Joint Stock Company

“TALSU MEZRUPNIECIBA” No. of reg. 40003113243

Not audited Financial report

2006, on 31.03.

Talsu district, Stende

TABLE OF CONTENTS FINANCIAL REPORT ...... 3 BALANCE SHEET ON 31 MARCH 2006...... 3 PROFIT OR LOSS ACCOUNT ...... 5 CASH FLOW STATEMENT...... 6 STATEMENT OF CHANGES IN OWN CAPITAL ...... 7 ANNEX...... 8 INFORMATION ABOUT STOCK COMAPANY ...... 8 INFORMATION FOR THE “BALANCE SHEET ON 31 March 2006”...... 10 INFORMATION FOR “PROFIT OR LOSS ACCOUNT” ...... 12 GUIDANCE REPORT ...... 13

2 JSC ”TALSU MEŽRŪPNIECĪBA” Not audited Financial report – 2005 on 31.03. FINANCIAL REPORT

BALANCE SHEET on 31 March 2006

ASSETS Annex 31.03. 31.03. 31.03. 31.03. No 2006. 2005. 2006. 2005. LVL LVL EUR EUR 1. 2. 3. 4. 5. 6.

1. Long-term investments I Intangible assets: 1. Concessions, patents, licences and similar rights 950 865 1352 1230 I Total 1. 950 865 1352 1230 II Fixed assets: 1. Land, buildings, perennial plantations 39505 43844 56210 62384 2. Non-current investments in leasehold improvements - - - - 3. Equipment and machinery 307599 256863 437674 365483 4. Other fixtures, fittings and equipment 2294 3494 3263 4971 5. Costs of up-building of fixed assets and unfinished buildings 57211 - 81403 - 6. Advance payment for fixed assets -- - - II Total 2. 406609 304201 578550 432838 III Non-current financial investments - - - - 1. Other securities - - - - III Total - - - -- Total of paragraph 1 391643 305066 579902 434068

2. Current assets I Inventories: 1. Raw materials and auxiliary materials 7703 14014 10960 19940 2. Finished goods and goods for sale 143370 55032 203998 78303 3. Prepayments for goods 5063 5063 7204 7204

I Total 156136 74109 222162 105447 II Receivables: 1. Trade receivables 244437 190962 347802 271572 2. Other receivables 3. 11607 17678 16515 25153 3. Prepaid expense 6530 27288 9291 38827 II Total 262574 235828 373608 335552 Pašu akcijas un daļas 766 1089

III Cash 425 193 605 275 Total of paragraph 1 419135 310896 596375 442363 BALANCE 826694 615962 1176277 876431

3 JSC ”TALSU MEŽRŪPNIECĪBA” Not audited Financial report – 2005 on 31.03.

EQUITY AND LIABILITIES Annex 30.03. 31.03. 30.03. 31.03. No 2006. 2005. 2006. 2005. LVL LVL EUR EUR 1. 2. 3. 4. 5. 6.

1. Capital and Reserves 1. Share capital 495699 495699 705316 705316 2. Retained earnings: a) brought forward -56183 -108986 -79941 -155073 b) for the period 21875 -5188 31125 -7382 Total of paragraph 1 461391 381525 656500 542861 Uzkrājumi 43047 61249

2. Liabilities I Long-term liabilities: 4. 143785 118776 204587 169003 1. Other liabilities I Total 143785 118776 204587 169003 II Current liabilities: 1. Other liabilities 5. 51018 68147 72593 96963 2. Prepayments received from costumers 297 - 422 - 3. Trade payables 86488 30458 123061 43338 4. Taxes payable 6. 20126 2783 28636 3958 5. Other liabilities 7. 20542 14273 29229 20308 II Total 178471 115661 253941 164567 Total of paragraph 2 322256 234437 458528 333571 BALANCE 826694 615962 1176277 876431

4 JSC ”TALSU MEŽRŪPNIECĪBA” Not audited Financial report – 2005 on 31.03. PROFIT OR LOSS ACCOUNT (according to the method of turnover costs)

Annex For the For the For the For the No. Indication No year 2006 year 2005 year 2006 year 2005 3 month 3 month 3 month 3 month LVL LVL EUR EUR 1. Net turnover 8. 492720 303141 701077 431331 2. Inventory changes of finished goods and 9. unfinished production -- - - 3. Other revenues from economic activity 10. -- - - 4. Material costs 11. 427255 240212 607928 341790 a) raw material and auxiliary material costs 356426 195605 507148 278320 b) other costs 70829 44607 100780 63470 5. Staff costs 10050 9431 14299 13419 a) wages and salaries 10050 9431 14299 13419 b) other social security expense 6. Value and asset write-off - a) depreciation write-off of fixed assets b) residual value of excluded tangible fixed assets -- - - b) write-off of current assts 12. 7. Other expense of economic activity 13. 31842 53199 45308 75695 8. Other interest receivable and similar income 14. 9. Interest payable and similar expense 15. 1366 1980 1944 2818 10. Profit /Loss before taxes 22207 -1681 31598 -2391 11. Other taxes 16. 332 3507 473 4991 12. Profit/Loss for the reporting year 21875 -5188 31125 -7382 Profit on stock 0.044 -0.010 0.044 -0.010

