Jordan Mortgage Refinance Company
Public Shareholding Company
Notes to the Financial Statements
December 31, 2007

(In Jordanian Dinars )
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1.         General

Jordan Mortgage Refinance Company was established on June 5, 1996 as a public shareholding company and was granted the operating license on July 22, 1996.  The Company’s head office is in Jordan and its main objectives are:

-        Development and improvement of the housing finance market in Jordan by enabling licensed banks and other financial institutions to increase their participation in granting housing loans.

-        Enhancement and development of the capital market in Jordan by issuing medium and long-term bonds.

The financial statements were authorized for issue by the Company’s Board of Directors in their meeting held on February 17, 2008 and it is subject to the General Assembly approval.

2.         Significant Accounting Policies

Basis of preparation
The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards.

The financial statements have been prepared on a historical cost basis except for investment securities, which have been measured at fair value.

The financial statements are presented in the Jordanian Dinar which is the functional currency of the Company.

The accounting policies are consistent with those used in the previous year, except that the company has applied the changes to the International Accounting Standards and the new International Financial Reporting Standards (IFRSs) that came into effect on January 1st 2007, the application of which has no significant impact as at December 31, 2007 or December 31, 2006.

Adoption of new and revised IFRS standards
The following amendments to existing standards have been published that are mandatory for accounting periods after 31 December 2007. The Directors anticipate that the adoption of these Standards in future periods will have no material impact on the financial statements of the Company.

Use of Estimates
The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amount of financial assets and liabilities and disclosure of contingent liabilities. These estimates and assumptions also affect the revenues, expenses and the provisions. Such estimates are necessarily based on assumptions about several factors involving varying degrees of judgment and uncertainty and actual results may differ resulting in future changes in such provisions.

Cash and Cash Equivalents
Cash and cash equivalents are carried in the balance sheet at cost.  For the purposes of the Cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks, other short- term highly liquid investments.

Accrual Accounts
        Accrued payments are recognized upon receiving goods or performance of services.

Loans and bonds
Interest on long-term loans and bonds are recorded using the accrual basis of accounting.

Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and accumulated impairment loss.  When assets are sold or retired, their cost and accumulated depreciation are eliminated from the accounts and any gain or loss resulting from their disposal is included in the income statements.

The initial cost of property and equipment comprises its purchase price, including import duties and non-refundable purchase taxes and any directly attributable costs of brining the asset to its working condition and location for its intended use.  Expenditures incurred after the fixed assets have been put into operation, such as repairs and maintenance and overhaul costs, are normally charged to income in the period the costs are incurred.  In situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property and equipment beyond its originally assessed standard of performance, the expenditures are capitalized as an additional cost of property and equipment.

Depreciation is computed on a straight-line basis using the following annual depreciation rates:

The useful life and depreciation method are reviewed periodically to ensure that the method and period of deprecation are consistent with the expected pattern of economic benefits from items of property and equipment.

Fair value
For fair value of investments, which are traded in organized financial markets, is determined by reference to the quoted market bid price at the close of the business on balance sheet date.  For investments which are listed in inactive stock markets, traded in small quantities or have no current prices, the fair value is measured using the current value of cash flows or any other method adopted. If there is no reliable method for the measurement of these investments, then they are stated at cost less any impairment in their value.

Impairment of Financial Assets
Financial assets are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted. For financial assets carried at amortized cost, the amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables where the carrying amount is reduced through the use of an allowance account. When a trade receivable is uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss.

Available for sale investments
Available for sale investments are initially measured at cost, which is the fair value of the consideration given for them, including transaction costs.

Available for sale investments are subsequently carried at fair value without any deduction for transaction costs by reference to their quoted market price at the balance sheet date.  Investments for which fair value can not be reliably determined are stated at cost.  Impairment loss is recognized in net profit or loss for the period.

Gains or losses on measurement to fair value of available for sale investments are recognized directly in the fair value reserve in shareholders equity, until the investment is sold or otherwise disposed of, or until it is determined to be impaired, at which time the cumulative gain or loss previously recognized in equity is included in net profit or loss for the period.

Available-for-sale investments are classified as current assets if management intends to realize them within twelve months of the balance sheet date.

Provisions
Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made.

Provision for End of Service Indemnity
The provision for end of service indemnity is calculated based on the contractual provisions of the employment.

Offsetting
Financial assets and financial liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognized amounts and the Bank intends to either settle them on a net basis, or to realize the asset and settle the liability simultaneously.

Revenues
Revenue is recognized when it is probable that the economic benefits associated with the transaction will flow to the company and the amount of revenue can be measured reliably. Interest is recognized on a time proportion basis that reflects the effective yield on the assets. Dividends are recognized when the shareholders' right to receive payment is established.

Foreign currency  
Assets and liabilities denominated in foreign currencies are translated to Jordanian Dinars using the prevailing exchange rates at year end. Foreign currency transactions during the year are recorded using exchange rates that were in effect at the dates of the transactions. Foreign exchange gains or losses are reflected in the statement of income.

3.       Cash and Cash Equivalents

Bank deposits mature within (12) months, with fixed interest rate ranging between (4.7%) and (7.3%).

