SECOND SCIENCE AND TECHNOLOGY PROJECT International Bank for Reconstruction and Development Loan no. 8258-HR PROJECT FINANCIAL STATEMENTS AND SPECIAL ACCOUNT STATEMENT TOGETHER WITH INDEPENDENT AUDITOR'S REPORTS FOR THE YEAR ENDED 31 December 2017. CONTENTS Independent Auditor's Report 1-2 Statement of Assets and Liabilities 3 Statement of Sources and Uses of Funds by Project Categories 4 - 5 Statement of Uses of Funds by Project Activities 6-7 Summary Reports and Statement of Expenditure 8 Designated Account Statement 9 Notes to the Project Financial Statements 10 - 16 Management Letter 17- 18 Checklist 19 SECOND SCIENCE AND TECHNOLOGY PROJECT International Bank for Reconstruction and Development Loan no. 8258-HR MOORE STEPHENS UIDIT AUDIT ZAGREB REVIZI;SKE USLUG ZAGREB Audit d o o za revizijske usluge Radnidka cesta 54 10000 Zagreb HRVATSKA Tel:+385 (0) 13667 994 Fax: 385 (0) 1 3667 997 E-mai.audit-revizija@audit hr INDEPENDENT AUDITOR'S REPORT 1. We have audited the attached Financial Statements for the year ended 31 December 2017 of the SECOND SCIENCE AND TECHNOLOGY PROJECT (hereinafter: the "Project) financed under the INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT LOAN No. 8258 - HR, which comprise the Statement of Assets and Liabilities, the Statement of Sources and Uses of Funds, the Statement of Uses of Funds by Project Activities, Statement of Expenditure (SOE) and Designated Account Statement (all together, the "Project Financial Statements"). 2. The Project Financial Statements are the responsibility of the Project's management. Our responsibility is to express an opinion on the Project Financial Statements based on our audit. 3. We conducted our audit in accordance with International Standards on Auditing issued by the International Auditing and Assurance Standards Board of the International Federation of Accountants. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall statement presentation. We believe our audit provides a reasonable basis for our opinion. The Project management's policy is to prepare the accompanying financial statements on the cash receipts and payments basis in conformity with International Public Sector Accounting Standards issued by the Public Sector Committee of the International Federation of Accountants. On this basis, cash receipts are recognized when received and cash expenditures are recognized when paid rather than when incurred. 4. In our opinion, Financial Statements of the SECOND SCIENCE AND TECHNOLOGY PROJECT present fairly in all material respects the cash receipts and payments of the Project during the year ended 31 December 2017, in accordance with International Public Sector Accounting Standards issued by the Public Sector Committee of the International Federation of Accountants. n tnd v6in onomhe uk f principal cities throughout the world MOORE STEPHENS AUDIT ZAGREB REVIZIJKE USLUGE, ZAGREB 5. With respect to Summary Statement of Expenditure ("SOE") - Application for Loan Withdrawal: (a) adequate supporting documentation has been maintained to support claims for reimbursements of expenditures incurred; (b) the Summary Statement of Expenditure has been reconciled to the other Project Financial Statements and (c) the expenditure disbursements underlying the Summary Statement of Expenditure have been made in accordance with the purposes intended in the Loan Agreement No. 8258 - HR Zagreb, 31. May 2018. Audit d.o.o. Radnicka cesta 54 10000 Zagreb Darko Kari6 director, certified auditor 2 An indepeIhnent neather it ofu ; nde - membra in principal cities throughout the world STATEMENT OF ASSETS AND LIABILITIES For the year ended 31 December 2017 31 December 31 December 2017. 2016. EUR EUR Assets Project expenditures 18.644.784 13.681.661 Designated Account 710.864 1.142.656 TOTAL 19.355.648 14.824.318 Liabilities IBRD loan No. 8258 - HR 15.791.454 12.062.533 Government funds 3.564.194 2.761.784 TOTAL 19.355.648 14.824.317 First Project expenses were created in 2012 based on the Advance Agreement signed on 30 April 2012 between IBRD and Republic of Croatia. 3 SECOND SCIENCE AND TECHNOLOGY PROJECT International Bank for Reconstruction and Development Loan no. 8258-HR STATEMENT OF SOURCES AND USES OF FUNDS BY PROJECT CATEGORIES For the year ended 31 December 2017 STATEMENT OF SOURCES AND USES OF IBRD LOAN FUNDS EUR Cumulative 31 December 2017. 