company is recognized in the amount specified in the Articles of Association and entered in a court register.

Marginal costs related directly to issue of new shares or options are recognized in equity as a decrease of proceeds from the issue.

3.3.21 Share-based payments

Some employees of the Company may receive additional compensation in the form of share options, due to which employees provide services in exchange for shares or rights to shares ("transactions settled with equity instruments").

The cost of transactions settled with employees through equity instruments is measured by reference to the fair value as of the date the rights were granted. The fair value is determined by an independent valuer. No conditions concerning performance/results, besides those related to the price of shares of the Company ("market conditions") are taken into account at measurement of transactions settled with equity instruments.

The cost of transactions settled with equity instruments is recognized in the profit and loss account including a corresponding increase in equity within the period in which the conditions concerning performance/results, ending on the date the employees acquire full rights to benefits ("date of acquisition of rights"), are met. A cumulated cost recognized due to transactions settled with equity instruments as of each balance sheet date until the date of acquisition of the rights reflects the passage of time of acquisition of the rights and the number of options to which the rights will eventually be acquired – according to the opinion of the Management Board of the Company. No costs are recognized due to options the rights to which have not been finally acquired except for options the acquisition of which depends on market conditions, which are treated as acquired regardless of meeting market conditions provided all other conditions concerning performance are met.




In case of a change to the conditions of allocation of options settled with equity instruments, as a minimum such costs are recognized as if these conditions had not changed. Furthermore, costs due to each increase in value of a transaction as a result of such a change, measured as of the date the change was implemented, are recognized.

The dilutive effect of issued shares is taken into account in determination of profit per share as additional dilution of shares.

3.3.22 Employee benefits

Pursuant to the company compensation schemes, the employees of the Company have right to a retirement severance pay. Retirement severance pay is a one-time payment made upon retirement. The amount of the retirement severance pay depends on the employment tenure and average compensation of the employee concerned. The Company creates a provision for future liabilities due to retirement severance pay in order to allocate the costs to the period which they refer to. Pursuant to IAS 19, retirement severance pays are programs of defined benefits after the period of employment. The current value of these liabilities as of each balance sheet date is calculated by an independent actuary. Liabilities accrued are equal to the discounted payments which will be made in the future, considering staff churn, and they refer to the period before the balance sheet date. Demographic information as well as information on staff churn is based on historical data. Profits and losses due to actuarial calculations are recognized in the profit and loss account and in other comprehensive income.

The Company pays contributions to national retirement schemes under defined contribution plans. Contributions to defined contribution plans are recognized as costs in the profit and loss account in the period they concern.

3.3.23 Provisions Provisions are established when the Company has an effective liability (legal or commonly expected) resulting from past events, and when it is likely that fulfilling this liability will lead to the need to spend the resources related to economic benefits and when it is possible to estimate the amount of this liability in a reliable manner.

When the influence of value of money over time is significant, the amount of the provision is determined by discounting the expected future cash flows to the present value, with the application of a gross discount rate reflecting present market valuations of value of money and possible risk related to a given liability. If the method consisting of discounting has been applied, the increase of provisions in time is recognized as borrowing costs.

3.3.24 Leases Company as a lessee

Financial lease agreements which generally transfer to the Company all risk and benefits resulting from possessing the leased object, are recognized in the balance sheet as of the date of commencement of lease as the lower of the two following values: the fair value of the tangible asset constituting a lease object or the present value of minimum lease charges. Lease charges are divided into financial costs and reduction of balance of liabilities due to lease, in a manner allowing for determining a fixed interest rate on the remaining liability to be paid. Financial expenses are recognized directly in the profit and loss account.

Fixed assets used pursuant to financial lease agreements are depreciated over either: estimated economic useful lifetime of the fixed asset or the term of lease, whichever is shorter.

Lease agreements, pursuant to which the lessor generally retains all the risk and benefits resulting from possessing the lease object, are considered as operating lease agreements. Lease charges due to operating lease agreements and further lease installments are recognized as costs in the profit and loss account by a straight-line method throughout the term of lease.




Company as a lessor

Lease agreements, pursuant to which the Company generally retains all the risk and benefits resulting from possessing the lease object, are considered as operating lease agreements. Conditional lease charges are recognized as income in the period when they become due.

3.3.25 Financial liabilities and equity instruments Financial liabilities and equity instruments are classified on the basis of their economic contents resulting from the concluded agreements. An equity instrument is an agreement giving the right to participate in the Company’s assets less all liabilities.

3.3.26 Equity instruments Equity instruments issued by the Company are recognized in the value of the revenues less direct issuance costs.

3.3.27 Bank credits and loans

At the moment of the initial recognition, all bank credits and loans are recognized at fair value, less the costs of obtaining a credit or loan. After the initial recognition, interest-bearing credits and loans are further valued in accordance with a depreciated cost (adjusted purchase price), using the effective interest rate method. When determining a depreciated cost (adjusted purchase price), costs of obtaining a borrowing or credit, as well as discounts or bonuses gained while settling liabilities are taken into consideration.

3.3.28 Trade liabilities

Trade liabilities are the obligations to pay for goods and services acquired from suppliers in the course of the enterprise's regular business activities. Trade liabilities are classified as short-term liabilities if the payment date falls within one year (or in the course of regular business activity cycle of an enterprise, if longer). Otherwise, liabilities are recognized as long-term.

Trade liabilities in the initial recognition are disclosed at fair value, whereas subsequently they are disclosed at depreciated cost, using the effective interest rate method.

Trade liabilities include accrued expenses in the amount of likely liabilities due in the current reporting period

when the liability amount may be reliably estimated. Accrued expenses have a lower probability of turning into

expense than liabilities. Accrual adjustments are performed with observance of prudence principle and on accrual

basis.




3.3.29 Revenues Revenues are recognized in the amount in which it is likely that the Company will gain economic benefits related to a given transaction, and when the amount of income may be valued in a reliable way. Revenues are shown after deduction of value added tax, refunds, rebates and discounts.

Multi-element contracts

Sales of products and services are based mainly on contacts concluded on standard terms and conditions; however, the Company also enters into multi-element contracts which require the Management Board to perform a detailed analysis and interpretation in order to ensure appropriate recognition in the financial statements. Appropriate recognition of revenues resulting from multi-element contracts consists of assessment whether the delivered products and services should be accounted for as individual elements for which revenue is recognized independently or the contract should be recognized as an inseparable whole. In case of separation of independent elements within the sales contract, the contract price is allocated to its particular elements, based on their relative fair value. Changes in price allocations between contract elements may have influence on the date of revenue recognition, but not on the total amount of revenue recognized in the contract.

Consortium agreements

The Company recognizes the total revenue due to a consortium agreement, also with regard to other consortium members, if its participation in the consortium was significant in terms of the risks incurred and benefits obtained.

Long-term contracts

The aim of valuation of a long-term IT implementation contract is to determine the value of revenues to be

recognized with regard to progress of work. The Company performs valuation applying the degree of progress

method. Application of this method results in recognition of revenues proportionally to the incurred costs, which as

a result allows for maintaining a constant aggregate margin on the contract, provided that the contract is not a

loss generating contract.

Progress of contract is recognized as ratio between costs incurred until the balance sheet date and total contract

costs (total contract costs cover costs incurred until the balance sheet date and currently expected costs to

complete the contract). Revenues corresponding to contract progress as of the balance sheet date are

recognized by multiplying the progress ratio by the total planned revenues from the contract.

If the incurred costs less estimated losses and plus profits recognized in the profit and loss account exceed by

their percentage progress the percentage progress of invoiced sales, the resulting difference of amount of non-

invoiced sales is presented in the assets of the balance sheet in the other receivables under the “Uninvoiced long-

term contracts receivables” as part of trade receivables.

Loss generating contracts

A loss generating contract is a contract in which total contract revenue is lower than total costs.

When it is highly likely that total costs of contract performance would exceed total revenues from the agreement,

the estimated loss is recognized as a cost for the period in which it was discovered by establishing a provision for

contract losses. The amount of provision and/or relevance of its presence is reviewed as of each subsequent

balance sheet date, until completion of the contract.

The value of provisions established for losses is recognized in the “long-term IT contracts valuation” category of

liabilities”.




Methods of contract completion progress measurement

To determine degree of contract completion, the Company applies such methods that allow for determination of

progress of work in reliable manner. Depending on the nature of contract, these methods may include:

determination of proportion of contract costs incurred for work performed until the balance sheet date

compared to the estimated total contract costs,

measurement of the work performed, or

comparison of physically performed work against the contract deliverables.

When the degree of contract completion is determined on basis of incurred contract costs, such costs include only

these contract costs that reflect the work completed so far. Examples of costs, which should not be included, are

as follows:

costs of future activities related to the agreement, e.g. costs of materials purchased to complete the

project, which as of the valuation date, have been not installed or utilized in any other way yet;

advance payments to subcontractors for work to be performed under the contract.

If the degree of progress of service, expected total costs of its performance or the result cannot be reliably

determined as of the balance sheet date, then:

revenues are recognized only up to the amount of contract costs incurred in the given reporting period,

however not exceeding the costs that are likely to be covered in the future by the client,

contract costs shall be recognized as costs of the period in which they were incurred.

The percentage progress method is applied cumulatively in each accounting period with respect to the then

current estimates of revenues and contract costs. The effects of changes to estimates of contract revenues or

costs are recognized in the current accounting period.

