Chairman's and Chief Executive's Review

Introduction

We are pleased to announce the consolidated financial results for Livermore Investments Group Limited ("Livermore" or "the Company") for the year ended 31 December 2009. The year was marked with the onset of a modest recovery in most developed and emerging economies. At the same time, however, countries in Central and Eastern Europe ("CEE") continued to experience significant challenges.

As global markets rebounded from their deep slump in 2007-2008, Livermore management increased exposure to capital markets and took advantage of dislocations in the fixed income market, generating significant trading returns. Overall, the trading portfolio, which was comprised largely of fixed income securities and equities, generated a return of over 40% on average invested capital.

Wyler Park, our investment property in Berne, Switzerland performed well generating over CHF 4.9m in annual income. With all but two of the 39 apartments rented out, the annual income is expected to climb to CHF 5.4m at full occupancy. Market valuation of Wyler Park has remained stable both during and after the financial crisis.

On the other hand, continued lack of credit and difficult operating conditions in the CEE region caused large declines in asset values. Atlas Estates reported a 34% drop in its NAV and DTH Boom, a high-end direct-to-home satellite TV company in Romania, was unable to raise capital for its future development.  As of year-end 2009 the Company wrote off entirely its investment in DTH and valued its investment in Atlas Estates at market value. Following these markdowns which posed the main drag on its portfolio in 2009, the Company believes that it can put the worst of the financial crisis behind it.  Post year-end, in April 2010, Fragliolig Limited, a wholly owned subsidiary of the Izaki Group, announced a cash offer of GBP 0.90 per share to acquire all shares of Atlas Estates.

The cash and marketable securities portion of the portfolio increased during 2009 reflecting the improved liquidity in capital markets and trading gains.

With continued recovery and the worst of the crisis behind us, we are confident that Livermore's diversified portfolio is well positioned to generate strong returns over the medium term. The Company holds certain value investments, which form the basis for long term returns. In addition, the Company holds yielding investments that generate sufficient cash to cover its operations expenses and support incremental investment requirements.

Financial Review

The NAV of the Group at 31 December 2009 was approximately USD 128.6m. This represents a decrease of USD 51.3m over the NAV at 31 December 2008. Net loss was USD 61.1m, which represents a loss per share of USD 0.21.

Administrative expenses excluding provisions for legal and other matters were USD 4.7m (2008: USD4.5m), representing 3.0% of the average NAV. The Company intends to maintain its lean infrastructure and cost structure.

The overall decrease in the NAV is primarily attributed to the following:

Dividend & Buyback

During 2009, the Company purchased 1,284,005 shares to be held in treasury for a total cost of USD 641k.  The total number of shares held in treasury at 30 April 2010 was 13,425,966.

Due to the global economy, the financial crisis, and its effect on the Company portfolio, the Board decided not to declare dividends for the year ended 31 December 2009. Future dividend payments will be considered based on the net performance of the Group's investment portfolio.

Annual General Meeting

The Group's Annual General Meeting will be held on 25 August 2010.  The Notice for the meeting is on page 61 of this report.

Richard B Rosenberg                                                                                        Noam Lanir

Chairman                                                                                                           Chief Executive Officer

8 June 2010

Review of Activities

Introduction and Overview

December 2009 marked the end of a remarkable year in which investor sentiment progressed from that of total disillusionment to a conviction that the financial system would escape a total collapse. As the recovery took hold and economic indicators showed elements of growth in the second quarter, global credit, equity and commodity markets witnessed one of their best-ever rallies.  During the year, the MSCI World Index recovered by 27%, the S&P 500 Index rose 23.5% and the Dow Jones STOXX 600 Index climbed 28%. Emerging markets recovered significantly with a rise in stock prices of 74.5%, as measured by the MSCI Emerging Markets Index, and credit spreads continued to contract from the historically high levels seen towards the end of 2008.

Livermore took advantage of the reduced systemic risk, dislocation in market prices and availability of cheap leverage and increased allocation to its financial portfolio. Active trading in fixed income and equity securities and interest and dividend income from them helped generate a return in excess of 40% on its financial portfolio in 2009. At the same time, difficult economic and credit conditions that persisted in Central and Eastern Europe resulted in reduced valuations of the assets of Atlas Estates and lack of access to financing for DTH Boom, for which management decided to impair its investment in its entirety. Livermore management also decided, for prudent reasons, to reclassify certain losses in reserves to profit or loss.

The year-end NAV was USD 0.44 per share (2008 NAV: USD 0.62 per share). The portfolio remained well diversified across sectors and geographies with increased exposure to financial markets as compared to 2008. The Company has a mixture of yielding and growth assets in Europe and Asia.