2012. -2016. 2017. Sources of Funding IBRD Loan Funds 4.160.713 10.919.877 15.080.590 Total 4.160.713 10.919.877 15.080.590 Project expenditures by loan categories Consulting services 1.555.741 1.130.734 2.686.475 Sub-financing 2.500.565 8.539.078 11.039.643 Operating costs 89.783 108.050 197.833 Training 14.624 54.041 68.665 Fee and advance for the preparation on of the Project 0 1.087.974 1.087.974 TOTAL 4.160.713 10.919.877 15.080.590 STATEMENT OF SOURCES AND USES OF GOVERNMENT FUNDS EUR Cumulative 31 December 2017. 2012. - 2016. 2017. Sources of Funding Government funds 802.410 2.761.784 3.564.194 Total 802.410 2.761.784 3.564.194 Project expenditures by loan categories Consulting services 0 0 0 Sub-financing 798.449 2.751.052 3.549.501 Operating costs 3.961 8.785 12.746 Training 0 0 0 Fee and advance for the preparation on of the Project 0 1.947 1.947 TOTAL 802.410 2.761.784 3.564.194 4 SECOND SCIENCE AND TECHNOLOGY PROJECT International Bank for Reconstruction and Development Loan no. 8258-HR STATEMENT OF SOURCES AND USES OF FUNDS BY PROJECT CATEGORIES For the year ended 31 December 2017 STATEMENT OF SOURCES AND USES OF FUNDS- ALL SOURCES EUR Cumulative 31 December 2017. 2012. -2016. 2017. Sources of Funding IBRD Loan Funds 4.160.713 10.919.877 15.080.590 Government Funds 802.410 2.761.784 3.564.194 Total 4.963.122 13.681.661 18.644.783 Project expenditures by loan categories Consulting services 1.555.741 1.130.734 2.686.475 Sub-financing 3.299.014 11.290.130 14.589.144 Operating costs 93.744 116.835 210.579 Training 14.624 54.041 68.665 Fee and advance for the preparation on of the Project 0 1.089.921 1.089.921 TOTAL EXPENDITURE 4.963.123 13.681.661 18.644.784 5 SECOND SCIENCE AND TECHNOLOGY PROJECT International Bank for Reconstruction and Development Loan no. 8258-HR STATEMENT ON USES OF FOUNDS BY PROJECT ACTIVITIES For the year ended 31 December 2017 STATEMENT OF SOURCES AND USES OF IBRD LOAN FUNDS Cumulative 31 December Project components and subcomponents 2017. 2012. - 2016. 2017. EUR EUR EUR A Capacity Building for Absorption of EU Funds Al General Technical Assistance 0 162.662 162.662 A2 Tech, Assistance for Project Applications Preparation 1.269.654 135.864 1.405.518 A3 Project Management Support 390.495 994.299 1.384.794 Total A 1.660.149 1.292.825 2.952.974 B Research and Innovation Programs B1 HAMAG-BICRO Programs 1.897.483 5.886.904 7.784.387 B2 CSF / UKF Programs 603.081 2.652.174 3.255.255 Total B 2.500.564 8.539.078 11.039.642 C PPA Expenditure 0 1.029.073 1.029.073 D Fees 0 58.901 58.901 TOTAL EXPENDITURE 4.160.713 10.919.877 15.080.590 STATEMENT OF SOURCES AND USES OF GOVERNMENT FUNDS Cumulative 31 December Project components and subcomponents 2017. 2012. - 2016. 2017. EUR EUR EUR A Capacity Building for Absorption of EU Funds Al General Technical Assistance 0 0 0 A2 Tech, Assistance for Project Applications Preparation 0 0 0 A3 Project Management Support 3.961 8.785 12.746 Total A 3.961 8.785 12.746 B Research and Innovation Programs B1 HAMAG-BICRO Programs 553.073 1.669.036 2.222.109 B2 CSF / UKF Programs 245.376 1.082.016 1.327.392 Total B 798.449 2.751.052 3.549.501 C PPA Expenditure 0 1.947 1.947 D Fees 0 0 0 TOTAL EXPENDITURE 802.410 2.761.784 3.564.194 6 SECOND SCIENCE AND TECHNOLOGY PROJECT International Bank for Reconstruction and Development Loan no. 8258-HR STATEMENT ON USES OF FOUNDS BY PROJECT ACTIVITIES For the year ended 31 December 2017 STATEMENT OF SOURCES AND USES - ALL SOURCES Cumulative 31.December Project components and subcomponents 2017. 2012. - 2016. 