Sales of goods

Revenue from sales of goods primarily consists of revenues from sales of computer hardware. Revenues are recognized if a significant risk and benefits resulting from the ownership title to products have been transferred to the purchaser and when the revenue amount may be valued in a reliable way.

Sale of licenses and software

Revenues are recognized if a significant risk and benefits resulting from the ownership title to products have been transferred to the purchaser and when the amount of revenue may be valued in a reliable way. Revenues from sales of third party licenses (from the Company's business partners) and own licenses are recognized when all the rights and obligations related to the product have been transferred to the client, and the client has accepted and confirmed receipt of the license or software.

Implementation services

Revenues are recognized in accordance with the degree of progress of a given service; most often this is the revenue resulting from long-term contracts settled in time. Detailed information on the revenue recognition has been provided in the paragraph "Long-term contracts”.

Maintenance services

Revenues from maintenance services consist of revenues from fixed remuneration contracts for provision of maintenance services for hardware and software. These revenues are usually recognized in the period in which relevant services were provided.




Revenues from lease

Revenues from lease of investment real-estates are recognized using the straight-line method for the entire term

of lease for open agreements.

3.3.30 Dividends

Dividends are recognized when shareholders obtain the rights to acquire them. Dividend payouts to shareholders of the Company recognized as liability in the financial statements of the Company during the period then they were approved by the shareholders of the Company.

3.3.31 Interest income

Interest income is recognized proportionally to the period of time by an effective interest rate.

3.3.32 Income tax

Income tax for a reporting period includes current and deferred income tax. Tax is recognized in the profit and loss account, except for the scope in which it relates directly to items included in the comprehensive statement of income or in equity.

In such a case tax is also recognized in the other comprehensive income or in equity respectively. Current tax charges are calculated pursuant to tax provisions in force or those actually introduced as of the balance sheet date. The Management Board carries out a periodic review of calculations of tax liabilities in relation to situations in which relevant tax regulations are subject to interpretation, establishing potential provisions for the amounts payable to tax authorities.

A deferred income tax liability or asset resulting from temporary differences between the tax value of assets and liabilities and their balance sheet value in the financial statements is recognized in accordance with the balance sheet method. If, however, deferred income tax resulted from initial recognition of an asset or liability within a transaction other than business combination which has no impact on the financial result or the taxable income (tax loss), it is not recognized. Deferred income tax is determined in accordance with the tax rates (and regulations) legally or actually binding as of the balance sheet date which are expected to be binding at the time of realization of the concerned assets under deferred income tax or at the time of settlement of the resulting liability.

Deferred income tax assets are recognized only when it is likely that future taxable income will be generated, which will enable utilization of temporary differences. A deferred income tax liability and asset resulting from temporary differences, occurring due to an investment in subsidiary and associated companies is recognized, unless distribution in time of reversal of temporary differences is controlled by the Company and it is likely that those differences will not be reversed in foreseeable future. Deferred income tax assets and liabilities are compensated when there is an enforceable legal title to compensate the current income tax assets with current income tax liabilities and when deferred income tax assets and liabilities concern income taxes calculated by the same tax authorities to be collected from an entity subject to taxation.




4. Financial risk management

4.1 Financial risk factors

The business activities conducted by the Company expose it to various financial risks: market risk (including: foreign exchange risk, risk of change to fair value or risk of cash flows as a result of interest rate changes and price variation risk), credit risk and liquidity risk. The framework risk management program is focused on unpredictability of financial markets and aims at minimizing the potentially negative influences on the financial results. The Entity is using derivatives to hedge against certain risks. Risk is managed by the Financial Office of the Company that follows the policy approved by the Management Board. The Financial Office identifies and evaluates the financial risks and hedges the Company against risks in close collaboration with the operating units.

4.1.1 Market risk

Foreign exchange risk

The foreign exchange risk is deemed to mean the likeliness of adverse influence of foreign exchange rates

changes on the financial result. Assets and liabilities denominated in foreign currencies are exclusively the trade

receivables and trade liabilities denominated in EUR, USD or other currencies. The Entity does not draw credits in

foreign currencies. Due to the fact that the Entity’s exposure to foreign exchange risk is not significant, the Entity

is not attempting to hedge all its foreign currency transactions. The main objective of foreign exchange risk

hedging efforts is hedging against the foreign exchange rates fluctuations accompanying the foreign currency

payments for deliveries or payments from clients. To protect against this risk the Company is using the currency

forward contracts. The Company does not maintain hedge accounting.

Interest rate risk

The interest rate risk is deemed to mean the likeliness of adverse influence of interest rate changes on the financial result. The Entity is exposed to the interest rate risk resulting out of credit debt, financial lease agreements concluded and cash deposits in banks, which bear interest dependent on the WIBOR and EURIBOR. Change of interest rates shall have influence on the amount of interest paid on financial liabilities. The Company is not using derivative instruments to hedge against interest rate risk. 4.1.2 Credit risk

Credit risk is deemed to mean the likeliness of a trading party’s default on or untimely payment. The Company

follows the principle of entering into transactions concerning financial instruments with entities with high credit

ratings. Credit risk arises primarily in case of unsettled accounts with clients for contracts delivered by the

Company. Company’s clients mainly include public authorities, central and local government administration

agencies as well as corporate clients with unquestionable credit ratings. The credit risk exposure on granted loans

results mainly from the loans granted to employees of the Company and to subsidiaries. Such loans are granted

only if the requesting employees meet several conditions and establish collaterals. The Company is managing its

credit risk on ongoing basis by monitoring the lifecycle stages, receivables and through proactive collection

efforts, thus influencing the minimization of the risk level. The Company is not expecting to incur significant losses

arising out of credit risk in excess of write-downs recognized in these financial statements.




4.1.3 Liquidity risk

Day to day operations of the Company depend on available cash and credit lines in the banks. The Company

maintains such debt level, including available credit lines, as to ensure financing without hindering current

operations. The Management Board monitors the projected cash flows of the Entity. The liquidity level is

controlled through preparation of a cash flows forecast. Execution of the planned cash flows is regularly reviewed

and it includes, among others, analysis of unrealized cash flows, their causes and consequences. Such

projections of financial results take into account the Company’s plans as regards the need for borrowing and the

necessity to observe the covenants related to incurred liabilities.

The Company forecasts that the basic future needs as regards financial resources will concern financing of working capital, capital expenditures, credit and bond debt servicing and repayment of current liabilities. According to the Company the current cash, easily marketable financial assets held for sale as well as proceeds from operating activities will be sufficient to finance those needs. Nevertheless, if the market conditions or clients’ financial problems should have a negative influence on cash generated from the operations, the Company will revise its financial needs in order to assure that its existing liabilities shall be met in the foreseeable future. As of September 30, 2016 the Entity’s total cash resources amounted to 61 668 (as of September 30, 2015 – 1 476). The table below presents an age analysis of the Company’s financial liabilities by the period remaining until the repayment date as of the balance sheet date, broken down into short-term and long-term. The amounts presented in the table constitute contractual undiscounted cash flow plus due interest. The balances of non-interest bearing liabilities due within 12 months have been presented in values of balance sheet items.

As of:

As of:

Sep. 30, 2016

Sep. 30, 2015

Audited

Audited


Issued bonds liabilities 39 885

39 793

Financial lease liabilities -

98

Trade liabilities 9 742

-

49 627

39 891


Credits and loans 19 885

30 800

Issued bonds liabilities 486

499

Financial lease liabilities 95

1 271

Trade liabilities 102 690

52 895

Other liabilities 45 424

55 111

168 580

140 576

* Due on December 19 2017 ** Due on December 15, 2018 Information about liquidity risk are also presented in note 2. Information about ageing of short-term trade liabilities in part for deliveries and services are resented in note 31.




4.2 Capital risk management

The main objective of Company’s capital management is to maintain its good credit rating and safe capital

indicators which would facilitate the operations and would increase its shareholder value.

The Company manages its capital structure and it alters it as a result of changes in economic conditions. In order

to maintain or adjust its capital structure, the Entity may change payment of a dividend for shareholders, return

capital to shareholders and issue new shares. The Entity monitors its capitals using a financial debt indicator. It is

calculated as the ratio of net financial debt to total capital. Net financial debt is calculated as the sum of liabilities

for interest-bearing credits and loans as well as bonds and financial lease minus cash and cash equivalents. The

total capital is calculated as equity recognized in the balance sheet plus the net financial debt.

As of: As of:

Sep. 30, 2016 Sep. 30, 2015

Financial debt

Gross financial debt


40 292

Interest-bearing credits and loans 19 885

30 800


1 369

60 351

72 461

Net financial debt

Less cash and cash equivalents (61 668)

(1 476)

-

70 985

Total equity 235 780

247 584

Total capital 235 780

318 569

Net financial debt ratio 0.0%

22.3%

During the fiscal year ended September 30, 2016, as during the previous fiscal year, the Company mainly used

equity financing; short-term variations in working capital requirements were financed with short-term overdraft

facilities and long-term bonds.




5. Important estimates and accounting assessments

These result from the experience gained to date and from other factors, including forecasts concerning future events which seem relevant in a given situation. Accounting estimates and assessments are subject to regular reviews.

Important estimates and assumptions The Entity makes estimates and assumptions concerning the future. Resulting accounting estimates in principle will rarely match actual results. Estimates and assumptions which involve significant risk of necessity to introduce a major adjustment into the balance sheet value of assets and liabilities within the next business year are discussed below. Deferred tax assets

The Entity recognizes a deferred tax asset based on the assumption that a taxable profit allowing for its utilization

will be generated in the future. Deterioration of taxable results achieved in the future could result in the

assumption being unfounded. As of September 30, 2016 the Company has recognized a net deferred tax

provision amounting to 5 608. (The deferred income tax asset in amount of 30 352 as of September 30, 2016 was

less the provision for deferred income tax in amount of 35 960). For details see note 14.