5 JSC ”TALSU MEŽRŪPNIECĪBA” Not audited Financial report – 2005 on 31.03. CASH FLOW STATEMENT (indirect method)

For the For the For the For the No. Income and expense positions 31.03.2006 31.03.2005 31.03.2006 31.03.2005 LVL LVL EUR EUR

I Cash flow of basic activity 1. Taxable sales revenue 21875 -5188 31125 -7382 adjusting ever(enterprise income-tax) 2. Wear and tear 3. Result from sale 4. Wariations of stocks 2313 3292 5. Wariations of debts -28595 25033 -40688 35619 6. Wariations of payable 20297 15770 28880 22439 7. Deferred outcome -36 -16742 -51 -23822 8. Paid-up income tax of enterprise Net cash of basic activity 15854 18873 22558 26854

II Cash flow of investment 1. Purchase of tangible fixed and intangible fixed assets -15916 -18996 -22646 -27029 2 Paid-up investments - 3. Prepayment for fixed assets - Net cash of basic activity -15916 -18996 -22646 -27029

III Cash flow of financing 1. Entered cash from joint-stock emission - - 2. Entered cash from loan - - - - 3. Paid cash loan repayment 4. Paid cash loan about leasing Net cash flow of financing

IV Net increase/decrease of cash -62 -123 -88 -175

V Cash balance at the beginning of 487 316 693 449 reporting year

VI Cash balance at the end of reporting year 425 193 605 274

6 JSC ”TALSU MEŽRŪPNIECĪBA” Not audited Financial report – 2005 on 31.03. STATEMENT OF CHANGES IN OWN CAPITAL

Share Retained Share Retained Indication capital earning Total capital earning Total LVL LVL LVL EUR EUR EUR Balance at 31 December 2004 495699 -123385 372314 705316 -175561 529755 Earning of 3 month 2005 - -5188 -5188 - -7328 -7328 Balance at at 31.03. 2005 495699 -128573 381525 705316 -182943 542861 Balance at 31 December 2005 495699 -56183 439516 705316 -79941 627375 Dividends calculated for the year 2005 ------Earning of 3 month 2005 - 21875 21875 - 31125 31125 Balance at at 31.03. 2006 495699 -34308 461391 705316 -48816 656500

7 JSC ”TALSU MEŽRŪPNIECĪBA” Not audited Financial report – 2005 on 31.03. ANNEX

INFORMATION ABOUT STOCK COMAPANY

The financial report has been prepared according to law „On Accountancy”, “On the Annual Accounts of Undertaking”, “Latvian Accountancy Standards” and other normative documents. Profit or loss account has been prepared according to scheme of vertical outline and classification by method of turnover costs. The accounting and appreciation methods used are the same that were used in the preceding year of account. Non-current investments have been appreciated according to their acquisition cost. The cadastre value of the land in Talsi district, Stende, Dumpīšu 3 has been assessed at Ls 1500.- The write-off of the value of such non-current intangible assets as software is done on a straight- line basis annually for equal amount.

The stated depreciation of fixed intangible assets is calculated on a straight-line basis using the norms of amortisation defined by the stock company.

The norms of amortisation of specific investment categories are following: Technological equipment and machinery 5; 10 years Other fixtures and fittings 5 years Computing and similar devices 3 years

The valuation of inventories in financial accountancy is being done using continuous inventory method. The inventories have been evaluated at their purchase or production cost price using weighted average price method. The measure of value and currency used in the financial report is lats - official currency of the Republic of Latvia. All monetary positions of assets, equities and liabilities have been converted into lats according to the currency exchange rate by Bank of Latvia on the last day of accounting year 31.03.2005. For the informative purpose the, above stated positions have been converted to EUR according to the exchange rate of Bank of Latvia on 31.03.2005 0,702804 LVL/ EUR Balances of receivables stated in the balance sheet are at their net values. The provisions are to be established for the debts that are recognised as doubtful and the evaluation of which has been done individually, and analyzing the repayment of debts in the preceding years. At the end of the accounting year the non-collectable receivables are written off from the formerly established provisions, when their recovery is deemed impossible. All receivable amounts stated in the balance sheet are to be received in the coming year after the date of balance sheet. All liabilities are to be settled within the period of year except the ones stated in the interpretation of the balance sheet. As the prepaid expenses there have are stated insurance costs, all kind of subscription and similar kind of expense for the year 2005. Net turnover is income from the sales of finished goods and services provided taken away all the discounts during the year. Other revenues form income from exclusion of fixed assets and subsidies received. Other interest receivable and similar income is income that is not directly from the economic activity. Stock company is a payer of an corporate income tax and it is applied at the rate of 15% according to the law “On Corporate Income Tax”.

