AUDIT REPORT on JSC Acron Consolidated Financial Statements for the Year 2007 Moscow, 2008 CONTENTS Page I AUDITOR 3 II AUDITED COMPANY 4 III EXECUTIVE SUMMARY 5 Annex 1 Consolidated Balance Sheet as of December 31, 2007 Annex 2 Consolidated Profit and Loss Statement for the year 2007 Annex 3 Consolidated Statement of Shareholders’ Equity for the year 2007 Annex 4 Consolidated Cash Flow Statement for the year 2007 Annex 5 Consolidated Balance Sheet Supplement for the year 2007 Annex 6 Explanatory Note for the year 2007 Audit Team Leader __________________ E.I.Tikhonov 2 I AUDITOR (1) Name: LLC Baker Tilly Russaudit (2) Domicile: 95 Prospect Mira, 129085 Moscow, Russia. (3) Phone No.: + 7 495 788 09 06, +7 495 647 24 20. Fax No.: +7 495 647 24 22. (4) License: for general audit No. E006075 issued by Order No. 158 of the Ministry of Finance of the Russian Federation as of June 24, 2004; the License is valid for the period of five years upon the date of its issuance. (5) Certificate of State Registration No. 015.468 dd. September 8, 1992 issued by the Moscow Registration Chamber; main state registration number (OGRN) 1037700117949. (6) Membership with accredited professional audit associations: - Institute of Professional Auditors, a non-profit partnership; - Institute of Professional Accountants of Russia, a non-profit partnership, as well as: Baker Tilly International (an independent member). Audit Team Leader __________________ E.I.Tikhonov 3 II AUDITED COMPANY (7) Name: JSC Acron (8) Domicile: JSC Acron Site, 173012 Veliky Novgorod, Russia (9) Certificate of State Registration: - Resolution of the Novgorod City Administration No.3835rz dd. November 19, 1992 to re-register the State Enterprise Novgorod Production Association Azot as Joint Stock Company Acron; - Certificate of an entry made to the Unified State Register of Legal Entities regarding the legal entity registered prior to July 1, 2002, under the main state registration number 1025300786610 (series 53 No.0744746). Audit Team Leader __________________ E.I.Tikhonov 4 III EXECUTIVE SUMMARY on the Financial Statements for the Year 2007 (10) We have audited the accompanying consolidated financial statements of JSC Acron for the year 2006 issued on March 26, 2008. These statements have been prepared by Acron’s executive body on the basis of the accounting and reporting principles and methods established under the laws and regulations of the Russian Federation. (11) The consolidated financial statements of Acron include: - Consolidated Balance Sheet; - Consolidated Profit and Loss Statement; - Supplements to the Consolidated Balance Sheet and Consolidated Profit and Loss Statement; - Explanatory Note to consolidated statements. (12) These financial statements are the responsibility of JSC Acron executive body. Our responsibility is to express an opinion, based on our audit, whether these financial statements are true and fair in all material aspects, and whether the applied accounting principles comply with the laws of the Russian Federation. (13) We conducted our audit in accordance with: - Federal Law of the Russian Federation No. 119-FZ dd. August 7, 2001 On Audit in the Russian Federation; Audit Team Leader __________________ E.I.Tikhonov 5 - the Federal Audit Rules (Standards); - Internal Audit Standards of the Institute of Professional Auditors (or International Audit Standards) to the extent not contradicting to the Federal Audit Standards; - Internal Audit Standards of LLC Baker Tilly Russaudit; - Regulations of the Ministry of Finance of the Russian Federation; and subject to the Contract No. 106/2008А entered into with JSC Acron as of March 14, 2008. (14) The audit was planned and performed to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The audit is performed on a random basis and includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. The audit also includes assessing the accounting principles and methods used, the rules for preparation of consolidated financial statements, and significant estimates made by management of the audited Company, as well as evaluating the overall representation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion on these consolidated financial statements, and on whether the accounting principles have been in compliance with the laws of the Russian Federation. (15) In our opinion, the accompanying consolidated financial statements for the year 2007 are true and correct, i.e. present fairly, in all material respects, JSC Acron assets and liabilities as of December 31, 2007 as well as financial results of its operations for the period from January 1 to December 31, 2007 inclusive, in compliance with Federal Law No. 