In the fiscal year ended September 30, 2016 the Company has achieved a taxable income resulting in part of the

tax losses from previous years having been consumed. In the opinion of the Management Board of the Company

the recoverability of tax losses on which the Company has recognized a deferred income asset is likely. Ability to

deduct the tax losses in the future depends on multiple factors, including the ability of the Company to realize the

assumed forecasts. In the event the Company would not achieve sufficient taxable income over the following five

tax years from the date of these financial statements, i.e. 2017 – 2021, this could result in the necessity to write-

off the deferred income tax asset in amount of 936.

Estimates of significant provisions and contracts

While accounting for revenues from contracts with defined prices for provision of design services, the Company uses the method of percentage degree of progress of work. Use of this method requires ongoing estimation of ratio of costs incurred up to date to the total budgeted costs.

Budgets of individual contracts are being updated with current information on every balance sheet date and are reviewed by the Management Board. If between the official budget reviews events occur that significantly influence the contract result, the value of total contract revenues or costs may be updated earlier. On every balance sheet date there is a significant portion of work that was performed, but not yet accepted and not invoiced for by subcontractors, which the Entity recognizes as contract costs – in conformance with accrual basis. The amount of subcontractor costs due to completed but not invoiced work items is estimated by a technical team on basis of actual progress of work and may differ from the value determined in the formal acceptance process which is compliant with a mutually agreed time schedule. See also note 2.

Depreciation/amortization rates

The value of depreciation/amortization rates is determined on basis of the expected economic lifetime of tangible

and intangible assets. Every year the Company reviews the economic lifetime periods used on basis of the then

current estimates.

Estimated goodwill impairment

Every year and every time in case of occurrence of relevant circumstances the Company tests the goodwill for impairment, according to the accounting principle described in note 3.




Assessment of usable value consists of determination of future cash flows generated by the cash generating unit and requires determination of the discount rate to be applied for calculation of the present value of those cash flows.

The details of the test conducted are described in note 18 to these separate financial statements.

Estimated impairment of investments in subsidiaries and joint ventures

Every time relevant circumstances occur, the Entity tests its shares and interests in subsidiaries and joint-ventures held on the balance sheet date for impairment. Estimation of their recoverable value consists of determination of future cash flows generated from shares or interests held in subsidiaries and joint ventures (including their residual value estimated assuming the increase of earned margin after the forecast period) and requires determination of discount rate to be applied to calculation of the present value of these cash flows. The details of the test conducted are described in note 19 to these separate financial statements. Changes of value of results achieved in future with respect to the forecasts used in the impairment test may in future result in the need to perform write-downs updating the goodwill or investments in subsidiaries.

6. Information on operating segments

Pursuant to paragraph 4 of IFRS 8 the Management Board of the Company has disclosed the information about

the operating segments in the consolidated financial statements of the Sygnity Group for the period of 12 months

ended September 30, 2016.

7. Approval of financial statements for the fiscal year 2014/2015

The separate financial statements for the fiscal year ended on September 30, 2015 were approved on March 24, 2016 by the General Meeting of Sygnity S.A. On April 1, 2016 they were submitted to the National Court Register pursuant to the legislation in force.




8. Sales revenues

Period:

Period:

from Oct. 1, 2015

from Oct. 1, 2014

to Sep. 30, 2016

to Sep. 30, 2015

Audited

Audited

Revenue from sales of products and services

Licenses and software 76 872

71 860

Implementation services 186 762

219 445

Maintenance services 72 280

75 661

Other 1 691

1 646

337 605

368 612

Revenue from sales of products and materials

Computer hardware 59 862

39 910

59 862

39 910

Revenues are primarily generated on the territory of Poland. Around 1.7% of sales revenues in the year ended September 30, 2016 (around 1.3% for the year ended September 30, 2015) came from clients with no registered seat on the territory of Poland. Majority of these revenues came from sales of implementation services and computer hardware.

9. Costs by type and cost of goods and services sold

Period:

Period:

from Oct. 1, 2015

from Oct. 1, 2014

to Sep. 30, 2016

to Sep. 30, 2015

Audited

Audited

Costs by type in total

Materials and energy consumed (62 630)

(64 778)

Third party services (137 658)

(144 741)

Remuneration (97 574)

(116 278)

Employee benefits (18 685)

(22 189)

Depreciation (16 126)

(14 382)

Taxes and levies (2 516)

(2 674)

Other (10 923)

(6 624)

(346 112)

(371 666)

Cost of products and services sold

Cost of sales (20 472)

(19 273)

Overhead cost (36 810)

(43 707)

(288 830)

(308 686)




10. Other operating revenues

Period:

Period:

from Oct. 1, 2015

from Oct. 1, 2014

to Sep. 30, 2016

to Sep. 30, 2015

Audited

Audited

Other operating revenues

Positive foreign exchange differences 68 107

Adjustment to employee benefits 215 -

Profit from sale of nonfinancial fixed assets - 17

Settlement of completed lease contracts 818 2 371

Corrections to VAT returns for previous years 891

Other titles 716 382

1 817

3 768

11. Other operating expenses

Period:

Period:

from Oct. 1, 2015

from Oct. 1, 2014

to Sep. 30, 2016

to Sep. 30, 2015

Audited

Audited

Other operating expenses

Inventory update write-down -

(1 475)

Late payment interest (250)

(56)

Donations (18)

(18)

Other titles (35)

(69)

(303)

(1 618)




12. Financial revenues

Period:

Period:

from Oct. 1, 2015

from Oct. 1,

2014

to Sep. 30, 2016

to Sep. 30, 2015

Audited

Audited

Financial revenues

Financial revenue on interest including:

- on bank deposits 70

224

- on loans granted 52

-

- other -

80

Positive foreign exchange differences - 69

Settlement discount 324 -

Other financial revenues 139 -

585

373

13. Financial expenses

Period:

Period:

from Oct. 1, 2015

from Oct. 1, 2014

to Sep. 30, 2016

to Sep. 30, 2015

Audited

Audited

Financial expenses

Financial expenses on interest:

- on credits and loans (1 273)

(562)

- on bonds and other debt securities (1 747)

(2 484)

- on financial lease (49)

(693)

- other types of interest (417)

(500)

Settlements and bonds discount -

(304)

Negative foreign exchange differences (544)

-

(4 030)

(4 543)

14. Income tax

14.1 Tax burden

Period:

Period:

from Oct. 1,

2015 from Oct. 1,

2014

to Sep. 30, 2016

to Sep. 30, 2015

Audited

Audited

Income tax as presented on the statement of comprehensive income

Deferred income tax (6 843)

(1 861)

Tax correction for previous years 88

1 461

Provision for tax liabilities concerning previous years -

(3 300)

(6 755)

(3 700)




14.2 Effective tax rate reconciliation

The reconciliation of the income tax on the gross financial result before tax at the statutory tax rate with the income tax calculated at the effective tax rate of the Company for the fiscal year commenced on October 1, 2015 and ended September 30, 2016 is as follows:

Period:

Period:

from Oct. 1, 2015

from Oct. 1, 2014

to Sep. 30, 2016

to Sep. 30, 2015

Audited

Audited

Loss before tax (3 746)

(290)

Statutory tax rate 19%

19%

Tax at statutory rate 712

55

Change to assessment of calculation of last year’s tax (203)

533

Write-off of unutilized tax losses asset (3 635)

(2 846)

Establishment of write-down updating the value of asset recognized on tax losses (1 311)

-

Write-down updating the assets on inventory value updating write-downs (811)

-

Adjustments disclosed in the current year with respect to taxes for previous years 88

(1 839)

Other adjustments - 784

Effect of permanent differences on tax:

Non-taxable revenues:

- settlements with tax office -

74

- release of provisions for liquidated damages -

55

- other revenues -

285

Non deductible expenses:

- advertising and representation expenses (34)

(47)

- establishment of provision for penalties (1 238)

(382)

- write-off of receivables and financial assets -

(189)

- costs due to awarded court rulings (122)

-

- taxes and contributions (94)

(211)

- share in tax loss of codependent entity 60

69

- other expenses (167)

(41)

Income tax (6 755)

(3 700)




14.3 Deferred income tax

Deferred income tax is calculated using the balance-sheet method from temporary differences between the tax value of assets and liabilities and their balance sheet value at 19% rate. Deferred income tax assets are recognized when it is likely that the company will generate future taxable income which will enable utilization of temporary differences and tax losses.