2017. EUR EUR EUR A Capacity Building for Absorption of EU Funds Al General Technical Assistance 0 162.662 162.662 A2 Tech, Assistance for Project Applications Preparation 1.269.654 135.864 1.405.518 A3 Project Management Support 394.456 1.003.084 1.397.540 Total A 1.664.110 1.301.610 2.965.720 B Research and Innovation Programs 81 HAMAG-BICRO Programs 2.450.556 7.555.940 10.006.496 B2 CSF / UKF Programs 848.457 3.734.190 4.582.647 Total B 3.299.013 11.290.130 14.589.143 C PPA Expenditure 0 1.031.020 1.031.020 D Fees 0 58.901 58.901 TOTAL EXPENDITURE 4.963.123 13.681.661 18.644.784 7 SECOND SCIENCE AND TECHNOLOGY PROJECT International Bank for Reconstruction and Development Loan no. 8258-HR Summary of statements of expenditures ("SOEs") for the year ended 31 December 2017 EUR Consultant Operating Application No, and date services Sub-financing costs Training Total Total SOE as at 31 Dec 2013 350.302 1.687.061 65.502 4.085 2.106.950 SOE 003 - 10 Mar 2014 70.075 661.565 11.570 13.188 756.398 SOE 004 - 9 Jul 2014 0 752.090 3.269 2.143 757.502 SOE 005 - 1 Dec 2014 268.760 258.135 (3.098) 5.341 529.138 Total loan from 1 Jan to 31 Dec 2014 338.835 1.671.790 11.741 20.672 2.043.038 Total SOE as at 31 Dec 2014. 689.137 3.358.851 77.243 24.757 4.149.988 SOE 006 - 29 May 2015 135.626 778.794 2.893 8.374 925.687 SOE 007 - 22 Dec 2015 184.771 287.036 50.122 9.618 531.547 Total loan from 1 Jan to 31 Dec 2015 320.397 1.065.830 53.015 17.992 1.457.234 Total SOE as at 31 Dec 2015 1.009.534 4.424.681 130.258 42.749 5.607.222 SOE 008 - 4 May 2016 147.088 893.790 14.161 11.302 1.066.341 SOE 010 - 30 Jun 2016 44.451 1,107.176 18.354 (298) 1.169.683 SOE 011 - 12 Jul 2016 55.374 1.305.189 4.342 1.290 1.366.195 SOE 009 - 21 Oct 2016 68.993 1.033.357 2.732 4.882 1.109.964 Total loan from 1 Jan to 31 Dec 2016 315.907 4.339.512 39.589 17.175 4.712.183 Total SOE as at 31 Dec 2016 1.325.440 8.764.193 169.847 59.925 10.319.405 SOE 013 - 7 Mar 2017 263.553 1.101.049 4.899 (365) 1.369.136 SOE 014 - 12 Jun 2017 216.431 728.240 61.776 10.600 1.017.047 SOE 015 - 24 Nov 2017 523.095 794.586 21.181 3.876 1.342.738 Total loan from 1 Jan to 31 Dec 2017 1.003.079 2.623.875 87.86 14.111 3.728.921 Total SOE as at 31 Dec 2017 2.328.419 11.388.068 257.703 74.036 14.048.326 8 SECOND SCIENCE AND TECHNOLOGY PROJECT International Bank for Reconstruction and Development Loan no. 8258-HR Designated Account Statement for the year ended 31 December 2017 (EUR) Account No. HR8524840081300159465 Depository Bank Raiffeisenbank Austria d.d. Zagreb Address Magazinska cesta 69, Zagreb Loan IBRD Loan No. 8258 - HR From the beginning For the year of the Project EUR EUR Opening balance at the beginning of the period 1.142.656 0 Add: PPA Payments 0 1.037.974 IBRD Payments 3.728.922 14.557.403 Funds available during the period 4.871.578 15.748.327 Less: Payments for eligible expenditures during the period (4.160.713) (15.080.589) (4.160.713) (15.037.462) Closing balance at the end of the period 710.865 710.865 9 SECOND SCIENCE AND TECHNOLOGY PROJECT International Bank for Reconstruction and Development Loan no. 8258-HR NOTES TO THE PROJECT FINANCIAL STATEMENTS for the year ended 31 December 2017 1. GENERAL INFORMATION International Bank for Reconstruction and Development ("IBRD") and the Republic of Croatia ("Government") signed an Advance Agreement for Preparation of Proposed second Science and Technology Project on 16 February 2012 and 30 April 2012, respectively, to facilitate the preparation of Second Science and Technology Project ("Project" or "STP II"), On 22 May 2013, IBRD and the Republic of Croatia signed a Loan agreement - Second Science and Technology Project (Loan number 8258-HR), worth EUR 20.000.000, which entered into force on 19. July 2013. The objectives of the Project are to support absorption of EU Funds in the research and innovation sector by capacitating selected public sector organizations and stimulating the demand for those funds from the business and scientific communities. Main Project headings can be summarized as follows: Part A: Capacity Building for Absorption of EU Funds 1. Support to the selected public sector organizations in the research and innovation sector to improve their capacity to qualify for and manage EU Funds in the area of research and innovation through Technical Assistance and Training; 2. Support to selected public sector organizations in the research and innovation sector for the development of applications for research and development grant schemes and infrastructure projects for EU Funds; 3. Support to selected public sector organization for Project management and implementation, through financing of Operating Costs, Training and audit for the Project. Selected public sector organizations include the Ministry of Science and Education ("MSE"), Business Innovation Croatian Agency BICRO ("BICRO") and