In 2009, the Company generated interest and dividend income of USD 3.2m and investment property income of USD 4.4m. The Company results (losses of USD 61.1m) relate mainly to non-cash losses from Atlas Estates (USD 26.9m), impairments of USD 28.2m mainly attributed to DTH Boom (USD 17.5m) and CALS (USD 5m). These impairment losses represent reclassification of unrealized losses from the investments revaluation reserve to profit or loss.   The results also include fair value losses on derivative instruments of USD 1.9m of which a fair value loss of USD 1.4m relates to the valuation of interest rate swap agreements mainly in connection with hedging the loan against its Wyler Park property in Switzerland. The maturity of such loans and the respective hedging agreements is 2014. As the Company expects to hold these loans to maturity, it expects to regain the losses on the interest rate swaps by the time the loan matures.

Administrative expenses amounted to USD 8.9m of which USD 4.2m relates to provision for legal and other matters.  Finance costs were USD 3.8m, of which USD 3.1m relates to the loan against the Wyler Park property.

The Company does not have an external management company structure and thus does not bear the burden of external management and performance fees.  Further, the interests of Livermore's management are aligned with those of its shareholders as management members have a large ownership interest in Livermore shares.

Considering the strong liquidity position of Livermore, together with the robustness and diversification of its investment portfolio and the alignment of management's interest with those of its shareholders, management believes the Company is well positioned to benefit from current market conditions. 

Global Investment Environment

During first half of 2009, global financial markets showed signs of improvement following the extreme levels of stress that were seen during the last quarter of 2008, which at one stage resulted in the near-paralysis of credit markets. In the second half of 2009, global production and trade improved and confidence rebounded strongly on both the financial and real economy fronts as extraordinary policy support thwarted a potential depression.

Driving the global rebound was the extraordinary amount of monetary and fiscal policy stimulus. Central banks expanded their balance sheets to unprecedented levels and monetary policy remained highly expansionary with record low interest rates in most of the developed economies. Fiscal policy too provided a major stimulus in response to the deep downturn.

Although financial markets have recovered faster than expected, financial conditions are likely to remain more difficult than before the crisis. Specifically, money markets stabilized, and the tightening of bank lending standards moderated. Most banks, in core markets, are now less reliant on central bank emergency facilities and government guarantees. Nonetheless, bank lending remained sluggish, given the need to rebuild capital, the weakness of private securitization, and the possibility of further credit write-downs, notably related to commercial real estate. Corporate bond issuance reached record levels amid a reopening of most high-yield markets. However, the surge in corporate bond issuance did not offset the reduction in bank credit growth to the private sector. Sovereign debt came under pressure for some countries, as they struggled with large government deficits and debt, and as investors increasingly differentiated across countries.

Central banks continued to keep short-term interest rates at historically low levels and signalled that they could remain low until sustainable recovery and job growth was evidenced. Long-term interest rates were more volatile during the period, reflecting concerns about the implications of government stimulus efforts on future inflation expectations.

Amid a relatively rapid return to healthy growth in many emerging economies, portfolio flows into these markets picked up, easing financial conditions and prompting nascent concerns about asset price valuations. Commodity prices rose strongly during the early stages of the recovery, despite generally high inventories. This was mainly due to the buoyant recovery in emerging Asia, the onset of recovery in other emerging and developing economies more generally, and the improvement in global financial conditions.

The still low levels of capacity utilization and well-anchored inflation expectations are expected to contain inflation pressures. In the advanced economies, headline inflation is expected to pick up slightly in 2010, as rebounding energy prices more than offset slowing labour costs. In emerging and developing economies, inflation is expected to edge up as some of these economies may face growing upward pressures due to more limited economic slack and increased capital flows.

A key risk is that a premature and incoherent exit from supportive policies may undermine global growth and its rebalancing. Another important risk is that impaired financial systems and housing markets or rising unemployment in key advanced economies may hold back the recovery in household spending more than expected. In addition, rising concerns about worsening budgetary positions and fiscal sustainability could unsettle financial markets and stifle the recovery by raising the cost of borrowing for households and companies. Yet another downside risk is that rallying commodity prices may constrain the recovery in advanced economies.

EURO ZONE: Strains on the Euro area financial system diminished and financial markets rallied across the region thanks to macroeconomic stimulus, abatement of systemic risk by Governments and the expectation of an economic recovery. GDP in the Euro zone declined 1.8% year-on-year. The trend, however, is encouraging as GDP increased by 0.4% and 0.1% on a quarter-on-quarter basis in the third and fourth quarter respectively. The GDP growth in the final quarter was driven by a positive contribution from net exports, while the contribution from domestic demand was negative due to flat private consumption and declines in investment. Inflation was subdued and may remain around 1% in the near term. The labour market outlook is weak which continues to dampen demand, and many of the current growth sources are of temporary nature. Following the fiscal impetus provided by Governments in the region, deficit levels have soared raising concerns over sovereign debt.