As of

As of

Sep. 30, 2016

Sep. 30, 2015

Audited

Audited

Deferred income tax asset including:

Discount of deposit 18

31

Provision for unutilized holidays 327

356

Provisions for remuneration, bonuses, extra pay and others 376

738

Other prepayments and accruals 13 341

6 724

Receivables and inventory revaluation write-down 2 237

2 787

Provision for warranty services 1 339

1 407

Invoice corrections 1 408

2 590

Negative foreign exchange differences resulting out of revaluation - 8

Direct costs concerning non-taxable revenues 9 416

5 815

Other differences 960

1 741

Tax losses 936

6 268

30 358

28 465

Deferred income tax provision including:

Recognition of revenues from long-term contracts 25 383

19 936

Prepaid expenses recognized as tax deductible expenses in the current year 4 565

-

Surplus of balance sheet value over tax value of fixed assets and intangible assets

5 956

7 282

Other differences 89

39

35 993

27 257

Net deferred income tax asset (provision) (5 635)

1 208

14.4 Tax loss to be deducted in future periods

Tax loss to be deducted in future periods by year of occurrence Incurred in 2012 2015

Loss amount 6 900 4 924

Tax loss to be deducted in future periods by year of expiry

Incurred in 2012 2015 2015

Loss amount 6 900 2 462 2 462 Date of expiry Sep. 30, 2017 Sep. 30, 2019 Sep. 30, 2020




As of the balance sheet date, the Company recognized an asset on part of losses pending settlement as of September 30, 2016 in amount of 936. The value of tax losses written off in the year ended September 30, 2016 was 19 130 (influence on net financial result in amount of 3 635) . Based on achieved results and projections of future taxable profits, in particular related to schedules of long-term contract invoicing, the Management Board of the Company considers consuming of yet unsettled tax losses of past years on which a deferred tax loss asset was recognized as highly likely.

14.5 Tax settlements

Tax settlements and other regulated areas of activity (e.g. customs or foreign exchange issues) may be audited by administrative authorities authorized to impose high fines and sanctions. Lack of reference to the well-established legal regulations in Poland results in lack of clarity and incoherence of the Polish legislation in force. Frequent differences of opinions as to legal interpretation of tax provisions, both by government authorities and in contacts between the government authorities and businesses result in existence of areas of uncertainty and in disputes. Such issues cause the fiscal risk in Poland to significantly exceed the risks encountered in countries with more mature fiscal systems.

Tax settlements may be audited by authorities during the five years following the end of year in which the taxes were paid. Such audits may result in existing tax settlements of the Company being increased with additional tax burdens.

15. Loss per share

The basic loss per share is calculated by dividing the net loss of the Shareholders of the Entity for the reporting period by the weighted average number of issued ordinary shares outstanding within the reporting period.

The diluted loss per share is calculated by dividing the net loss of the Shareholders of the Entity for the reporting period by the adjusted (by influence of the potential diluted shares) weighted average number of issued ordinary shares outstanding within the reporting period.

Data on loss and shares used to calculate both basic and diluted loss per share are presented below:

Period:

Period:

from Oct. 1, 2015

from Oct. 1, 2014

to Sep. 30, 2016

to Sep. 30, 2015

Audited

Audited

Net basic and diluted loss attributable to the shareholders of the company (10 501) (3 990)

Weighted average number (in thousands) of ordinary shares used for calculation of loss per share

11 363

11 520

Basic and diluted loss per share (0.92) (0.35)




16. Tangible fixed assets

Land (including perpetual usufruct

right)

Buildings, premises and civil

and water engineering

facilities

Plant and machinery

Means of transportation

Other tangible

fixed assets

Tangible fixed assets

under construction

Total


Purchase price as of Oct. 1, 2015

21

4 493

36 059

1 739

4 517

127

46 956

Increases of value due to:

-

3 004

1 887

-

2 019

5 433

12 343

Acquisition

-

1 294

-

56

-

1 350

Capitalization of costs in the period

-

-

-

-

5 433

5 433

Completed investments

3 004

593

-

1 963

-

5 560

Decreases of value due to: - (3 235) (13 070) (1 620) (343) (5 560) (23

828)

Sale

-

(7)

-

-

-

(7)

Liquidation

(3 235)

(13 063)

(1 620)

(343)

-

(18 261)


-

-

-

-

(5 560)

(5 560)

Purchase price as of Sep. 30, 2016

21

4 262

24 876

119

6 193

-

35 471

Depreciation as of Oct. 1, 2015 (21) (4 198) (31 320) (1 440) (4 085) - (41

064)

Depreciation increase:

(432)

(2 743)

(148)

(368)

-

(3 691)

Depreciation write-off for the reporting period

(432)

(2 262)

-

(368)

-

(3 062)

Leases

-

(481)

(148)

-

-

(629)

Depreciation decrease due to:

3 226

13 008

1 469

343

-

18 046

Sale

-

5

-

-

-

5

Liquidation

3 226

13 003

1 469

343

-

18 041

Depreciation as of Sep. 30, 2016 (21) (1 404) (21 055) (119) (4 110) - (26

709)

Net balance sheet value as of Oct. 1, 2015

0

295

4 739

299

432

127

5 892

Net balance sheet value as of Sep. 30, 2016

-

2 858

3 821

0

2 083

-

8 762

As of the balance sheet date the Company held fixed assets used under financial lease agreements of net value of 71. Besides the leased fixed assets, there are no other limitations as to disposition of the fixed assets in possession of the Company. The depreciation recognized in the cost of production was 1 810, in cost of sales was 96 and in overhead costs was 1 785.





Land (including perpetual usufruct

right)

Buildings, premises and civil and water

engineering facilities

Plant and machinery

Means of transportation

Other tangible fixed assets

Tangible fixed assets under construction Total

Purchase price as of Oct. 1, 2014 21 4 389 35 706 7 740 4 089 - 51 945

Increases of value due to: - 104 2 294 - 428 127 2 953

Acquisition - 104 2 294 - 428 - 2 826

Capitalized of costs in the period - - - - - 127 127

Decreases of value due to: - - (1 941) (6 001) - - (7 942)

Sale - - (216) (15) - - (231)

Liquidation - - (1 725)

- - (1 725)

Leases - - (5 986) - - (5 986)

Purchase price as of Sep. 30, 2015 21 4 493 36 059 1 739 4 517 127 46 956

Depreciation as of Oct. 1, 2014 (21) (4 131) (29 594) (5 262) (4 035) - (43 043)

Depreciation increase: - (67) (3 583) (1 447) (50) - (5 147)

Depreciation write-off for the reporting period - (67) (2 420) - (50) - (2 537)

Leases - - (1 163) (1 447) - - (2 610)

Depreciation decrease due to: - - 1 857 5 269 - - 7 126

Sale - - 147 15 - - 162

Liquidation - - 1 710 - - - 1 710

Leases - - 5 254 - - 5 254

Depreciation as of Sep. 30, 2015 (21) (4 198) (31 320) (1 440) (4 085) - (41 064)

Net balance sheet value as of Oct. 1, 2014 - 258 6 112 2 478 54 - 8 902

Net balance sheet value as of Sep. 30, 2015 - 295 4 739 299 432 127 5 892

As of the balance sheet date the Company held fixed assets used under financial lease agreements of net value of 824. Besides the leased fixed assets, there are no other limitations as to disposition of the fixed assets in possession of the Company. The depreciation recognized in the cost of production was 2 623, in cost of sales was 279 and in overhead costs was 2 245.




17. Intangible assets

Third party

licenses

Own licenses

Trademarks

Goodwill

Intangible assets

established by

acquisition

Advances for intangible

assets Total

Intangible assets

Purchase price as of Oct. 1, 2015

61 501

35 267

554

158 861

27 417

10 460

294 060

Increases of value due to:

159

11 692

-

-

-

5 824

17 675

Acquisition

159

-

-

-

-

-

159

Capitalized costs during the period

-

-

-

-

-

5 824

5 824


-

11 692

-

-

-

-

11 692

Decreases of value due to:

-

-

(14)

-

-

(11 692)

(11 706)

Liquidation

-

-

(14)

-

-

-

(14)


-

-

-

-

-

(11 692)

(11 692)

Purchase price as of Sep. 30, 2016

61 660

46 959

540

158 861

27 417

4 592

300 029

Amortization as on Oct. 1, 2015

(58 502)

(17 805)

(304)

(2 333)

(19 280)

-

(98 224)

Increase of amortization due to:

(737)

(9 606)

(56)

-

(2 036)

-

(12 435)

Amortization write-off for the reporting period

(737)

(9 606)

(56)

-

(2 036)

-

(12 435)

Decrease of amortization due to:

-

-

14

-

-

-

14

Liquidation

-

-

14

-

-

-

14

Amortization as of Sep. 30, 2016

(59 239)

(27 411)

(346)

(2 333)

(21 316)

-

(110 645)


2 999

17 462

250

156 528

8 137

10 460

195 836


2 421

19 548

194

156 528

6 101

4 592

189 384

The depreciation recognized in the cost of production was 9 582, in cost of sales was 2 and in overhead costs was 2 851.




Third party

licenses Own licenses

Trademarks

Goodwill

Intangible assets

established by

acquisition

Advances for intangible

assets Total

Intangible assets

Purchase price as of Oct. 1, 2014 60 915

23 628

539

158 861

27 417

13 374

284 734

Increase of value due to: 586 11 639 15 - - 8 725 20 965

Acquisition 586 - 15 - - - 601

Capitalized costs during the period - - - - - 8 725 8 725

Completed investments - 11 639 - - - - 11 639

Decreases of value due to: - - - - - (11 639) (11 639)

Liquidation - - - - - - -

Completed investments - - - - - (11 639) (11 639)

Purchase price as of Sep. 30, 2015 61 501 35 267 554 158 861 27 417 10 460 294 060

Amortization as of Oct. 1, 2014 (56 925)

(12 237)

(250)

(2 333)

(17 243)

-

(88 988)

Increase of amortization due to: (1 577) (5 568) (54) - (2 037) - (9 236)

Amortization write-off for the reporting period (1 577) (5 568) (54) - (2 037) - (9 236)

Decrease of amortization due to: - - - - - - -

Liquidation - - - - - - -

Amortization as of Sep. 30, 2015 (58 502) (17 805) (304) (2 333) (19 280) - (98 224)


3 990

11 391

289

156 528

10 174

13 374

195 746


2 999

17 462

250

156 528

8 137

10 460

195 836

The depreciation recognized in the cost of production was 6 218, in cost of sales was 3 and in overhead costs was 3 015.




