The Center for the Study of Democracy (hereafter "CSD" or the "Center") is an independent not for profit, public policy research organisation founded in 1989 and registered in 1990.

Its main activities are concentrated in the organisation and operation of programs including economic, law reform, sociological and information resources aiming at speeding up the market oriented development of the Bulgarian economy and democratisation of the Bulgarian society. The programs are financed by West European and American not for profit organisations, governmental institutions and private companies such as, Center for International Private Enterprise (U.S.A.), Commission of the European Communities, Council of Europe, Hanns Seidel Foundation (Germany), US Agency for International Development and World Bank.

Other activities include publishing of materials and distribution.

The accompanying financial statements were prepared in accordance with International Accounting Standards, issued by the International Accounting Standards Committee.

Reporting currency

Due to the local statutory regulations, CSD maintains its statutory accounting records in Leva. However, management believes that the functional currency of the Center is the US Dollar, for the following reasons:

• The Center is funded internationally in US Dollars and ECUs;
• Significant amounts of the assets and liabilities of the Bank are denominated in US Dollars.

Because the functional currency is US dollar, the reporting currency used in the financial statements in the US dollar.

The Center maintains US dollar listings for debtors, creditors and fixed assets, and therefore is able to prepare its financial statements as if the accounting records had been initially recorded in US dollars. The conversion of the year-end balances from Leva to US dollars is made as described below.

Monetary items have been converted to US Dollars at the Bulgarian National Bank exchange rate as of the year end. The exchange rate as of 31 December 1997 was Leva 1,776 = USD 1 (31 December 1996: Leva 487 = USD 1). Non-monetary items have been converted into US Dollars at the historical exchange rates prevailing on the date transactions were performed. The statement of income has been converted into US Dollars at the average exchange rate for each month except as applied to such non-monetary items. The difference arising as a result of this method of conversion is recognised in the income statement.

The Center's revenue arises from its activities relating to projects financed by third parties. Revenue is recognised based upon stipulations and duration of the contract with the organisation requesting specific projects. Revenue can be recognised upon completion of a stage in the project or upon completion of the project and submission of the final report.

At the end of each year a review of each project is performed. Amounts received in excess of the estimated work performed are deferred and disclosed in the balance sheet as part of deferred revenue. The estimated value of work performed in excess of the amounts received and in anticipation of further fending are recorded as deferred expenses thus matching concept is being observed.

Revenue earned from the act of publishing and distributing of books is recognised at the point of sale.

The CSD is a not for profit organisation and is exempt from corporate taxation and VAT on its not for profit activities.

Fixed assets are stated at cost less accumulated depreciation. Depreciation is provided using the straight line method over the estimated useful lives of the assets, as follows:

The Center has interests in two broadcasting organisations. Due to the size of the broadcasting organisations, the results and net assets have not been consolidated and additionally to separate non-profit from other activities. There is no distribution of profit from these activities.

Cash and cash equivalents consist of cash and amounts due from banks with an original maturity of less than three months.

Deferred expenses represent expenses incurred during 1997 related to projects for which funds have been received after year end.

	1997 USD	1996 USD
Net foreign exchange gains/(losses)	(40,711)	(187,695)
Interest income	22,132	9,691
Other income (expense)	(5,581)	(6,871)
Total	(24,160)	(184,875)

As explained in note 1(b), the conversion of Leva to US Dollars results in foreign exchange rate differences which are recognised in the income and expenditure account. The foreign exchange rate difference in 1996 is only due to the exchange rate translation of the 1996 financial statements into US Dollars.

	% holding	1997 USD	1996 USD
Radio Vitosha	50	9,268	9,268
Provision for writedown		(9,268)	(9,268)
Vitosha Agency EOOD	100	882	882
Total		882	882

Radio Vitosha is a joint-venture with Hotel Vitosha (Kempinski/Zografski) and has not operated since 1995.

The Center for the Study of Democracy has had transactions with the Applied Research and Communications Fund (ARC) during 1997. The two have different members of the Board of Directors, different operational employees but occupy the same premises. Amounts receivable from and payable to the ARC as at 31 December 1997 are Nil.