Unity through Knowledge Fund ("UKF"), MSE has overall responsibility of the Project and for strategic guidance on Project implementation. Part B: Research and Innovation Programs 1. Support for research and innovation programs through the provision of Sub- financing, through BICRO, to Beneficiaries for Sub-projects in accordance with the Operational Procedures; 2. Support for strengthening human resources, research excellence and research commercialization through the provision of Sub-financing for collaborative research activities with the Croatian Diaspora and leading international scientific institutions under the Research Cooperability Program; for young scientists for implementation of the Young Researchers and Professionals Program; and for mobility of scientists in order to enhance the flow of knowledge and skills in the Republic of Croatia under the Connectivity Program; 10 SECOND SCIENCE AND TECHNOLOGY PROJECT International Bank for Reconstruction and Development Loan no. 8258-HR BILJESKE UZ FINANCIJSKE IZVJESTAJE PROJEKTA za godinu koja je završila 31. prosinca 2017. (nastavak) 3. Podrška jaanju inovacijskih aktivnosti kroz osiguranje podfinanciranja kroz MZO za korisnike potprojekata, ukljuujuÄi za ulaganja i aktivnosti u komercijalizaciji istraživanja te zaštiti intelektualnog vlasnitva nad rezultatima istraživanja u okviru Programa podrške Uredu za prijenos tehnologije. BICRO i UKF su bili odgovorni za podfinanciranje korisnika ukljuöujudi odabir podprojekata za financiranje iz sredstava zajma i sredstava iz PPA prethodni pregled, ocjenjivanje i nadzor, istovremeno štitedi svoje interese i interese IBRD. U razdoblju od 10. srpnja 2012. do 31. prosinca 2017. prijašnji BICRO, odnosno HAMAG-BICRO je podfinancirao sljedede programe koji se odnose na STP II: - PROGRAM l - Provjera inovativnog koncepta ("PoC"): o PoC Private - podupire poduzetnike pretkomercijalne aktivnosti u pobetnoj fazi razvoja novih proizvoda, usluga i tehnoloških procesa; o PoC Public - dizajniran da podupire znanstvenike i istraživaöe s hrvatskih sveubilišta i instituta i pomogne pretvaranju ideja u globalne poslovne prilike te premošéivanju jaza izmedu ideja i ranih znanstvenih rezultata i komercijalnog potencijala; - PROGRAM 1l Razvoj društava utemeljenih na znanju - RAZUM - program usmjeren razvoju poduzeóa novih tehnologija i akademskom poduzetništvu; - PROGRAM li1 - Programom za istraživanje i razvoj - IRCRO potibu se mala i srednja poduzeéa na suradnju sa znanstveno istraživakim institucijama na pokretanju istraživabko-razvojnih aktivnosti. UKF potibe znanstvena istraživanja koja stvaraju nova znanja i pokazuju snagu za natjecanje na medunarodnoj razini podupire projekte koji stvaraju nove vrijednosti u hrvatskom gospodarstvu i koji pomažu razvoj istraživabke infrastrukture u Hrvatskoj. Tijekom razdoblja od 10. srpnja 2012. do 31. prosinca 2017. UKF je podfinacirao sljedede programe: - Moja prva suradnja - Potpora preko granice - podupire suradniöke projekte srednje veiöine u Hrvatskoj uz sudjelovanje znanstveno-istraživabkih strubnjaka hrvatske dijaspore. Upravljanje projektom Jedinica za provedbu Projekta ("JPP") osnovana je u pri Ministarstvu znanosti i obrazovanja i zadužena je za provodenje Projekta. Restrukturiranje projekta MZO je inicirao restrukturiranje STP || 5. studenog 2014. zbog statusnih promjena korisnika STP- a 11: DRUGI PROJEKT TEHNOLOGIJSKOG RAZVOJA Zajam Medunarodne banke za obnovu i razvoj br. 8258-HR NOTES TO THE PROJECT FINANCIAL STATEMENTS for the year ended 31 December 2017 (continued) 1. Merger of BICRO and Croatian Agency for Small Entrepreneurship and Investment ("HAMAG") into new agency: Croatian Agency for Small Business, Innovation and Investment ("HAMAG-BICRO") on 8 May 2014 and 2. Transfer of UKF from MSE to Croatian Science Foundation ("CSF"). Transfer Agreement between MSE and CSF was signed on 19 February 2014. Due to the above mentioned changes, at the beginning of May 2014, the financing of Component B.1. BICRO Programs were suspended until the completion of restructuring and, consequently, BICRO's special account was closed in June 2014. Since February 2014, the financing of UKF programs within the Component B.2 included 18 existing sub-projects contracted prior to signing of the transfer agreement between MSE and CSF and which remained under authority of MSE until the restructuring completion. The restructuring was ended on 25 February 2015 when Amendment 1 to the Loan agreement was signed. Additional agreements for inclusion of HAMAG-BICRO and Croatian Science Foundation in STPII were signed on 13 April 2015 for HAMAG- BICRO and 7 April 2015 for Croatian Science Foundation. Changes in restructuring also includes: 1. MSE transferred to HAMAG-BICRO activity to support centres for technology transfer of EUR 1.500.000. 