18. Goodwill impairment test

The Company applied the fair value less costs to sell method in the test carried out as of September 30, 2016

concerning determination of the recoverable value of cash generating units.

Cash flows

The cash flows used in the usable value model are based on the approved financial plan for 2017, the announced

strategy and assumptions on growth of the IT market in Poland in the coming years. The usable value accounts

for the residual value estimated with the assumption of an increased margin generated after the period of financial

projections. Cash flows do not include cash inflows and outflows that may be expected to be generated by the

business entity due to future restructuring or improvement of assets. However, the calculation of the usable value

has accounted for capital expenditures which have to be incurred in order to ensure current level of the expected

economic benefits.

Discount rate

To calculate discounted cash flows the Company has used the discount rate built based on the weighted average

cost of capital (WACC). To determine the correct value of the discount rate, the Management Board of the

Company has used publically available financial valuations and analyses of a group of companies with

comparable business profiles, published by independent financial institutions. Individual items of that rate were

estimated based on market data concerning risk free rate (Treasury bonds yield), beta quotient value which has

been releveraged based on the debt/equity market structure and the expected market rate of return.

Allocation of goodwill to CGUs

Based on the analyses performed, it was decided it was reasonable to distinguish two CGUs in the Sygnity

Group: the IT Segment and the Other Operations Segment. Goodwill in Sygnity S.A. is related only to the IT

Segment and thus the goodwill impairment test was performed only for the IT Segment.

Sygnity S.A.

Net operating assets (balance sheet value)

Recoverable

value

Surplus of recoverable value

over balance sheet value

Impairment identified?

IT Segment

226 098

287 933

61 835 No

Balance sheet value of the CGUs

The balance sheet value of each CGU includes the total net operating assets allocated to a given Segment, i.e.:

fixed tangible assets, intangible assets including goodwill, inventory and trade receivables and liabilities.




Key assumptions of the goodwill impairment test and the sensitivity analysis

The key assumptions in calculation of the useful value of each cash generating unit, as well as the sensitivity analysis relating to the goodwill impairment test performed are as follows:

Discount rate 7.99%

Growth rate for calculation of residual value 2.0%

Operating profit margin in 2017-2018 from 3.4% to 4.3%

Operating profit margin in 2019-2021 from 4.8% to 5.9%

The recoverable value of the cash generating centers is presented in the note below:

Recoverable value 287 933

Surplus of recoverable value over the balance sheet value 61 835

Change in the discount rate resulting in the recoverable value being equal to the book value

1.4 pp.

Change in the growth rate value for calculation of the residual value resulting in the recoverable value being equal to the book value

(2.1 pp.)

Change in levels of the operating profit margins assumed for individual years of projection (2017-2021), resulting in recoverable value being equal to book value

(21.48%)

Result of the impairment test

The recoverable value of a CGU determined based on calculation of the usable value exceeds its balance sheet

value, hence no goodwill impairment write-down was recognized. Due to the fact that the valuation is based to a

large extent on forecasted operating and financial results, which are additionally dependent on forecasts

concerning the market development, the Management Board points to inherent uncertainty related to realization

of those forecasts.

19. Investments in codependent entities

Balance sheet value of interests as of

Balance sheet value of interests as of

% equity share

As of Sep. 30, 2016 As of Sep. 30, 2015 Sep. 30, 2016 Sep. 30, 2015

Budimex S.A. Sygnity S.A. Sp. j. 2 564 2 908 33% 33%

2 564 2 908

Budimex S.A. Sygnity S.A. Sp. j.

Sep. 30, 2016 Sep. 30, 2015

Operating assets, 8 624 9 534

Including cash 7 397 8 273

Total assets 8 624 9 534

Equity

Total assets

7 769 8 361

Short-term liabilities 854 686

Revenue - -

Operating expenses (844) (1 677)

Net loss (762) (1 590)




Due to determination of goodwill impairment in Budimex S.A. Sygnity S.A. Sp. j. the Company has as of the

balance sheet date effected joint venture investment value write down in amount of 344, i.e. to the level of share

of net assets held.

20. Shares and interests in subsidiaries

Sep. 30, 2016 Sep. 30, 2015

Sygnity Business Solutions S.A. 40 833 40 833

Sygnity International Sp. z o.o. 2 000 2 000

Geomar S.A. 7 882 7 882

Enhandel Sp. z o.o. 60 60

50 775 50 775

Sygnity Business Solutions S.A.

Due to appearance of indications of possible goodwill impairment, as of September 30, 2016 the Company performed the test for impairment of shares of Sygnity Business Solutions S.A. using the fair value less costs to sell method. Cash flows used in the tests were based on the company’s strategy, approved financial plans for the subsequent fiscal years and the assumptions on market developments in the future periods. The recoverable value of investments includes the residual value estimated on assumption of increase of the generated margin after the forecasting period.

To calculate discounted cash flows the Company used the discount rate built based on the weighted average cost of capital (WACC). To determine the correct value of the discount rate, the Management Board of the Company has used publically available financial valuations and analyses of a group of companies with comparable business profiles, published by independent financial institutions. Individual items of that rate were estimated based on market data concerning risk free rate (Treasury bonds yield), beta quotient value which has been releveraged based on the debt/equity market structure and the expected market rate of return.


The key assumptions in calculation of the recoverable value of the investment held as well as the sensitivity analysis relating to the goodwill impairment test performed are as follows:

Discount rate 7.99%


Accumulated operating profit margin growth in 2017- 2021 20.0%


3.3 pp.


(5.6 pp.)


(55.8%)


The recoverable value of shares held by the Company in Sygnity Business Solutions S.A. determined based on

calculation of the usable value exceeds its balance sheet value (i.e. 40 833), hence no goodwill impairment write

down was recognized for the investment held. Due to the fact that the valuation is based to a large extent on

forecasted operating and financial results, which are additionally dependent on forecasts concerning the market

developments, the Management Board points to inherent uncertainty related to realization of those forecasts.




Sygnity International Sp. z o.o.

Due to appearance of indications of possible goodwill impairment, as of September 30, 2016 the Company performed the test for impairment of interests in Sygnity International Sp. z o.o. using the fair value less costs to sell method. Cash flows used in the tests were based on the company’s strategy, approved financial plans for the subsequent fiscal years and the assumptions on market developments in the future periods. The recoverable value of investments includes the residual value estimated on assumption of increase of the generated margin after the forecasting period.

To calculate discounted cash flows the Company used the discount rate built based on the weighted average cost of capital (WACC). To determine the correct value of the discount rate, the Management Board of the Company has used publically available financial valuations and analyses of a group of companies with comparable business profiles, published by independent financial institutions. Individual items of that rate were estimated based on market data concerning risk free rate (Treasury bonds yield), beta quotient value which has been releveraged based on the debt/equity market structure and the expected market rate of return.


The key assumptions in calculation of the recoverable value of the investment held as well as the sensitivity analysis relating to the goodwill impairment test performed are as follows:

Discount rate 7.99%


Accumulated operating profit margin growth in 2017- 2021 0.5%


246.8 pp


>(100 pp.)


(95.7%)


The recoverable value of shares held by the Company in Sygnity International Sp. z o.o. determined based on

calculation of the usable value exceeds its balance sheet value (i.e. 2 000), hence no goodwill impairment write

down was recognized for the investment held. Due to the fact that the valuation is based to a large extent on

forecasted operating and financial results, which are additionally dependent on forecasts concerning the market

developments, the Management Board points to inherent uncertainty related to realization of those forecasts.

The Company has not identified any indications of possible goodwill impairment in case of other investments in

subsidiaries.




21. Financial assets

Period:

Period:

from Oct. 1, 2015

from Oct. 1, 2014

to Sep. 30, 2016

to Sep. 30, 2015

Audited

Audited

Financial assets valuated at fair value:

Loans granted:

Long-term -

-

Short-term 2 404

904

2 404

904

The Company has a short-term receivables due to a loans from its subsidiaries UAB Baltijos Kompiuteriu Centras and Geomar S.A.

Fair value of financial assets held by the Company does not differ significantly from their balance sheet value.

22. Inventory

As of: As of:

Sep. 30, 2016 Sep. 30, 2015

Audited Audited

Inventory

Semi-products and products in progress 16 647

3 103

Goods 2 473

2 724

19 120

5 827

The balance of semi-products and products in progress consists mainly of costs of purchase of third party licenses and maintenance services settled for in time.

Changes to inventory write-down balance in the fiscal year ended September 30, 2016 and in the preceding year are presented below:

As of:

As of:

Sep. 30, 2016

Sep. 30, 2015

Audited

Audited

Inventory write-down

Beginning of the period 7 922 6 402

Establishment - 1 520

Release (392) -

End of the period 7 530

7 922




23. Trade receivables and other receivables

As of:

As of:

Sep. 30, 2016

Sep. 30, 2015

Audited

Audited

Net long-term receivables

Deposits paid 3 166 3 403

3 166

3 403

Trade receivables and other receivables

- for deliveries and services 49 977

51 907

a) from associates 164

165

b) from other entities 49 813

51 742

- un-invoiced receivables due from clients for work resulting from long-term contracts 133 592

122 850

- due to other taxes 156

156

- due to deposits 1 831

1 745

- other 123

491

185 679

177 149

Advance payments

- maintenance, renovations and rents for office premises 95

158

- insurances 551

327

- other 917

723

1 563

1 208

187 242

178 357

Receivables write-downs (positive value) 8 437

8 766

Gross total receivables 198 845

190 526

The receivables for delivery of goods and services are interest-free. Their fair value does not significantly differ from their balance sheet value.