CENTRAL & EASTERN EUROPE: The majority of economies in the region continued to be in recession and reported declines in GDP. Romania received €20 billion of IMF financial support and reported a fall in GDP of 7%. Hungary also received €15 billion of IMF financial support and reported a fall in GDP of 4% in 2009. The Slovakian economy declined by 5% in GDP in 2009. These weak economic conditions rose due to a slump in foreign investment and bank finance to the region. As a result, investment and development activity in the real estate market has been in decline. Poland, however, was one of the most resilient economies in Europe with GDP growth of 1.5% in 2009. Equity markets performed well in Poland with the WIG index rising 46.8%.

SWITZERLAND: The GDP for Switzerland grew in the fourth quarter of 2009 by 0.7% compared to the third quarter. The trade balance gave a positive boost to growth. Consumption and capital expenditures also increased. On the production side many industries were able to increase their added value. GDP growth was 0.6% compared to the fourth quarter of the previous year. The seasonally adjusted rate of unemployment has stabilised in the last few months, but like the overall output gap and other indicators, it shows continued under-utilisation of Switzerland's economic capacity. Inflationary pressure has therefore remained low to date. The financial markets rallied in line with global and European markets with the SMI Index climbing 18.3% in 2009.

INDIA: Although the Indian financial system avoided a direct contagion of the credit crisis, private consumption and capital formation slowed. The government responded with fiscal initiatives and the Reserve Bank lowered interest rates to ease monetary policy. On signs of stability in the global financial system, the Indian economy recovered posting a 6% year-on-year growth in GDP in the quarter ending December 2009. GDP growth is expected to return to higher growth levels. High inflation, however, poses a downside risk. The equity markets rallied sharply during the year, especially after the election which resulted in a single party coming to power ending years of coalition politics, with the NIFTY Index rising 75%.

Sources: International Monetary Fund (IMF), Swiss National Bank (SNB), European Central Bank (ECB), Reserve Bank of India (RBI), Bloomberg

Livermore's Strategy

Livermore's investment strategy is to establish a balanced and diversified portfolio of private investments with a mid-long term investment horizon and financial investments which provide on-going liquidity.

The first part of the portfolio is focused on Switzerland and Asia and targets investments in real estate and private equity opportunities which have usually proved profitable.  Investments are focused on sectors that Management believes will provide superior growth over the mid to long term with relatively low downside risk. 

The financial portfolio is focused on fixed income instruments which usually generate periodic cash flows and include mainly corporate bonds and senior secured loans.  This part of the portfolio is geographically focused on the US and Europe with limited exposure to emerging markets.

Livermore's above investments are made directly or alongside professional managers with a proven track record. Livermore considers having good liquidity to be paramount and had some USD 50m in cash, cash equivalent and marketable securities as of end of the year 2009.  Strong emphasis is given to keep leverage low at the overall portfolio level and to re-invest in existing and new investments along the economic cycle. 

Review of Significant Investments

* Net of related loan.

** Including related interest until February 2009.

Wyler Park - Switzerland

Wyler Park is a top quality mixed-use property located in Berne, Switzerland. It has over 16,800 square meters of commercial area, 4,100 square meters of residential area, and another 7,800 square meters available for additional commercial development. 100% of the commercial area is let to the Swiss Transportation Authority (SBB), a Swiss Government company. The commercial lease is 100% linked to inflation and ends in 2019 with two 5 year extension periods thereafter. The annual rental income from the commercial area of the project increased in 2009 to CHF 4.36m from CHF4.26m due to indexation.

Following the successful development of 39 residential apartments in 2008, Management has completed renting all but two of the 39 apartments. The annual rental income expected from the residential area is CHF 1.1m.  

Livermore is the sole owner of Wyler Park through its wholly owned Swiss subsidiary, Livermore Investments AG. The loan outstanding on the project is CHF 79m, which is a non-recourse loan to Livermore Investments AG backed only by this property. The loan matures in July, 2014. The valuation of the property as of year-end 2009 is CHF 110.1m.

The property generated revenues of CHF 4.9m during 2009 and maintained its value despite the downturn. 

Management expects to develop the additional commercial development rights of 7,800 square meters attached to the property in the coming years which could further enhance the value of this property

Atlas Estates ("Atlas") - Central and Eastern Europe

As of year-end 2009 Livermore held a 21.71% minority stake in Atlas Estates Limited. Atlas Estates is managed by an external management company which is controlled by Mr. Ron Izaki and R.P. Capital. Livermore does not have representation on the Board of Atlas Estates or that of the external management company.