4.         Refinance Loans

This item represents loans granted to local banks for the purpose of financing housing loans.

The aggregate amounts of annual principal maturities of refinance loans are as follows:

5.             Other Current Assets

6.         Property & Equipment

7.         Bonds

This item represents bonds issued by the company and carry a fixed interest rate between (4.61%) and (8%). The bonds outstanding balance is payable as follows:

8.             Government’s Loan

This item represents the $19,600,000 loan granted to the Company by the Jordanian Government and financed by the World Bank. The outstanding balance of the loan is payable as follows:

9.             Central Bank of Jordan loan

This item represents the present value of the debt instrument of JD 40,275,412 issued to the favor of Central Bank of Jordan. The instrument matures on 7/6/2035 and carries fixed interest rate of (5.12%) per annum payable on the instrument’s maturity date.

10.       Other Current Liabilities

11.          Shareholders Equity 

                Paid in Capital

The Company’s authorized and paid up capital is JD (5) Million divided equally into (5) Million shares with par value of JD (1) each.

Statutory Reserve
The accumulated amounts in this account represent 10% of the Company’s net income before income tax according to the Companies Law. The Company has the option to cease such appropriations when the balance of this reserve reaches 25 % of the Company’s authorized capital. The statutory reserve is not available for distribution to shareholders.

Voluntary Reserve
The accumulated amounts in this account represent cumulative appropriations not exceeding 20% of net income. This reserve is available for distribution to shareholders.

Proposed Dividends
The Board of Directors will propose to the General Assembly in its meeting which will be held during 2008 to distribute 7% cash dividends to the shareholders.

The General Assembly has resolved in its meeting held in 2007 to distribute 5% cash dividends to the shareholders.

                Unrealized Gain
The retained earnings and other reserves as of the year end dose not contain any unrealized gain resulting from the revaluation of trading investment or investment properties.

12.          Interest Income

13.          Interest Expense

14.          General and Administrative Expenses

15.          Fees and other Expenses

16.          Earning Per Share

17.          Executive Management remuneration

The remuneration of executive management during the years 2007 and 2006 amounted to JD 220, 863 and JD 199, 844 respectively.

18.          Segment Reporting
The Company is engaged mainly in one activity which is mortgages refinancing within the territory of Jordan.

19.          Income Tax

The company has settled its tax liabilities with the Income Tax Department up to the year ended 2004.

The income tax department has reviewed the Company’s records for the year ended 2005 but did not issue its final assessment yet.

The income tax return for year 2006 has been filed with the Income Tax Department, but the department has not reviewed the Company’s records till the date of this report.

The income tax provision for 2007 was calculated in accordance with the Income Tax Law.

20.          Litigations
The Company appears as a defendant in a law suit amounting to JD 390,746. The Company has settled JD 79,793 of the claimed amount; however, the court has assessed additional liability on the Company by JD 37,879. Although the Company will appeal the court decision, a provision has been taken for the additional assessed liability.

21.          Financial Instruments
Financial instruments comprise financial assets and financial liabilities. Financial assets of the Company include bank balances and cash, receivables and securities. Financial liabilities of the Company include loans from financial institutions and accounts payable.

Fair Value
The fair values of the financial assets and liabilities are not materially different from their carrying values as most of these items are either short-term in nature or re-priced frequently.

Credit Risk
Credit risks are those risks resulting from the default of counterparties to the financial instrument to repay their commitment to the Company. The Company limits its credit risk by only dealing with reputable banks and by setting credit limits for individual customers and monitoring outstanding receivables. The maximum exposure to credit risk is represented by the carrying value of each financial asset.

The balance of the largest client amounted to JD (35) Million for the year ended 2007 against JD (31) Million for the year ended 2006.

Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its net financial obligation. In this respect, the Company's management diversified its funding sources, and managed assets and liabilities taking into consideration liquidity and keeping adequate balances of cash, and cash equivalents and quoted securities.

The table below analyses the Company's financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet to the contractual maturity date:

Interest Rate Risk
Interest rate risk is the risk that changes in interest rates will affect the Company's income or the value of its holdings of financial instruments. As most of the Company's financial instruments have fixed interest rate and carried at amortized cost, the sensitivity of the Company's results or equity to movements in interest rates is not considered significant.

Currency Risk
The management considers that the Company is not exposed to significant currency risk. The majority of their transactions and balances are in either Jordanian Dinars or US Dollars. As the Jordanian Dinar is pegged to the US Dollar, balances in US Dollars are not considered to represent significant currency risk and the Company's results or equity to movements in exchange rates is not considered significant.

Equity Price Risk
Equity price risk result from the change in the fair value of equity securities. The Company manages these risks through the diversification of investments in several geographical areas and economic sectors. If the quoted market price of listed equity securities had increased or decreased by 10%, the net result for the year would have been reduced / increased by JD 141,714 during 2007 (2006: JD 133,243).

22.          Capital Management
The Company manages its capital structure with the objective of safeguarding the entity's ability to continue as a going concern and providing an adequate return to shareholders by pricing products and services commensurately with the level of risk.