Aging of trade receivables not covered with write-off as of the balance sheet date is presented below:

As of:

As of:

Sep. 30, 2016

Sep. 30, 2015

Audited

Audited

Short-term trade receivables

Not overdue, due within:

Up to 1 month 31 715 32 106

From 1 to 6 months 6 057 5 197

Over 6 months - -

37 772

37 303

Overdue in arrears for:

Up to 1 month 2 995 4 365

From 1 to 6 months 1 162 691

Over 6 months 8 048 9 548

12 205

14 604

49 977

51 907

With respect to overdue receivables in arrears over 6 months in amount of 8 048, despite being in dispute with the buyers, the Company, based on legal analyses, considers these amounts as likely recoverable in significant part.




Trade and other receivables of the Company are denominated in the following currencies:

As of:

As of:

Sep. 30, 2016

Sep. 30, 2015

Audited

Audited

PLN 189 277

180 244

EUR 1 123

1 506

USD 8

10

190 408

181 760

In the opinion of the Company there is no excessive concentration of credit risk, due to the numerous client base and the nature of clients. Clients for Company’s goods and services include public sector and banking and finance sector organizations. The public sector and enterprises with majority stake by public sector entities include primarily the government offices, central and local government agencies, with credit rating raising no concerns. The banking and finance sector includes mainly the banks with which the Entity is collaborating, securities market supervisory institutions, investment funds and insurance companies.

With respect to receivables uninvoiced to clients for work items resulting from long-term contracts, 87% concerns the public sector, including 76% with one client.

The other trading partners are primarily IT sector companies (of various sizes), with which the Company collaborates in performance of contracts where the end clients are mostly the public sector entities. Based on collaboration track record, receivables from this group of buyers are not treated as lower credit quality receivables.

The Company recognizes the costs of creating and the revenues on releasing of receivables write-downs depending on the method of write-down allocation to relevant contracts.

Changes of receivable write-downs during the fiscal year commenced October 1 2015 and ended September 30, 2016 are presented below:

Period:

Period:

from Oct. 1, 2015

from Oct. 1, 2014

to Sep. 30, 2016

to Sep. 30, 2015

Audited

Audited

Receivables write-down

At the beginning of period 8 766 5 932

Establishment 4 765

4 651

Release (59)

(814)

Utilization (5 035)

(1 003)

At the end of period 8 437

8 766




24. Long-term contracts

The Company accounts for long-term contracts on a degree of progress of work principle.

Period:

Period:

from Oct. 1, 2015

from Oct. 1, 2014

to Sep. 30, 2016

to Sep. 30, 2015

Audited

Audited

Disclosures concerning long-term contracts in progress (during the period)

Revenues from delivery of IT contracts 111 104

103 691

Accrued expenses due to delivery of IT contracts (96 652)

(91 199)

Profits from delivery of IT contracts 14 452

12 492

Cumulatively

as of: Cumulatively

as of:

Sep. 30, 2016

Sep. 30, 2015

Disclosures concerning long-term contracts in progress (cumulative data)

Revenues from delivery of IT contracts 297 156

240 480

Accrued expenses due to delivery of IT contracts (252 936)

(203 203)

Profits / (losses) on delivery of IT contracts 44 220

37 277

Invoiced amounts total 166 335

119 020

As of:

As of:

Sep. 30, 2016

Sep. 30, 2015

Recognized in the financial statements as accounts receivable (in accordance with the balance sheet):

- from clients for work due under long-term contracts 133 592

122 850

- to clients for long-term contracts 2 771

1 390

Due to the nature of long-term contracts where the dates of commencement and of completion of work items fall in different periods, their delivery is subject to liquidity risk arising out of timeliness of cash inflows. Accrued revenues reflect the percentage progress of specific work items in conformance with the method of valuation in function of degree of their progress.

As of the balance sheet date and as of the day of drawing up these financial statements the Company is a party to two major long-term contracts being delivered to public sector institutions. In the fiscal year ended September 30, 2016 the Company has recognized in total out of both long-term contracts 57 729 in sales revenues while receivables for work items resulting from these contracts that were uninvoiced as of the balance sheet date constituted in total 62% of trade receivables and other short-term receivables as of September 30, 2016 (see also note 23). After the balance sheet date up to the date of drawing up these statements no invoices were issued for these projects. The contracts in progress are profitable.




25. Cash and cash equivalents

As of:

As of:

Sep. 30, 2016

Sep. 30, 2015

Audited

Audited

Cash and short-term deposits

Cash on hand and in banks 61 668

1 476

61 668

1 476

Cash in banks and bank deposits are variable interest deposits, the rate of which depends on the interest rate on the Polish inter-banking market. Bank deposits are established for different terms - from several days to one month - depending on the demand of the Company for cash.

26. Equity

26.1 Share capital

As of September 30, 2016 the Parent company’s share capital amounted to 15 082 and covered 11 886 242 (not in thousands) fully paid up ordinary bearer shares with a face value of PLN 1 each and 3 196 due to hyperinflationary revaluation of equity. Shares of all series are equally privileged with respect to dividend, voting rights, and return on capital.

Shareholder structure

According to the knowledge of the Management Board of the Parent Company resulting from information from the shareholders obtained on power of article 69 sections 1 and 2 of the Public Offering Act, the structure of shareholders holding directly or indirectly through subsidiary companies a minimum of 5% of the total number of votes at the General Meeting of the Company was as follows:

Shareholder

As of December 16, 2016 As of September 30, 2016 As of September 30, 2015

Number of shares

% of votes Number of

shares % of votes

Number of shares

% of votes

Legg Mason Towarzystwo Funduszy Inwestycyjnych S.A.

1 444 412 12.15 1 444 412 12.15 1 444 412 12.15

Cron sp. z o. o. 1 433 840 12.06 1 193 000 10.04 - -

Quercus Towarzystwo Funduszy Inwestycyjnych S.A.

1 185 190 9.97 1 185 190 9.97 1 185 190 9.97

Nationale-Nederlanden Otwarty Fundusz Emerytalny

613 097 5.16 613 097 5.16 613 097 5.16

Others * 7 209 703 60.66 7 450 543 62.68 8 643 543 72.72

Total 11 886 242 100.00 11 886 242 100.00 11 886 242 100.00

* Including 523 313 treasury shares repurchased by the Company.

Treasury shares

On March 31, 2016 the Company has completed its share buyback program.

The share buyback was completed due to the expiry of the deadline defined in the resolution no. 7 of the Ordinary General Meeting of March 31, 2015 on share buyback and the authorization granted to the company's Management Board ("OGM Resolution"), adopted on power of article 362 § 1 item 8 the Commercial Companies Code.




Share buyback pursuant to the authorization granted in the OGM Resolution commenced on June 1, 2015 on power of the resolution of Company’s Management Board of June 1, 2015 on commencement of the share buyback program. Company’s shares were purchased in transactions made via the brokerage house of ING Securities S.A. with its seat in Warsaw at the Warsaw Stock Exchange S.A.

The total number of shares acquired by the Company under the completed share buyback program is 193 313 (not in thousands), corresponding to 193 313 (not in thousands) votes at the General Meeting of the Company and 1.6% of the total number of votes at the General Meeting of the Company (however the Company is not exercising its voting rights from treasury shares);

The average price per share acquired under the completed share buyback program was PLN 8.64 (not in thousands;

In the fiscal year ended September 30, 2016 the Company has acquired a total of 156 945 (not in thousands) shares for a total price of 1 305. The average price per share acquired was PLN 8.32 (not in thousands).

The completed share buyback program was implemented for the purpose of:

redemption;

financing the company's investment transactions, in particular for further resale in the takeover and acquisition processes performed for the benefit of shareholders/partners in the entities taken over in return for interests/shares in these entities;

implementing future incentive schemes.

The ultimate goal of the use of the company's treasury shares repurchased under the Share Buyback Program pursuant to the authorization granted in the OGM Resolution shall be defined by the Management Board of the Company in a separate executive resolution.

The total number of treasury shares held by Sygnity is 523 313 and constitutes a 4.4% share in the share capital of the Company and the total number of votes at the General Meeting of the Company, however the Company does not exercise its voting rights from treasury shares.

26.2 Shares of Sygnity S.A. held by Members of Management Board and Members of Supervisory Board

Number of shares as of

Dec. 16, 2016


Sep. 30, 2016


Sep. 30, 2015

Mr Ryszard Wojnowski n/a 364 305 364 305

Mr Tomasz Sielicki 209 374 209 374 229 374

Mr Jakub Leśniewski 21 249 21 249 -




26.3 Other capital items

Share premium

The share premium capital is a surplus capital representing the amount raised on the issue of shares of individual series in excess of their nominal value less the cost of issuing them.

Spare capital

Spare capital is created in the Company in accordance with the Articles of Association of Sygnity S.A. It is subject to distribution up to the amount specified in the Commercial Companies Code. As of September 30, 2016 it amounted to 22 327.

