SECOND SCIENCE AND TECHNOLOGY PROJECT International Bank for Reconstruction and Development Loan no. 82580-HR PROJECT FINANCIAL STATEMENTS AND SPECIAL ACCOUNT STATEMENT TOGETHER WITH INDEPENDENT AUDITOR'S REPORTS FOR THE YEAR ENDED 31 December 2018. 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 18 SECOND SCIENCE AND TECHNOLOGY PROJECT International Bank for Reconstruction and Development Loan no. 82580-HR MOORE STEPHENS AUDIT ZAGREB REVIZISE USLUGE, ZAGREl Audit d oo za revizijske usluge Radnidka cesta 54 10000 Zagreb HRVATSKA Tel:+385 (0) 1 3667 994 Fax:+385 (0) 1 3667 997 E-rail:audit-revizija@auidit hr INDEPENDENT AUDITOR'S REPORT 1. We have audited the attached Financial Statements for the year ended 31 December 2018 of the SECOND SCIENCE AND TECHNOLOGY PROJECT (hereinafter: the "Project) financed under the INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT LOAN No. 82580-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 2018, in accordance with International Public Sector Accounting Standards issued by the Public Sector Committee of the International Federation of Accountants. 1 All indepc.sl w, ,'w,r firp? oif Principal Cities throughoutf the world MOORE STEPHENS AUDIT ZAGREB REVZilSKE 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. 82580-HR Zagreb, 15 May 2019 Audit d.o.o. Radnicka cesta 54 10000 Zagreb Darko Kari6, director, certified auditor 2 An n dent n,wmNr rm'11 of /d - UI±//l.!f/ U1 principal Cities drrlegh t the, wor STATEMENT OF ASSETS AND LIABILITIES For the year ended 31 December 2018 31 December 2018 31 December 2017 EUR EUR Assets Project expenditures 21.201.139 18.644.784 Designated Account 865.227 710.864 TOTAL 22.066.366 19.355.648 Liabilities IBRD loan no. 82580-HR 18.255.358 15.791.454 Government funds 3.839.648 3.564.194 TOTAL 22.095.006 19.355.648 Foreign exchange difference (28.641) 0 First Project expenses were created in 2012 based on the Advance Agreement signed in 2012 between IBRD and Republic of Croatia. The advance payment for the Project preparation (PPA) is contracted in USD, and the funds of PPA on a Designated Account are stated in EUR, as well as the reporting on the usage of PPA funds. After utilization of PPA, the unspent amount of EUR 146.078 remained in the Designated Account, which continued to be used in the Project. The foreign exchange difference in the amount of EUR 28.641 were the result of the conversion from the USD in EUR of that unspent funds of the PPA in the Designated Account. This conversion was made on the official portal of the World Bank as of July 31, 2013. For the purpose of aligning with the records of the Project, during the year 2018, all expenditures, which were paid from PPA were proportionally reduced in project reports in the total amount of foreign exchange differences, ie in the amount of EUR 28.641. By this, the amount of funds withdrawn from the IBRD loan have been harmonized with data on the World Bank's official portal In addition, in this way, the use of IBRD loan funds up to a total contacted EUR 20 million was enabled. Only difference is the total amount of expenditures from PPA according to records of PPA according to the official World Bank portal (1.037.974,10 EUR), but total expenditures including PPA and the IBRD Loan are identical in both records. 3 SECOND SCIENCE AND TECHNOLOGY PROJECT International Bank for Reconstruction and Development Loan no. 82580-HR STATEMENT OF SOURCES AND USES OF FUNDS BY PROJECT CATEGORIES For the year ended 31 December 2018 STATEMENT OF SOURCES AND USES OF IBRD LOAN FUNDS EUR Cumulative 2018 2012-2017- 31 December 2018 Sources of Funding IBRD Loan Funds 2.309.542 15.080.590 17.390.132 Foreign exchange difference 0 (28.641) (28.641) Total 2.309.542 15.051.949 17.361.491 Project expenditures by loan categories Consulting services 1.340.663 2.686.475 4.027.138 Sub-financing 892.594 11.039.643 11.932.237 Operating costs 57.494 197.833 255.327 Training 18.791 68.665 87.456 Fee and advance for the preparation on of the project (PPA) 0 1.087.974 1.087.974 Foreign exchange difference 0 (28.641) (2 8 .6 4 1 ) TOTAL 2.309.542 15.051.949 17.361.491 STATEMENT OF SOURCES AND USES OF GOVERNMENT FUNDS EUR Cumulative 31 December 2018 2012-2017. 