Business environment in the Central and Eastern Europe was tough in 2009, a consequence of the global economic and credit crisis. The majority of the economies in the region continue to be in recession and credit availability was strained. As a result, asset valuations have experienced significant reductions and currencies have been volatile. However, Poland, where Atlas Estates has 75% of its gross assets, has managed to grow modestly.

For the year, Atlas Estates recognized revenue of €37.3m (2008: €51.9m).  Loss from operations was €47.1m (2008: loss from operations €3.9m), predominantly due to decrease in investment property valuations of €35.5m. Net Asset Value declined to €114m (31 December 2008: €174m) with NAV per share at €2.42 (31 December 2008: €3.68) and Adjusted NAV per share at €2.95 (31 December 2008: €4.42). The NAV decline is due to the fall in property valuations.

As at 31 December 2009, Atlas Estates had bank loans of €260m (31 December 2008: €247.7m). Atlas reported an increase in loans payable within one year to €156m (31 December 2008: €95.7m) due to maturing of debt and breaches of covenant terms of certain loans. €90.4m of breaches on loans from Erste Bank have been remedied after the reporting period through a cross collateralization agreement.  Certain loans have been extended and Atlas is negotiating to extend maturities on other loans.

On the operational side, Atlas completed development of Platinum Towers in the third quarter in line with budget and schedule.  A total of 358 out of 396 apartments have been pre-sold. Sales for 26 apartments have been recognized, with a majority of sales to be recognized in 2010. Construction of Stage 2 of Capital Art apartments was completed in the second quarter on time and to budget. Atlas has sold 218 out of 219 apartments in Stage 1 and pre-sold 202 out of 300 apartments in Stage 2. Stage 3 development is planned to commence at the end of 2010.  Difficult conditions for the hotel market in CEE resulted in slightly lower occupancy levels for the Hilton Hotel in Warsaw (64% in 2009 as compared to 65% in 2008). However, strong operating performance increased operating margins to 33% in 2009 from 20% in 2008.

In 2009, Atlas entered into an agreement to sell its assets in Slovakia. It expects to receive net proceeds of €8m. In January 2010, Atlas obtained a credit facility of €3.1m against its Metropol asset in Hungary. Atlas intends to utilize the proceeds for the development of its remaining assets in Warsaw, Poland, where it has a strong presence and is likely to realize value from development activity within the next two to three years. Further, Atlas management has taken measures to retain cash within the company and slashed dividends, cut costs, and refinanced properties. 

Given existing conditions, Livermore's management is of the opinion that the market price of Atlas Estates better represents the realizable value of Atlas Estates as compared to the NAV.  In light of this, we have conducted an impairment review and have established a provision of USD 13.3m (31 December 2008: USD 11m) to reflect such risk. Following the provision, Atlas' Estates position in the Company books represents a value of €0.75per share instead of NAV of €2.42 per share.  Please see note 9 for details.

SRS Charminar - India

Livermore had invested USD 20m in 2008 in a leading Indian Real Estate company, in association with SRS Private and other investors as part of a total investment of USD 154m. The target company is a top 10 real estate developer in India by land bank value and size.  It controls over 5000 acres across Southern India, with over 650 acres in Hyderabad. 

The deal structure included a put option, which could be exercised if the IPO does not take place within 3 years or if certain terms in the agreement are not met.  The put option is secured by land which was valued at around USD 1.3 billion at the time of investment and guarantees a minimum return of approximately 30% IRR if exercised.

As reported earlier, the manager for this investment served a put option exercise notice to the promoters in 2009.  Following a dispute on the grounds of the put option notice between the promoters and the fund, the parties agreed to invoke arbitration to be held in Mumbai. 

On 14 August 2009, the arbitration process was completed and the arbitrator ruled in favour of investors. The award entitles the investors to investment plus interest amounting to 30% IRR until 14 August 2009 and 18% IRR thereafter.  However, the Livermore decided, for prudent reasons, to stop accruing interest on its investment as of February 2009.

Subsequently, the promoters agreed to settle and transfer land parcels from the company to the investors. However, Livermore was notified by the manager of the investment that the Indian Income Tax authority had frozen some of these assets until Q1 2010.  To expedite the process of settlement, the manager has approached the relevant Government ministries to enlist their support.

In the meanwhile, the investors have filed and won an interim order for injunction against the promoters or the company to sell, transfer, or encumber the assets of the company. Thereafter, the promoters have filed against the arbitral award. The legal counsel representing the investors believes that the grounds of appeal against the award are limited under applicable laws and that the investors have a strong case to defend. The Manager is confident that the put option will be successfully enforced and that the value of the land is sufficient to secure the put option.

Montana Tech Components ("Montana") - Europe

Montana Tech Components AG ("MTC") is a leading components manufacturer in the fields of Aerospace & Industrial Components, Metal Tech and Micro Batteries. Livermore owns around 2.8% in MTC through shares and convertible bonds on a fully diluted basis.     