27. Employee share schemes

2011 Program

On June 30, 2011 the Ordinary General Meeting of Shareholders of the company adopted a resolution on establishment of rules of execution of the Incentive Program in 2011-2013 by the Company. The basic principles of the program referred to in the abovementioned resolution (regulatory filing 47/2011) are presented in Note 27 to the consolidated financial statements for the fiscal year ended September 30, 2013. Pursuant to the decision of the Management Board of December 11, 2012 (regulatory filing 46/2012), execution of the last part of the incentive program scheduled for 2013 was abandoned. As of September 30, 2016 the number of options granted to former Members of the Management Board that have not been exercised was 210 000 (not in thousands). In the fiscal year ended September 30, 2016 no options were granted or exercised.

In case the options are not exercised the resulting rights shall expire on December 31, 2016.

2013 Program

On January 10, 2013 the Ordinary General Meeting of Shareholders of the company adopted a resolution on establishment of rules of execution of the Incentive Program for fiscal year 2012/2013 by the company. The basic principles of the program referred to in the abovementioned resolution (regulatory filing 3/2013) are:

a. The persons entitled to participate in the Options Program are the members of the Management Board of the Company;

b. The maximum number of shares in the program may not exceed 150 000 (not in thousands) shares of the Company;

c. The entitled persons shall have the right to exercise the Options on condition that the Company shall disclose in its consolidated financial statements of the Company's Capital Group approved by the General Meeting, made for the fiscal year, a net profit of at least 15 000;

d. The net income shall be calculated without considering the financial effects of events unrelated to the normal operation of the Company;

e. The share price under the options program will be equal to PLN 15 (not in thousands);

f. The Supervisory Board shall supervise the implementation of this program and shall be directly responsible for granting the rights;

g. The condition of execution of the Program in its full scope is the acquisition by the Company of up to 150 000 (not in thousands) of its own shares under the terms defined in the Resolution no. 24 of the Ordinary General Meeting of January 10, 2013;

h. In case of failure to exercise an option, the resulting right expires on September 30, 2016.




On May 19, 2014 the Supervisory Board of Sygnity S.A. granted the former Members of the Management Board of Sygnity the options for shares under this Program. According to the Supervisory Board, the General Premise for granting the Options under the Program was met. As of September 30, 2016 the number of options granted to former Members of the Management Board that have not been exercised was 120 000 (not in thousands). In the fiscal year ended September 30, 2016 no options were granted or exercised. As the options mentioned above have not been exercised, the rights resulting from there under have expired on September 30, 2016.

28. Interest-bearing bank credits and loans

Interest rate

Repayment deadline

As of:

As of:

Sep. 30, 2016 Sep. 30, 2015

Audited

Audited

Short-term

Overdraft facilities

ING Bank Śląski SA

WIBOR 1M+ margin

Mar. 31, 2017

-

6 047

Deutsche Bank Polska SA

WIBOR 1M+ margin

Mar. 31, 2017

12 385

15 329

Loan

De Lage Landen Leasing Polska S.A.

7% effective

May 25, 2016

-

424


WIBOR 1M+ margin

Mar. 31, 2017

7 500

9 000

19 885

30 800

As of September 30, 2016 the Company had a loan of 7 500 granted by its subsidiary.

As of September 30, 2016 the Company had multi-purpose lines of credit at 2 banks (Deutsche Bank Polska S.A. and ING Bank Śląski S.A.) for a total amount of 80 000 As of September 30, 2016 the Company has utilized 21 783 in guarantee lines. Additionally, as of September 30, 2016 the Company had a bank guarantee for a total of 11 605 issued by Bank Pekao S.A. As of September 30, 2016, the multi-purpose lines of credit granted were secured by the assignments of proceeds under contracts and the granted powers of attorney to bank accounts as well as representation on submission to enforcement under article 777 paragraph 1 item 5 of the Polish Civil Procedure code. Under the financing agreements concluded with the ING Bank Śląski S.A. the Company has undertaken to observe the following covenants calculated based on consolidated data, among others: - maintaining the value of its equity at not less than 200 000, - maintaining positive EBITDA in at least one of two consecutive calendar quarters, - for each calendar quarter meeting the condition of: net debt /EBITDA not exceeding 3.5.

Pursuant to the agreement, the ING Bank Śląski S.A. may refuse further financing or may terminate the agreement upon occurrence of circumstances that in justified opinion of the bank shall adversely impact Customer’s ability to perform his obligations under the agreement. Breach of terms and conditions of the Bond Issue Program or terms and conditions of a credit agreement with another bank meets the criteria of the above definition.




Under the financing agreements concluded with the Deutsche Bank Polska S.A. the Company has undertaken to observe the following covenants calculated based on consolidated data, among others: - maintaining the value of its equity at not less than 200 000, - maintaining positive EBITDA in every quarter of the calendar year, - for each calendar quarter meeting the condition of: net financial debt /EBITDA below 3.5.

Pursuant to the agreement, the Deutsche Bank Polska S.A. may refuse further financing or may terminate the agreement upon occurrence of circumstances that in justified opinion of the bank shall adversely impact credit Customer’s ability to perform his obligations under the agreement. Breach of terms and conditions of the Bond Issue Program or terms and conditions of a credit agreement with another bank meets the criteria of the above definition. The lines of credit have been granted on market terms and conditions that do not differ from those prevailing in case of such agreements.

29. Bond liabilities and other financial liabilities

As of:

As of:

Sep. 30, 2016

Sep. 30, 2015

Audited

Audited



39 793

Financial lease liabilities -

98

39 885

39 891


Bond liabilities 486

499


1 271

581

1 770

Bond and financial lease liabilities are valued as of their initial recognition at fair value less transaction costs. As of the balance sheet date valuation was made using depreciated cost with the effective interest rate method (in adjusted purchase price) and divided as per maturity dates of generated flows into short-term and long-term parts.

Bond liabilities

The Bond Issue Program was approved on November 28, 2014 by the Extraordinary General Meeting of the Parent company. The maximum value of the Program is 100 000. Under the Bond Issue Program, on December 19, 2014 the Company issued four thousand bonds in the 1/2014 series with face value of 10, 40 000 in total. Redemption date of the new issue is December 19, 2017. The bonds are bearing interest at a floating WIBOR rate for 6-month deposits in PLN plus margin of 2.6%. Bond issue was executed by mBank S.A. under the binding bond issue program agreement. Based on the resolution by BondSpot S.A. the company bonds of series 1/2014 issued on December 19, 2014 for the amount of 40 000 have been introduced to trading in the alternative trading system on Catalyst on February 23, 2015.




Under the Bond Issue Program the Company has undertaken to observe the following covenants calculated based on consolidated data, among others: - maintaining the value of its equity at not less than 200 000, - for each calendar quarter meeting the condition of: net financial debt /EBITDA not exceeding 3.5.

The terms and conditions of the Bond Issue Program define Covenant Breaches occurrence of which shall result in the possibility of Bond Holder notifying the Issuer that the Bond is subject to immediate redemption. In particular the Covenant Breaches are:

- Breach of the Financial Indicators described above, - Breach of terms and conditions of Financial Debt agreements (whereas Financial Debt consists in particular of bank credits and loans).

As of September 30, 2016 the fair value of the Bonds based on Catalyst market listing as of the day of the report is 100% of the face value.

Financial lease liabilities:

Minimum lease

payments

Future financial expenses under financial lease

payments

Present value of lease

payments

As of:

Sep. 30, 2016

Within 1 year

100

(5)

95

Within 1 to 5 years

-

-

-

100

(5)

95

As of:

Sep. 30, 2015

Within 1 year

1 381

(110)

1 271

Within 1 to 5 years

100

(2)

98

1 481

(112)

1 369

Under the financial lease agreements, the Company uses computer hardware, software and means of transportation. The Company concludes lease agreements for terms of 3 to 5 years. Such agreements are secured with blank promissory notes and, in certain cases, with pledges on fixed assets. Lease installments are affected not only by foreign exchange rates, but also by change to the applicable interest rate constituting an element used in calculation of lease installments. Financial lease agreements have no special restrictions and additional terms and conditions. Upon lease period, the Company may purchase the leased items for the amounts specified in the agreements.




30. Provisions

As of: As of:

Sep. 30, 2016 Sep. 30, 2015

Audited Audited

Long-term

Provisions for potential claims in litigations in progress 1 000

4 300

Provisions for warranty repairs 3 702 3 620

Provisions for retirement and similar benefits 201 143

4 903

8 063

Short-term

Provisions for potential claims in litigations in progress 720

175

Provisions for warranty repairs 3 345 3 786

Provisions for retirement and similar benefits 177 237

Provisions for penalties 508 697

4 750

4 895

Oct. 1, 2015 - Sep. 30, 2016 As of

Oct. 1, 2015 Established Used up Released As of

Sep. 30, 2016

Provisions for potential claims in litigations in progress 4 475 616 (3 300) (71) 1 720

Provision for warranty repairs 7 406 11 076 (5 939) (5 496) 7 047

Provision for retirement and similar benefits 380 - - (2) 378

Provision for penalties 697 298 - (487) 508

Total 12 958 11 990 (9 239) (6 056) 9 653

of which short-term 4 895

4 750

of which long-term 8 063

4 903

Oct. 1, 2014 - Sep. 30, 2015 As of 01.10.2014 Established Used up Released

As of Sep. 30, 2015

Provisions for potential claims in litigations in progress 7 627 3 404 (1 047) (5 509) 4 475

Provision for warranty repairs 6 512 8 140 (4 205) (3 041) 7 406

Provision for retirement and similar benefits 380 - - - 380

Provision for penalties 1 881 1 330 (100) (2 414) 697

Total 16 400 12 874 (5 352) (10 964) 12 958

of which short-term 5 351 - - - 4 895

of which long-term 11 049 - - - 8 063

Provision for warranty services

The Company establishes provisions for the expected warranty service expenses and costs of warranty repairs. The assumptions for the estimates for warranty services and repairs were determined based on current levels of sales and up to date information about the costs of warranties incurred in the past periods taking into account the client segments and their specifics.