2018 Sources of Funding Government funds 275.454 3.564.194 3.839.648 Total 275.454 3.564.194 3.839.648 Project expenditures by loan categories Consulting services 0 0 0 Sub-financing 275.243 3.549.501 3.824.744 Operating costs 210 12.746 12.956 Training 0 0 0 Fee and advance for the preparation on of the project (PPA) 0 1.947 1.947 TOTAL 275.454 3.564.194 3.839.648 4 SECOND SCIENCE AND TECHNOLOGY PROJECT International Bank for Reconstruction and Development Loan no. 82580-HR STATEMENT OF SOURCES AND USES OF FUNDS BY PROJECT CATEGORIES For the year ended 31 December 2018 STATEMENT OF SOURCES AND USES OF FUNDS - ALL SOURCES EUR Cumulative 2018 2012 -2017 31 December 2018 Sources of Funding IBRD Loan Funds 2.309.542 15.080.590 17.390.132 Foreign exchange difference 0 (28.641) (28.641) Government funds 275.454 3.564.194 3.839.648 Total 2.584.996 18.616.143 21.201.139 Project expenditures by loan categories Consulting services 1.340.663 2.686.475 4.027.138 Sub-financing 1.167.837 14.589.144 15.756.981 Operating costs 57.704 210.579 268.283 Training 18.791 68.665 87.456 Fee and advance for the preparation on of the project (PPA) 0 1.089.921 1.089.921 Foreign exchange difference 0 (28.641) (28.641) TOTAL EXPENDITURE 2.584.996 18.616.143 21.201.139 5 SECOND SCIENCE AND TECHNOLOGY PROJECT International Bank for Reconstruction and Development Loan no. 82580-HR STATEMENT ON USES OF FOUNDS BY PROJECT ACTIVITIES For the year ended 31 December 2018 STATEMENT OF SOURCES AND USES OF IBRD LOAN FUNDS Cumu-aive 31 December Project components and subcomponents 2018 2012 -2017 2018 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 1.106.753 1.405.518 2.512.271 A3 Project Management Support 310.195 1.384.794 1.694.989 Total A 1.416.948 2.952.974 4.369.922 B Research and Innovation Programs B1 HAMAG-BICRO Programs 826.379 7.784.387 8.610.766 B2 HRZZ / UKF Programs 66.215 3.255.255 3.321.470 Total B 892.594 11.039.642 11.932.236 C PPA Expenditure 0 1.029.073 1.029.073 D Fees 0 58.901 58.901 Foreign exchange difference 0 (28.641) (28.641) TOTAL EXPENDITURE 2.309.542 15.051.949 17.361.491 STATEMENT OF SOURCES AND USES OF GOVERNMENT FUNDS Cumulative 31 December Project components and subcomponents 2018 2012 -2017 2018 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 210 12.746 12.956 Total A 210 12.746 12.956 B Research and Innovation Programs B1 HAMAG-BICRO Programs 231.796 2.222.109 2.453.905 2 HRZZ 3.447 1.327.392 1.370.839 Total B 275.243 3.549.501 3.824.744 C PPA Expenditure 0 1.947 1.947 D Fees 0 0 0 TOTAL EXPENDITURE 275.454 3.564.194 3.839.648 6 SECOND SCIENCE AND TECHNOLOGY PROJECT International Bank for Reconstruction and Development Loan no. 82580-HR STATEMENT ON USES OF FOUNDS BY PROJECT ACTIVITIES For the year ended 31 December 2018 STATEMENT OF SOURCES AND USES - ALL SOURCES Cumulative 31 December Project components and subcomponents 2018 2012 -2017 2018 EUR FUR FUR A Capacity Building for Absorption of EU Funds Al General Technical Assistance 0 162.662 162.662 A2 Tech, Assistance for Project Applications Preparation 1.106.753 1.405.518 2.512.271 A3 Project Management Support 310.405 1.397.540 1.707.945 Total A 1.417.158 2.965.720 4.382.878 B Research and Innovation Programs B1 HAMAG-BICRO Programs 1.058.175 10.006.496 11.064.671 B2 HRZZ / UKF Programs 109.662 4.582.647 4.692.309 Total B 1.167.837 14.589.143 15.756.980 C PPA Expenditure 0 1.031.020 1.031.020 D Fees 0 58.901 58.901 Foreign exchange difference 0 (28.641) (28.641) TOTAL EXPENDITURE 2.584.996 18.616.143 21.201.139 7 SECOND SCIENCE AND TECHNOLOGY PROJECT International Bank for Reconstruction and Development Loan no. 82580-HR Summary of statements of expenditures ("SOEs") for the year ended 31 December 2018 EUR Consultant Operating Application No, and date services Subfinancing costs Training Tota 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 17.17 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 541.936 794.586 2.340 3.876 1.342.738 Total loan from 1 Jan to 31 Dec 2017 1.021.920 2.623.875 69.015 14.111 3.728.921 Total SOE as at 31 Dec 2017 2.347.360 11.388.068 238.862 74.036 14.048.326 SOE 016 - 9 May 2018 1.034.296 303.898 9.834 17.337 1.365.365 SOE 017 - 27 Nov 2018 909.836 135.354 52.803 546 1.098.539 Total loan from 1 Jan to 31 Dec 2018 1.944.132 439.252 62.637 17.883 2.463.904 Total SOE as at 31 Dec 2018 4.272.551 11.827.320 320.340 91.919 16.512.230 8 SECOND SCIENCE AND TECHNOLOGY PROJECT International Bank for Reconstruction and Development Loan no. 82580-HR Designated Account Statement for the year ended 31 December 2018 (EUR) Account No. HR8524840081300159465 Depository Bank Raiffeisenbank Austria d.d. Zagreb Address Magazinska cesta 69, Zagreb Loan IBRD Loan No. 82580-HR From the beginning For the year of the Project EUR EUR Opening balance at the beginning of the period 710.865 0 Add: PPA Payments 0 1.099.334 IBRD Payments 2.463.904 17.217.384 Funds available during the period 3.174.769 18.226.718 Less: Payments for eligible expenditures during the period (2.309.542) (17.361.491) (2.309.542) (17.361.491) Closing balance at the end of the period 865.227 865.227 9 SECOND SCIENCE AND TECHNOLOGY PROJECT International Bank for Reconstruction and Development Loan no. 82580-HR NOTES TO THE PROJECT FINANCIAL STATEMENTS for the year ended 31 December 2018 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 82580-HR), worth EUR 20.000.000. 