The Aerospace Components business segment manufactures specialized components for Airbus and Boeing and is the market leader.  The facilities are currently located in the US and in Switzerland with a new low cost facility in Romania under development.  The company has over 50% market share in the US with Boeing and is expected to have over 45% in Europe with Airbus after the Romanian facility becomes operational. The build-out of the Romanian facility was completed as planned in mid November 2009. The certification process with Airbus is concluded in important areas. It is expected to be finalised by autumn 2010 with the first deliveries expected in the first half of 2011.

Metal Tech business segment operates in a niche area with 60%-70% of world market share in an otherwise highly fragmented industry.  This business segment produces tools for identification and marking of Steel products. It has performed to expectations due to a large order backlog. 

The Micro Batteries business is a market leader in hearing aid batteries and rechargeable batteries with a strong brand (VARTA Micro Power). Recently, VARTA has concluded a significant joint venture with the Volkswagen group to develop batteries for hybrid cars.

In 2009, the group experienced a drop in net revenues from €350.9m in 2008 to €304.4m due to difficult business conditions. However, as a result of restructuring measures, cost savings, and optimizations in its value chain, the EBITDA increased from €29.4m in 2008 to €31.8m. With visible, brighter signs, the MTC management believes that the bottom of industrial capacity usage has passed.

In April and October 2009, the company raised €28m through two rights issues at €1 per share and €1.02 per share respectively to ensure sufficient liquidity through 2011 and to take advantage of opportunities in the current market, especially relating to a contract with Boeing. The price was deliberately kept low to entice existing investors to invest or risk dilution. Livermore invested €740k in the offerings. In December, the company conducted a reverse split of its shares in the ratio of 2:1. In November 2009, Ernst & Young conducted a fairness opinion of Montana for a conversion offering to minority shareholders of a subsidiary. The value per share after a 20% minority discount was EUR 7.04/share (after reverse split).

On 30 December 2009, Montana listed its shares on the Bern OTC (Over-The-Counter) exchange. The closing market price for Montana equity after the reverse split was CHF 6.8/share.

CALS refinery - India

In December 2007, Livermore entered into a Total Swap Agreement (TSA) with respect to a Global Depositary Receipt (GDR) issued by an Indian refinery company - CALS Refinery.  The TSA has a capital protection structure through a put option on the promoters.

CALS is relocating a refinery from Germany to India and the GDR was issued to part-finance the relocation and set up of this refinery in India. CALS expects the refinery to have a capacity of 4.8 million metric tons per annum (MMTPA).

CALS has had to delay the shipment of the refinery from Germany as it could not raise the necessary funds following tight financial markets.  Currently the company is operating at a bare minimum level due to lack of resources. The promoters and management of CALS are making efforts to achieve financial closure.

On the operational front, the company had received the environment clearance to set up the refinery at Haldia, West Bengal, India from the Ministry of Environment and Forests.  In addition, the West Bengal Government had approved a special package of incentives for the company and has extended the guarantee of release of the first instalment of loan under the scheme.  Earlier, CALS had signed a Memorandum of Understanding (MOU) with Bharat Petroleum Corporation Limited (BPCL) for off-take of the by-products such as LPG, Naphtha, ATF/Kerosene, diesel, gasoline benzene, propylene and sulphur.

Following the notice of put option exercised by the TSA counterparty to the promoters of CALS, no common ground has been found despite lengthy negotiations. Consequently, the TSA counterparty has started legal action against the promoters of CALS.

Considering the legal uncertainties and the likely delay in enforcement of the put option, and also considering the decline in price of the underlying GDR, management carried-out an impairment test based on which an impairment loss of USD 5m (representing 50% of the total investment cost) has been recognized.

Private Equity Funds  

The other private equity investments held by the Group are incorporated in the form of Managed Funds (mostly closed end funds) mainly in the emerging economies of India and China. The investments of these funds into their portfolio companies were mostly done in 2008 and 2009. Overall, in the second half of 2009 and thereafter the investment environment relating to most funds improved considerably and the Company expects that exits of portfolio companies should materialize between 2011 and 2014. 

India Blue Mountains: A leading hotel and hospitality development fund that develops and acquires hotels in India.  The fund has acquired land and is in the process of developing four 4-star hotels in Mumbai, Pune and Goa.  All hotels will be managed by the Accor Group, who have also invested equity and hold a 26% stake in all of the hotels. 

During the period, occupancy levels of the hospitality sector in India have increased by 10-30% and hotel rates are getting closer to the pre recession levels. Hotels across the country have average occupancy levels of approximately 70%. There continues to be a significant shortage of 4-star hotel rooms across India and domestic travellers who would usually stay in 5-star hotels are trading down to 4 star hotels. Following reclassification of hospitality sector as infrastructure rather than real estate, there has been increased construction finance available for the development of hotels.