31. Trade liabilities and other liabilities

As of:

As of:

Sep. 30, 2016

Sep. 30, 2015

Audited

Audited

Long-term

Trade liabilities and other liabilities:

- Trade liabilities 9 742

-

9 742

-

Short-term

Trade liabilities and other liabilities:

- Trade liabilities 102 690

52 895

a) from associates 12 149 1 480

b) from other entities 90 541 51 415

Liabilities for taxes, duties, social security and other contributions 19 581

9 325

Remuneration liabilities 7 360

8 471

Other liabilities 275

313

129 906

71 004

Accrued liabilities for:

- costs of completed contracts 12 335

29 071

- reviews and audits of financial statements 105

105

- bonuses, awards and commissions 1 909

2 281

- accrued rents 1 883

1 791

- unutilized holidays and overtime 1 719

1 873

- severance pay, non-compete compensation 72

1 603

- other current expenses 185

278

18 208

37 002

148 114

108 006

157 856

108 006

As of:

As of:

Sep. 30, 2016

Sep. 30, 2015

Audited

Audited

Short-term trade liabilities

Not overdue, due within:

Up to 1 month 28 976 25 566

From 1 to 6 months 25 912 3 935

Over 6 months 1 230 320

56 117

29 821

Overdue in arrears for:

Up to 1 month 14 155 9 471

From 1 to 6 months 24 190 2 218

Over 6 months 8 228 11 385

46 573

23 074

102 690

52 895

The fair value of trade and other liabilities does not differ significantly from their balance sheet value. Overdue trade liabilities are in particular made of a liability towards a supplier subject to claims described in note 38 in an amount of 12 844 and liabilities towards subsidiaries in amount of 7 700.




32. Deferred income

As of:

As of:

Sep. 30, 2016

Sep. 30, 2015

-

Short-term

- unrealized sales 53 039

4 141

- revenues from work items resulting out of long-term contracts 2 771

1 390

55 810

5 531

33. Associates and transactions with associates

The equity relations as of September 30, 2016:

#. Company name Registered seat

Nature of business Share of equity

Sep. 30, 2016

Share of equity Sep.

30, 2015

1 Geomar S.A. 1) Szczecin, Poland

Spatial information, geodesy and cartography. 86.43 86.43

2 ICD Comp Consulting

Sp. z o.o. 2)

Warsaw, Poland

Software and services for the banking sector. - 100.00

3 Sygnity Business Solutions S.A. 3)

Zielona Góra, Poland

Software and IT services. 98.33 98.33

4 UAB Baltijos Kompiuteriu Centras

Vilnius, Lithuania

Computerization services to the industrial, trade and public administration sectors.

100.00 100.00

5 Sygnity International Sp. z o.o.

Warsaw, Poland

Software and hardware sales on international markets. 100.00 100.00

6 Enhandel Sp. z o.o. Warsaw, Poland

Electricity trading. 100.00 100.00

7 Budimex S.A. Sygnity S.A. Sp. j.

Warsaw, Poland

Special purpose vehicle for investment project. 33.00 33.00

8 Emtal Sp. z o.o. Gdańsk, Poland Supplier and integrator of systems for public transport. 50.00 50.00

1) After the balance sheet date the Company has increased its share of equity in Geomar S.A. to 100% (see also note 39).

2) On February 26, 2013 the General Meeting of Partners adopted a resolution on dissolution and liquidation of the company, setting the liquidation process commencement date as February 26, 2013. The Company decided not to consolidate the company due to the fact that its financial data is insignificant from the perspective of the consolidated financial statements. On August 17, 2016 the Company was stricken off the National Court Register.

3) On November 5, 2015 a change of company name from Max Elektronik S.A. to Sygnity Business Solutions S.A. was registered

In the fiscal year ended September 30, 2016 the Company did not enter into any atypical transactions with its associates on terms and conditions differing from those commonly used for similar types of agreements.

Total amounts of transactions between the company and the associates entered into in the fiscal year commended October 1, 2015 and ended September 30, 2016 are presented below.




Associate

Sales of goods

and services

Purchases of goods

and services

Trade and

other receivables

Loans

granted

Trade and

other liabilities

Financial

liabilities

ICD CompConsulting Sp. z o.o.

2015/16

- -

- - - -

2014/15

19

-

-

-

-

-


2015/16

923

15 300 21 -

12 185 7 500

2014/15

589

3 343

27

-

1 319

9 000

UAB Baltijos Kompiuteriu Centras

2015/16

81

39

69

904 - -

2014/15

327

-

74

904

-

-

Geomar S.A. 2015/16

18

85

20

1 500 -

-

2014/15

17

-

16

-

137

-

Sygnity International Sp. z o.o.

2015/16

782

172

55 -

19 -

2014/15

532

220

48

-

24

-

Total 2015/16

1 804

15 596

165

2 404

12 204

7 500

2014/15

1 484

3 563

165

904

1 480

9 000

34. Compensation of the top management

Period:

Period:

from Oct. 1, 2015

from Oct. 1, 2014

to Sep. 30, 2016

to Sep. 30, 2015

Audited

Audited

Management Board of Sygnity S.A. 5 141

4 770

Short-term employee benefits

5 141

4 770

Supervisory Board of Sygnity S.A. 278

278

Short-term employee benefits 278

278

The above table does not include the payments of annual bonuses for which provisions have been established in the fiscal year 2016 in the amount of 306 (in fiscal year 2015 no such provision has been established).




35. Structure of employment

The average employment at the Company in the fiscal year commenced October 1, Oct. 1, 2015 and ended September 30, 2016 as well as in previous year was as follows:

Top management 4

4

Administration 113

136

Sales department 77

63

Production 677

901

Total 871

1 104

36. Contingent liabilities

Guarantees, bills of exchange, sureties

As of:

As of:

Sep. 30, 2016

Sep. 30, 2015

Audited

Audited

Contingent liabilities

Liabilities out of issued guarantees including: 52 671

52 807

- performance bonds and retention bonds 49 598

43 635

- tender bonds 1 663

4 245

- payment guarantees 1 410

4 927

Sureties 410

616

53 081

53 423

As of September 30, 2016 contingent liabilities of the Company resulted for the most from bank and insurance guarantees issued by the Company, majority of which (94%) concerned agreement (contract) performance bonds and retention bonds. The purpose of a performance bond is to secure the claims arising out of non-performance of improper performance of contract.

Tax office proceedings

On November 25, 2015 the Company received the decision by the Director of the Tax Audits Office of November 20, 2015 concerning the tax liability under Corporate Income Tax for 2008. On November 27, 2015 the Company settled the liability resulting out of this decision including the accrued interest up to the date of payment in total amount of 3 211. As of September 30, 2015 the Company has established the relevant provision in amount of 3 300. At present the proceedings at the WSA (District Administrative Court) in this case are suspended.

Disputes

The Company establishes provisions for potentially negative outcomes of litigations, provided that outflow of funds to which economic benefits are related is likely.

As of September 30, 2016 disputes in litigation mainly concerned the claims arising out of trade contracts with trading partners and employee claims. As of September 30, 2016 the likeliness of outflow of funds resulting from litigations in progress, for which no provisions are established, was insignificant in the opinion of the Management Board.




37. Seasonal or periodical nature of operations

As a significant share of revenues comes from clients in the public sector and from enterprises realizing their IT budgets in the second half of the calendar year, there is a significant concentration of revenues and realization of positive financial results of the Company in Q4 of the calendar year.

38. Claims and disputes

In the reporting period presented there were no proceedings in progress before the court, competent arbitration authority or public administration body relating to the liabilities or receivables of the issuer or its subsidiary the value of which would be equivalent to at least 10% of Issuer’s equity. The total value of proceedings that Companies of the Sygnity Capital Group are a party to does not exceed 10% of Issuer’s equity both in case of liabilities as well as receivables. At the same time the Company wishes to inform that after the balance sheet date the Company received a claim in form of writ of payment in proceedings commenced by one of the suppliers who in Company’s opinion is unrightfully demanding the payment of 16 856 for delivery of licenses, maintenance of licenses and for services rendered. Upon request of this same supplier another payment order was issued for amount of 7 564 that in the opinion of the Company also does not merit recognition. In case of both receivables the Company has appealed both writs in their entirety. In principle the disagreement between the parties in assessment of the claims raised concerns the interpretation of the agreement binding the parties. The Company stands by its opinion that the receivables are not yet due and in addition, in case of one of them, raises objections as to the locus standi of the claimant. The value of the first claim in amount of 5 663 and of the second one in total are recognized in the costs of the fiscal year. The value of the first dispute in amount of 11 194 is not included in the costs of the fiscal year as it concerns maintenance of a product that is not completed.

39. Events after the reporting period

There were no events occurring after the reporting period that would have significant influence on these financial statements. However, some information that merits attention, include:

After the balance sheet date the Company, as a result of transactions settled by November 7, 2016 has increased its share of equity of its Geomar S.A. subsidiary from 86.43% held on the balance sheet date to 100% for the amount of 647.

On December 15, 2016 the Company has received a request from the Tax Audits Office to provide clarifications and submit documents concerning transactions made in the fiscal year 2013. As of December 16, 2016 the Company is in the process of assembling the required documents.

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