129-FZ dd. November 21, 1996 On Accounting. Audit Team Leader __________________ E.I.Tikhonov 6 Moscow March 26, 2008 LLC Baker Tilly Russaudit E.V.Samoilov General Director (Auditor’s Qualification Certificate No.K017948, dated August 5, 2004 (Minutes No.94 dated June 28, 2001) continues in force indefinitely ) Е.I. Tikhonov Audit Team Leader (Auditor’s Qualification Certificate No. К014700, dated April 8, 2004 (Minutes No.54, dated March 27, 1998) continues in force indefinitely) 7 JSC ACRON CONSOLIDATED BALANCE SHEET as of December 31, 200 7 Stated in RUR '000s OKUD Form No.1 0710001 ASSETS Code Opening Balance Closing Balance 1234 I. NON-CURRENT ASSETS Intangible assets 110 2 437 647 2 548 992 including subsidiaries' goodwill 111 2 432 474 2 543 939 Fixed assets 120 6 428 178 7 238 776 Construction in progress 130 1 948 745 2 593 058 Income-bearing investment in tangible assets 135 - - Long-term investment 140 8 538 084 18 410 814 Deferred tax assets 145 28 116 45 862 Other non-current assets 150 24 460 11 996 TOTAL under Section I 190 19 405 230 30 849 498 II. CURRENT ASSETS Inventories 210 4 386 164 4 925 320 including: feedstock, raw materials and similar assets 211 3 478 615 4 010 232 rearers and feeders 212 69 838 88 429 cost of production in progress 213 125 637 137 089 finished goods and goods for resale 214 297 376 300 042 shipped goods 215 124 453 85 722 prepaid expenses 216 290 245 303 668 other inventories and costs 217 - 138 Input Value Added Tax 220 311 418 206 231 Accounts receivable (due in more than 12 months after the accounting date) 230 106 287 282 809 including trade receivables 231 106 018 256 455 Accounts receivable (due within 12 months after the accounting date) 240 3 774 502 3 805 642 including trade receivables 241 1 202 606 620 553 Short-term financial investment 250 662 078 655 257 Cash 260 1 435 676 1 658 247 Other current assets 270 62 197 41 192 TOTAL under Section II 290 10 738 322 11 574 698 TOTAL300 30 143 552 42 424 196 8 Form 0710001 page 2 LIABILITIES Code Opening Balance Closing Balance 1234 III. EQUITY Charter capital 410 238 438 238 438 Treasury stockT 411 -- Capital surplus 420 1 834 823 1 848 603 Capital reserves 430 411 699 457 704 including statutory reserves 431 11 922 11 922 reserves formed under constituent documents 432 399 777 445 782 Retained profit (loss) 470 12 892 296 23 895 134 TOTAL under Section III 490 15 377 256 26 439 879 Minority interest 1 552 702 2 064 012 Subsidiaries goodwill 34 863 34 174 IV. LONG-TERM LIABILITIES Loans and borrowings 510 5 349 659 3 224 105 Deferred tax liabilities 515 1 949 398 4 366 622 Other long-term liabilities 520 41 555 85 754 TOTAL under Section IV 590 7 340 612 7 676 481 V. SHORT-TERM LIABILITIES Loans and borrowings 610 1 883 163 2 261 805 Accounts payable 620 3 267 223 3 353 402 including: trade payables 621 1 659 394 1 753 031 payroll payable 622 65 054 110 383 accounts payable to state non-budgetary funds 623 59 877 72 237 taxes payable 624 144 656 431 963 other accounts payable 625 1 338 242 985 788 Dividends payable to members (founders) 630 659 278 576 345 Deferred revenues 640 5 674 3 370 Provision for future expenses 650 -- Other short-term liabilities 660 22 781 14 728 TOTAL under Section V 690 5 838 119 6 209 650 TOTAL 700 30 143 552 42 424 196 Statement of Valuables Recorded Off Balance Sheet Rented fixed assets 910 864 500 1 026 057 including under lease arrangements 911 - - Tangibles in custody 920 166 461 153 162 Goods accepted for commission 930 - - Bad debt written off to losses 940 49 345 65 267 Securities for liabilities and payments received 950 2 869 - Securities for liabilities and payments issued 960 4 432 970 3 297 482 Depreciation of the housing stock 970 3 290 2 642 Depreciation of outdoor infrastructure and similar objects 980 226 513 Intangible assets received for use 990 - - PresidentIvan N. Antonov Chief Accontant Nadezhda A.Pavlova /Signature/ /Name/ /Signature/ /Name/ March" 26" 200 8 9 JSC ACRON CONSOLIDATED PROFIT AND LOSS STATEMENT for the year 200 7 Stated in RUR '000s OKUD Form No. 2 0710002 Item Corresponding Prior Description Code Accounting Period Period 1234 Operating revenues and expenses (Net) proceeds from the sale of goods, products, works and services (less value added tax, excise duties and similar charges) 010 30 876 180 24 060 660 Cost of sold goods, products, works and services 020 (17 713 286) (14 645 041) Gross profit 029 13 162 894 9 415 619 Sales expenses 030 (2 660 212) (1 965 082) Administrative expenses 040 (1 975 444) (1 871 782) Sales profit (loss) 050 8 527 238 5 578 755 Other revenues and expenses Interest receivable 060 57 938 63 556 Interest payable 070 (493 549)