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 HAMAG-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. 82580-HR NOTES TO THE PROJECT FINANCIAL STATEMENTS for the year ended 31 December 2018 (continued) 3. Support for strengthening innovation activities through the provision of Sub- financing, through MSE, to Beneficiaries of Sub-projects, including for investments and activities in research commercialization and intellectual property protection of research results under the Technology Transfer Office Support Program. HAMAG-BICRO and UKF are responsible for sub-financing to beneficiaries, including selecting sub-projects for financing from loan and PPA proceeds, pre-screening, evaluation and supervision procedures while protecting its interests and the interests of the IBRD.. In the period from 10 July 2012 to 31 December 2018 former BICRO, respectively HAMAG- BICRO sub-financed the following programs relating to STP II: - PROGRAM I - Proof of Concept ("PoC"): o PoC Private - supports the entrepreneurs pre-commercial activities in the early developmental phase of new products, services and technological processes; o PoC Public - designed to support scientists and researchers from Croatian universities and institutes to help them to turn their idea into a global business and to help them to bridge the gap between their ideas and early scientific results and commercial potential; - PROGRAM II - The Development of the knowledge-based companies - RAZUM - aimed at the development of new-technology-based enterprises and academic entrepreneurship; - PROGRAM III - Research and development program - IRCRO incite small and medium enterprises to cooperate with scientific and research institutions on private research and development activities. UKF supports research that is competitive at an international level, fosters research that creates new values in Croatian economy and supports projects that help the development of research infrastructure in Croatia. In the period from 10 July 2012 to 31 December 2018, UKF sub-financed following programs: - Cooperability - Crossing Borders Grant - supports medium-scale collaborative research projects in Croatia with involvement of scientific and research Croatian Diaspora; Project management Project Implementation Unit ("PlU") founded by Ministry of Science and Education is responsible for implementation of the Project. 11 SECOND SCIENCE AND TECHNOLOGY PROJECT International Bank for Reconstruction and Development Loan no. 82580-HR NOTES TO THE PROJECT FINANCIAL STATEMENTS for the year ended 31 December 2018 (continued) Project restructuring The first restructuring of the STP I project was initiated due to the statutory changes of the HAMAG-BICRO Unity through Knowledge Fund (UKF), part of the Croatian Science Foundation, and ended in the first quarter of 2015. The second restructuring of STP II lasted from the end of 2016 to 13 April 2017. It was ended by the signature of Annex no. 2 Loan Agreement and includes: (i) extension of the STP II project to 31 March 2019; (ii) reallocation of funds from sub-component B2.1 project (UKF program) in relation to the new UKF call for tender "My First Cooperation" (iii) changes to some of the Project Performance Indicators. The performance of the STP II has significantly improved after the above mentioned changes as confirmed by the World Bank's high score for project implementation and achievement of project development goals. Currently more than 90% of the loan amount is contracted and more than 76% of the loan amount is already disbursed. Within "Cooperability program" funded by the Unity through Knowledge Fund (UKF), 12 contracts have been signed under the last call "My first Collaboration" worth about EUR 400,000 with the aim of enabling young scientists to establish cooperation with Croatian scientists living abroad. Ministry of Labour and Pension System has approved Summary of operation of the Project "Cooperability program" for funding from the European Social Fund (ESF), totaling over EUR 5 million. Given the very good impact in the implementation of the PoC program (Proof of Concept), the Ministry of Science and Education expressed the readiness to allocate the largest part (EUR 1.7 million) of savings from the STP II Loan to the PoC private program. The Ministry of Economy, Entrepreneurship and Craft has agreed that the funds of the State Budget at the agency HAMAG-BICRO can be used as a local component for the financing of the PoC private program. PoC private program currently cannot be funded from the EU funds. The third restructuring of STP II was started in June 2018, and it was completed on October 17, 2018 by the signature of Annex no. 3 of the Loan Agreement for STP II and includes the following: (i) extension of STP II project until 31 January 2020 (related to duration of PoC 7 projects); (ii) reallocation of