For the initially planned Chennai project, the fund invoked the bank guarantee and has received the invested amount. It has also invoked personal guarantees to recover the interest due, which is expected to be received shortly.  Mass concreting is completed in Pune and the foundation and raft slabs construction works are nearing completion. Construction finance has been finalized. The fund expects a delay in the construction timeline due to changes in local car parking regulations requiring additional parking places. For the Mumbai project, construction finance has been raised and excavation commenced. Due to additional Floor Space Index (FSI) availability 555 rooms can be developed as compared to the 440 rooms originally planned. The fund is awaiting land reclassification on the Goa project.

Elephant Capital plc: India-focused private equity fund, which is AIM quoted (formerly called Promethean India plc).  (Ticker: ECAP). The fund executes a value activist strategy in both public and private businesses in India. It is building a concentrated portfolio of investments in which the fund can act as a catalyst for change and value creation. Its portfolio investments to date include a leading tiles manufacturer in India, an established automotive components manufacturer, a hospitality company with luxury hotels located in prime locations in top Indian cities, a leading education company, an m-commerce player, and an online venture with exclusive internet rights to the Indian premier cricket league. 

The online cricket related venture GCV acquired the primary rights owner and online broadcaster of cricket in North America in February 2010. It has announced a partnership with Google to monetize sponsorship and advertising for the official premier league website.  The m-commerce venture is performing well and announced the final closing of its fundraising round with Nokia, bringing the total amount raised over this round to USD70m, including contributions from other existing investors. The fund realized a partial amount of its investment in the leading education company, achieving an IRR in excess of 25%. A deed of settlement was agreed with a debtor setting out a timetable for the repayment of interest outstanding of £333,690 and a mechanism by which the principal amount of £3.7 million will be settled within five years.

The fund has been conservative and diligent in its investment approach and has positioned itself to capitalize on reasonable valuations in attractive opportunities.

Panda Capital: China-based Private Equity Fund focused on early-stage industrial operations in China and Taiwan, which represent strong growth opportunities. The fund has invested in a bamboo based flooring manufacturer, a lens moulding company, an electronic components manufacturer, an FDA approved wound healing cream producer, and an outdoor media company.

The fund has a 100% interest in an exciting bamboo flooring company in China, which provides a low cost alternative to hardwood flooring in shipping containers.  This investment is expected to generate very attractive returns once the shipping industry recovers from the current downturn.

Blue Ridge Capital: Blue Ridge is a China focused Private Equity fund. The fund has made investments in six portfolio companies. Portfolio companies include a distressed real estate turnaround company, a plastic and chemicals manufacturer, a higher education company, an innovative bio-pesticide company, a software company specializing in Oil & Gas applications and a refinery. The investments are performing well and are expected to exit shortly with the exception of the refinery, which has been written-off.

SRS Private & JM Financials India Property Fund: These are Private Equity funds focused on Real Estate in India. The funds have invested in residential and commercial projects as well as directly in certain real estate companies. The assets are primarily located in and around top cities of India such as Mumbai and Hyderabad.

Evolution Fund: Evolution is an Israel focused Venture Capital fund. It invests in early stage technology companies. Its investments include a carrier-class Mobile Broadband Wireless (MBW) Wi-Fi solutions company, a language enhancement products company, a software company operating in the digital radio market, a mobile applications company, a software test tool developer, and a pre-loaded media player manufacturer. The Wi-Fi solutions company has expanded rapidly and is expected to provide an attractive exit in the near future.

Da Vinci CIS Private Sector Growth Fund: The fund is primarily focused on Russia and CIS countries. The fund has made five investments.  70% of the fund corpus is invested in RTS, the leading Russian stock exchange, and a leading software company in Russia. Both investments are performing well.

Financial portfolio and trading activity               

Subsequent to significant intervention by the Governments to support large banks, Livermore invested in H1 2009 at distressed market prices in a diversified portfolio of bank and corporate bonds. The market dislocation, systemic risk reduction, and availability of cheap leverage produced excellent returns in 2009 on the trading portfolio. In addition as the leveraged loan market improved significantly during 2009 most of the Collateralized Loan Obligations (backed mainly by syndicated senior secured loans) performed well producing cash dividends of USD 2m.  Successful trading activity in fixed income and equities as well as dividend income on such securities produced returns of 40% on its financial portfolio in 2009.

The following is a table summarizing the financial portfolio as of year-end 2009 -

Events after the reporting date

Atlas Estates: On 16 April 2010, Fragliolig Limited, a wholly owned subsidiary of the Izaki Group, made a cash offer to acquire the entire issued and to be issued share capital of Atlas Estates Limited not already owned by Fragliolig Limited or persons acting in concert with it. The offer is for GBP 0.90 in cash for each Atlas Estates share.