2. Funds for activity Component I conducted by HAMAG-BICRO are increased by EUR 1.012.506. The second restructuring of STP II was initiated based on the Conclusions of the Government of the Republic of Croatia as of 4 May 2016, according to which the Ministry of Science and Education is in charge, related to the Second Science and Technology Project, in cooperation with the International Bank for Reconstruction and Development, to agree on the restructuring of the Project and to extend the current closing date of the loan. The reasons for the second restructuring of STP II were conditioned by the first restructuring of the Project, by ensuring the sustainability of HAMAG-BICRO and UKF's R&D programs through funding from other sources, and the quality preparation of four R&D infrastructure projects application for funding via ERDF within the Operational Program "Competitiveness and Cohesion 2014-2020". In view of the importance of the Project forthe Republic of Croatia and the development of its scientific and R&D capacity in the public and private sectors, Minister of Science and Education sent to the Minister of Finance on 24 November 2016 a letter - Restructuring Request for the Second Project on Technological Development, which includes the following: 12 SECOND SCIENCE AND TECHNOLOGY PROJECT International Bank for Reconstruction and Development Loan no. 8258-HR NOTES TO THE PROJECT FINANCIAL STATEMENTS for the year ended 31 December 2017 (continued) a) extension of the STP II Project for 21 months until March 31, 2019; b) reallocation of funds from sub-component B1.4 (Support Programme Technology Transfer Office, TTO) to the sub-component B2.1 (UKF program); c) minor changes to the STPII Key Performance Indicators. The Ministry of Finance sent an official Request for the Project Restructuring to the World Bank on 28 December 2016. Second restructuring of the Project resulted with signing of the Amendment 2 to the Loan agreement on 13 April 2017. Based on this Amendment 2 redistribution of founds between categories of eligible expenditure was made and presented in the following table: Amount of the Loan Percentage of Category Allocated Expenditures (expressed in EUR) to be financed (1) Goods, non-consulting services, Training, consultants' services for Part A of the Project, and Operating Costs and audit for the Project 7.229.030 100% (2) Sub-financing under Part B.1 of the Project 8.296.296 78% (3) Sub-financing under Part B.2 of the Project 3.386.700 71% Amount payable pursuant to Section 2.07 (a) of the (4) Refund of the Preparation Advance 1.037.974 General Conditions Amount payable pursuant to Section 2.03 of this Agreement in accordance with Section 2.07 (b) of the General (5) Front-end Fee 50.000 Conditions (6) Unallocated 0 TOTAL AMOUNT 20.000.000 2. LOAN AGREEMENT WITH INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT The Loan Agreement stipulates that the Republic of Croatia shall pay the initial fee to the Bank in the amount of 0.25% of the total amount of the Loan. 13 SECOND SCIENCE AND TECHNOLOGY PROJECT International Bank for Reconstruction and Development Loan no. 8258-HR NOTES TO THE PROJECT FINANCIAL STATEMENTS for the year ended 31 December 2017 (continued) The interest payable by the Borrower for each Interest Period shall be at a rate equal to the Reference Rate for the Loan Currency plus the Fixed Spread; provided, that upon a Conversion of all or any portion of the principal amount of the Loan, the interest payable by the Borrower during the Conversion Period on such amount shall be determined in accordance with the relevant provisions of Article IV of the General Conditions. Interest are paid half-yearly, with