funds to sub-component B. 1.1 (PoC) of the project; (iii) changes to some of the Project Performance Indicators by increasing the end target values; (iv) Financing the "Connectivity program" under the "Unity through Knowledge Fund"(UKF) 12 SECOND SCIENCE AND TECHNOLOGY PROJECT International Bank for Reconstruction and Development Loan no. 82580-HR NOTES TO THE PROJECT FINANCIAL STATEMENTS for the year ended 31 December 2018 (continued) Based on this Annex 3 of the Agreement reallocation of funds have been made between categories of eligible expenditures according to the following table: Amount of the Loan Percentage of Category Allocated Expenditures (expressed in to be financed EUR) (1) Goods, non-consulting services, Training, consultants' services for Part A of the Project, and Operating Costs and audit for the Project 5.950.921 100% (2) Sub-financing under Part BA of the Project 9.574.405 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 General (4) Refund of the Preparation Advance 1.037.974 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 During the World Bank Mission for STP 11 from 3 to 5 July 2018 it was agreed that the initial restructuring request would be supplemented with the financing of the UKF "Connectivity program" which have been implemented within the STP Project. Funds for this program are provided with savings (refunds) within the same category B.2.1 (UKF program). The main objective of the Connectivity Program is to support the exchange of experts and knowledge between the Republic of Croatia and the Diaspora, enabling short-term mobility of researchers in the context of extraordinary projects and networking and establishing new partnerships. 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. 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, fees for unused part of the principal amount of the Loan and other fees are paid half-yearly, with payment dates on May 15 and November 15 in each year. 13 SECOND SCIENCE AND TECHNOLOGY PROJECT International Bank for Reconstruction and Development Loan no. 82580-HR NOTES TO THE PROJECT FINANCIAL STATEMENTS for the year ended 31 December 2018 (continued) 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 (((Installment Share>)). Installment 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 prepared in Euro. Transactions arising in currencies other than Euro are translated into the Euro using the Croatian National Bank exchange rates prevailing at the date of transaction. 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. 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 HAMAGBICRO 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. 14 SECOND SCIENCE AND TECHNOLOGY PROJECT International Bank for Reconstruction and Development Loan no. 82580-HR NOTES TO THE PROJECT FINANCIAL STATEMENTS for the year ended 31 December 2018 (continued) 5. SUBSEQUENT EVENTS The third restructuring includes financing the UKF "Connectivity program". As the evaluation of the project proposals for the mentioned application demonstrated a lack of funding for all projects above the threshold, the UKF Secretariat asked for a reallocation of the amount of missing funds (10.583 EUR) for the funding of all positively assessed projects of "Connectivity Program" The amount of Component A should also be increased according to the current and planned needs by the end of the STP II project in order to ensure successful completion of all activities and achievement of the project objectives. This includes completing the preparation of a major O-ZIP project as well as the final evaluation of the STP II project which is the basis for the preparation of the Final Report of the Project. The Ministry of Science and Education has submitted to the Ministry of Finance a request to submit a request to the World Bank for the fourth restructuring of the STP II project in order to maximize the achievement of the effects of the STP II project and the using of the funds of loan, which will cover the following: (i) Reallocation of the loan in the amount of EUR 173.351 from the sub-component B.1 to component A (EUR 165.837) and to the sub-component B.2 (EUR 7.514), (ii) Changes in the financial plan of the loan, with a reduction of the local component in the amount of EUR 157.481 (due to a different ratio of loan funds to funds from the local component) On April 19, 2019, the Ministry of Finance sent a request to the World Bank for the fourth restructuring of the STP II project, containing the above redistribution. 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 the attached financial statements of the Project are prepared. 7. DEVIATIONS FROM AGREED CONDITIONS There were no deviations from the contracted terms 15 SECOND SCIENCE AND TECHNOLOGY PROJECT International Bank for Reconstruction and Development Loan no. 82580-HR