On 12 May 2010, the Offer was declared wholly unconditional as Fragliolig Limited along with its concert parties owned or had received acceptances in respect of approximately 62.9% of the issued share capital of Atlas Estates. The Offer remains open until 3:00pm GMT on 21 Jun 2010.

On 17 May 2010, Atlas announced its first quarter 2010 results with revenues of EUR 38.1m, net income of EUR 7.1m and a NAV of EUR 2.75 per share as compared to EUR 2.45 per share in December 2009. The increase in revenues and net income is primarily attributed to recognition of apartment sales that were pre-sold and completed during the period. The increase in NAV is predominantly due to exchange rate differences.

DTH Boom: On 12 May 2010, DTH Boom filed for insolvency in Romania. The insolvency followed DTH Boom's unsuccessful efforts in raising growth capital as well as finding a buyer for the company with its existing liabilities. As of year-end 2009 the Company wrote off entirely all equity and shareholders' loans related to this investment. 

Litigation

At the time of this Report, there are two litigation matters that the Company is involved in. Further information is provided in note 37 to the financial statements.

Report of the Directors

The Board's objectives

The Board's primary objectives are to supervise and control the management activities, business development, and the establishment of a strong franchise in the Group's business lines. Measures aimed at increasing shareholders' value over the medium to long-term, such as an increase in NAV and dividends paid are used to monitor performance.

The Board of Directors

Richard Barry Rosenberg (age 54), Non-Executive Director, Chairman of the Board

Richard joined the Group in December 2004. He became Non-Executive Chairman on 31 October 2006.  He qualified as a chartered accountant in 1980 and in 1988 co-founded the accountancy practice Sedley Richard Laurence Voulters.  He has considerable experience in giving professional advice to clients in the leisure and entertainment sector. Richard is a director of a large number of companies operating in a variety of business segments.

Noam Lanir (age 43), Founder and Chief Executive Officer

Noam founded the Group in July 1998, to develop a specialist online marketing operation. Noam has led the growth and development of the group's operations over the last twelve years which culminated in its IPO in June 2005 on AIM. He is also a major benefactor of a number of charitable organisations.   Prior to 1998, Noam was involved in a variety of businesses mainly within the leisure and entertainment sector.

Ron Baron (age 42), Executive Director and Chief Investment Officer

Ron was appointed as Executive Director and Chief Investment Officer on 10 August 2007. Ron has wide investment and M&A experience. From 2001 to 2006 Ron served as a member of the management at Bank Leumi, Switzerland and was responsible for portfolio management activity. Prior to this he spent five years as a commercial lawyer at Kantor, Elhanani, Tal & Co. Law Offices in Tel Aviv, Israel, advising banks and large corporations on corporate transactions, including buy-outs and privatisations. He holds an MBA from INSEAD Fontainebleau and a LLB (LAW) and BA in Economics from Tel Aviv University.

Menachem Marder (age 57), Non-Executive Director

Menachem joined the group in September 2009.  He brings with him a profound background of accounting and business experience.  Menachem is a Certified Public Accountant, and was the founder and senior manager of the accounting firm Shlomo Ziv and Partners (BDO).  In addition to his work with Livermore, Menachem, through his company, Mimtar Business Consulting LTD, provides business, economic, managerial and financial consultancy to a wide range of firms with a specialization in company turn arounds and mergers and acquisitions.  Menachem earned an MBA with a major in Finance from Tel Aviv University, and holds a BA in Economics and Accounting from Tel Aviv University. Menachem is a director of a large number of companies operating in a variety of business segments.

The Directors shall retire from office at the third Annual General Meeting after that at which they were last elected, and if they so wish, offer themselves up for re-election to the Board. Subject to the Companies Act and the Articles, the Directors to retire by rotation at the Annual General Meeting in every year shall be in addition to any Director who wishes to retire and not to offer himself for reappointment, any Director required to retire under the Company's Articles.  The interests of the Directors and their related companies in the shares and options over shares in the Company are as shown on page 19. Details of the Directors' remuneration and service contracts also appear on page 19.

The Directors submit their annual report and audited financial statements of the Group for the year ended 31 December 2009.

Directors' responsibilities in relation to the financial statements

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and International Financial Reporting Standards as adopted by the European Union.

The Directors are required to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Group and of the profit or loss of the Group for that period.  In preparing these financial statements, the Directors are required to:

·      Select suitable accounting policies and then apply them consistently;

·      Make judgments and estimates that are reasonable and prudent;

·      State whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements;

·      Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business.