payment dates on May 15 and November 15 in each year. The following table sets forth the Principal Payment Dates of the Loan and the percentage of the total principal amount of the Loan payable on each Principal Payment Date (((Instalment Share))). Instalment Share (Expressed as a Principal Payment Date Percentage) On each May 15 and November 15 beginning May 15, 2017, Through May 15, 2022 8,33% On November 15, 2022 8,37% 3. BASIS OF PREPARATION The special purpose financial statements of the Project are prepared under the cash basis of accounting. Under the cash basis of accounting, transactions are recorded when cash is paid or received by the Project. 4. SIGNIFICANT ACCOUNTING POLICIES Following are the principle accounting policies adopted in preparation of these special purpose financial statements. a) Functional and presentational currency The special purpose financial statements are stated in Euro. Payments in currencies other than Euro are translated into the Euro using the Raiffeisenbank Austria d.d., Zagreb contracted exchange rates, where Designated Account is open for the Loan Funds. b) Funds received Funds received represent cash received from the IBRD and the Government, and are recognized when received, or in the case of direct payments from loan account (Fronting fee) when the Project receives notification of payment from the IBRD. 14 SECOND SCIENCE AND TECHNOLOGY PROJECT International Bank for Reconstruction and Development Loan no. 8258-HR NOTES TO THE PROJECT FINANCIAL STATEMENTS for the year ended 31 December 2017 (continued) c) Expenditures Expenditures represent cash expenditures of the Project and are recognized when paid. Expenditures for sub-financing relate to sub-financing made available by the Project to HAMAG - BICRO and Croatian Science Foundation (CSF) for Unity through Knowledge Fund (UKF) for disbursement to beneficiaries. These expenditures are recorded when disbursed to UKF beneficiaries and HAMAG-BICRO. 5. SUBSEQUENT EVENTS At the meeting of Review of Portfolio of Public Projects (PPP) funded by loan and grants of the International Bank for Reconstruction and Development (IBRD) 1, held on 22 February 2018, in the Ministry of Finance of the Republic of Croatia, realized savings from the IBRD loan have been discussed and it was concluded that in the forthcoming period The Ministry of Science and Education (MSE) should bring a decision on the use of realized savings of loan funds. Due to proven performance in the implementation of the PoC program, the Ministry of Science and Education expressed the readiness to allocate the largest part (1,7 million EUR) of saved Loan funds of the Loan for STP 11 reallocate to the PoC private program, as reported by the Ministry of Economy, Entrepreneurship and Crafts and agency HAMAG-BICRO. PoC private program is currently not eligible for funding with EU funds. Following this, a request for a third restructuring of the STP II Project will be submitted to the World Bank in early June to cover the following: (i) extension of the Project completion term for 8 Months, from 31 March 2019 to 30 November 2019. (ii) reallocation) in the amount of EUR 1.7 million of Loan funds from component A to sub-component B.1, (iii) changes in the Financial Plan, with the increase of the local component in the amount of 497.376 EUR from the HAMAG - BICRO budget items (due to different ratios of the loan funds in the relation to the local component) (iv) changing some of the Project's performance indicators by increasing target values. 15 SECOND SCIENCE AND TECHNOLOGY PROJECT International Bank for Reconstruction and Development Loan no. 8258-HR NOTES TO THE PROJECT FINANCIAL STATEMENTS for the year ended 31 December 2017 (continued) 6. ACCOUNTING RECORDS AND BASE FOR PRESENTATION Within MSE business books; The Croatian Science Foundation and HAMAG BICRO record all transactions of the Project. The Project's accounting records are also included in the auxiliary tables (excel) based on which the attached financial statements of the Project are prepared. 7. DEVIATIONS FROM AGREED CONDITIONS There were no deviations from the contracted terms 16 SECOND SCIENCE AND TECHNOLOGY PROJECT International Bank for Reconstruction and Development Loan no. 8258-HR