Research and Development expenses in the second quarter of fiscal 2004 were 606,00€. The decrease was primarily due to reduced headcount-related costs, project development costs, and third party development costs.

General and Administrative costs were 20,00€ in the first quarter.

Short-term Investment in ZB-trend Shares
The Foundation holds 365 shares of ZB trend purchased for a sum total of 37.310,30€ during the first 3 months period of fiscal 2004.

Long-term Depts Man Foundation has no material long-term debt. Management believes existing cash and short-term investments together with funds (expected to be) generated from operations should be sufficient to meet operating requirements

General Economic and Geo-Political Risks
Continued softness in arts industry, financial markets, corporate information technology or other changes in general economic conditions that affect demand for such projects could adversely affect the foundation’s revenues. Continued Terrorist activity and the threat of armed conflict in Iraq or other parts of the world pose the additional risk of general economic disruption and could require changes in our international operations and security arrangements increasing the Foundation’s operating costs.

Natural and Topographical Risks
In the second quarter the weather and related specific risks, such as avalanches and storms, were lower than average. The risks related to topography of Variable Risk Landscape continued to be high in case of the steep slopes. No injuries and no damage to equipment were reported.

Competition
The Foundation continues to experience intensive competition across all art market. These competitive pressures may result in decreased sales volumes, price reductions, and/or increased operating costs such as marketing incentives, resulting in lower revenues, gross margins and operating income. The project is in the middle stages and has improved somewhat its recognition on the market.

Quantitative and Qualitative Disclosures About Market Risk
The Foundation is still exposed to foreign currency, interest rate, and fixed income and equity price risks. A portion of these risks is hedged, but fluctuations could impact the foundation’s results of operations and financial position. The Foundation monitors its foreign currency exposures daily to maximize the overall effectiveness of its foreign currency hedge positions. Principal currencies hedged include the Euro and US dollar.

The next Quarterly Report is scheduled to be released in July 2004.