The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Company's transactions, and at any time enable the financial position of the Company to be determined with reasonable accuracy and enable them to ensure that the financial statements comply with the applicable law.  They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Group's website.  Legislation in the British Virgin Islands governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Disclosure of information to the Auditor

In so far as the Directors are aware:

·      there is no relevant audit information of which the Company's auditor is unaware; and

·      the Directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditor is aware of that information.

Substantial Shareholdings

As at 30 April 2010 the Directors are aware of the following interests in 3 per cent or more of the Company's issued ordinary share capital:

* after consideration of treasury shares see details at note 14 .

Save as disclosed in this report and in the remuneration report, the Company is not aware of any person who is interested directly or indirectly in 3 per cent or more of the issued share capital of the Company or could, directly or indirectly, jointly or severally, exercise control over the Company.

Details of transactions with Directors are disclosed in note 35 to the financial statements.

Corporate Governance Statement

Introduction

The Company recognises the importance of the principles of good Corporate Governance and the Board is pleased to accept its commitment to such high standards throughout the year.  As an AIM quoted company, Livermore is not required to follow the provisions of the 2008 FRC Combined Code ("the Code").  However, the Company is keen to adopt and promote the provisions of that Code.  Up to 31 December 2009 the Board has adopted several provisions of the Code, some of which have not yet been fully implemented. 

The Board Constitution and Procedures

The company is controlled through the Board of Directors, which currently comprises two Non-Executive Directors and two Executive Directors.  The Chief Executive's responsibility is to focus on co-ordinating the company's business and implementing group strategy. 

A formal schedule of matters is reserved for consideration by the Board, which meets approximately four times each year.  The Board is responsible for implementation of the investing strategy as described in the circular to shareholders dated 6 February 2007 and adopted pursuant to shareholder approval at the Company's EGM on 28 February 2007.  It reviews the strategic direction of the Group, its codes of conduct, its annual budgets, its progress towards achievement of these budgets and any capital expenditure programmes.  In addition, the Directors have access to advice and services of the Company Secretary and all Directors are able to take independent professional advice if relevant to their duties.  The Directors receive training and advice on their responsibilities as necessary.  All Directors, in accordance with the Code, submit themselves to re-election at least once every three years.

Board Committees

The Board delegates clearly defined powers to its Audit and Remuneration Committees. The minutes of each Committee are circulated by the Board. 

Remuneration Committee

The Remuneration Committee comprises of the Non-Executive Chairman of the Board and a Non-Executive Director. The Remuneration Committee considers the terms of employment and overall remuneration of the Executive Directors and key members of Executive management regarding share options, salaries, incentive payments and performance related pay.  The remuneration of Non-Executive Directors is determined by the Board.

Audit Committee

The Audit Committee comprises of the Non-Executive Chairman of the Board and a Non-Executive Director and is chaired by the Chairman of the Board.  The duties of the Committee include monitoring the auditor's performance and reviewing accounting policies and financial reporting procedures. 

Communication with Investors

The Directors are available to meet with shareholders throughout the year.  In particular the Executive Directors prepare a general presentation for analysts and institutional shareholders following the interim and preliminary results announcements of the Company.  The chairman, Richard Rosenberg, is available for meetings with shareholders throughout the year.  The Board endeavours to answer all queries raised by shareholders promptly.

Shareholders are encouraged to participate in the Annual General Meeting at which the Chairman will present the key highlights of the group's performance.  The Board will be available at the Annual General Meeting to answer questions from shareholders.

Internal Control

The Board is responsible for ensuring that the Company has in place a system with internal control and for reviewing its effectiveness.  In this context, control is defined in the policies and processes established to ensure that business objectives are achieved cost effectively, assets and shareholder value safeguarded and that laws and regulations are complied with.  Controls can provide reasonable but not absolute assurance that risks are identified and adequately managed to achieve business objectives and to minimise material errors, frauds and losses or breaches of laws and regulations.

The Group operates a sound system of internal control, which is designed to ensure that the risk of mis-statement or loss is kept to a minimum.

Given the Group's size and the nature of its business, the Board does not consider that it is necessary to have an internal audit function.  An internal audit function will be established as and when the group is of an appropriate size.

The Board undertakes a review of its internal controls on an ongoing basis.

Independence of Auditor

The Board undertakes a formal assessment of the auditor's independence each year, which includes:

·      a review of non-audit related services provided to the Company and related fees;

·      discussion with the auditor of a written report detailing all relationships with the Company and any other parties which could affect independence or the perception of independence;

·      a review of the auditor's own procedures for ensuring independence of the audit firm and partners and staff involved in the audit, including the rotation of the audit partner;

·      obtaining written confirmation from the auditors that they are independent;

·      a review of fees paid to the auditor in respect of audit and non-audit services.