8 JSC ”TALSU MEŽRŪPNIECĪBA” Not audited Financial report – 2005 on 31.03. Stock company is a legal entity that has been registered according to the law “On Value-added Tax” and therefore is liable to tax. Name and registered Joint stock company ”Talsu mežrūpniecība”, office: Number of registration No.40003113243 Eksporta 26, Tukums, LV-3104, Phone: +371 3274257, fax + 371 3291388 Period of account: 1 January 2005 – 30 June 2005 Type of basic activity: Timber cutting;wood-working Share capital: On 1 January 2006 LVL 495 699 Nominal value of one stock LVL 1.00 Total number of stocks 495 699 of which owned by board and without vote rights 2300 Amount of emission registered at LCD 230 000 Stake holder: 146 377 (29.5%) Ltd. ”RALLE”, Number of registration No.40003685532, 163 202 (32.9%) Ltd. “TimberMart Holdings”, No.37354. Auditor: Certified auditor Velta Drīksna, certificate No. 45, Celtnieku 26,Talsi Board: 1.Gatis Štāks, Chairman of the Board, of JSC ”Talsu mežrūpniecība” 2.Ruta Krūze, marketing manager of JSC ”Talsu mežrūpniecība”, member of the board. 3.Natālija Mazenko, head accountant Ltd. “CORD”,member of the board. Council: 1.Ian Frederick Thomson, director of Ltd “CORD”, head of council. 2.Ivo Šneiders, executive director of Ltd “CORD”, vice head of council. 3.Andra Ožeta, secretary of Ltd “CORD”, member of council. 4.Sanita Berķe, marketing manager of Ltd “CORD”, member of council. 5.Edgars Koškins, jurisconsult of Ltd.”CORD”, member of council. Types of activities: • Timber cutting • Wood-works

Average number of employees in the 2006 -69 , in 2005 - 59.

9 JSC ”TALSU MEŽRŪPNIECĪBA” Not audited Financial report – 2005 on 31.03. INFORMATION FOR THE “BALANCE SHEET ON 31 March 2006”

No Aquisition Amorti- Residual Aquisitio Amorti- Residual . cost zation value n cost zation value LVL LVL LVL EUR EUR EUR 1. Intangible assets 1.1. Software 950 - 950 1352 1352 Total 950 - 950 1352 - 1352

2. Fixed assets 2.1. Land, buildings, perennial plantations Including land 1500 - 1500 2134 - 2134 2.2. Non-current investments in leasehold improvements ------2.3. Equipment and machinery 2.4. Other fixtures, fittings and equipment 3494 1609 2293 4971 2289 3263 Including equipment ------2.5. Other fixtures, fittings and equipment 62248 5037 57211 88570 7167 81403 Total 348318 83688 391643 495609 119077 556024

31.12.05. 31.12.04. 31.12.05. 31.12.04. LVL LVL EUR EUR 3. Other receivables

3.1. VAT for goods and services received 6821 12657 9705 18009 3.2. Payments for amounts paid in advance - - - - 3.3. Payments from other debtors 4786 5021 6810 7144

Total 11607 17678 16515 25153 4. Long-term liabilities

4.1. Ltd.”Timber Mart holdings” 135835 118196 193275 168178

4.2. SEB UNILIZING 7562 - 10759 - 4.3.Nākamo periodu ieņēmumi 388 580 553 825

Total 143785 118776 204587 169003

5. Current liabilities 5.1. SC “SEB UNIBANK of Latvia” contact on financial leasing, due date15.04.2006. 51018 68147 72592 96963 5.2 SIA Unilīzings 11246 16001 5.2.Entered cash from buyers advance 297 - 422 -

10 JSC ”TALSU MEŽRŪPNIECĪBA” Not audited Financial report – 2005 on 31.03.

Total 62561 68147 89015 96963

31.03.06. 31.03.05. 31.03.06. 31.03.05. LVL LVL EUR EUR 6. Taxes payable 6.1. Payments to budget for VAT - - - - 6.2. Payments to budget for personal income tax 6.3. Payments to budget for tax 13459 470 19150 669 6.4. Payments to budget for social insurance 6626 2293 9428 3632 6.5. Payments to budget for natural resource tax 24 34 6.6. State duty for the risk of entrepreneurship 17 20 24 28

Total 20126 2783 28636 3958

7. Other liabilities 7.1. Wages and salaries 20542 14273 29229 20308 7.2. Liabilities to other entities - - - - 7.3. Account payments for amounts paid in advance - - - - 7.4. Payments to budget for VAT - - - - Total 20542 14273 29229 20308

11 JSC ”TALSU MEŽRŪPNIECĪBA” Not audited Financial report – 2005 on 31.03. INFORMATION FOR “PROFIT OR LOSS ACCOUNT”

For the For the For the For the No. Indication 31.03.2006 31.03.2005 31.03.2006 31.03.2005 LVL LVL EUR EUR 1. 2. 3. 4. 3. 4.

8. Net turnover: 8.1. Deals with wood-logs 468444 286970 666535 408321 8.2. 8.3. 8.4. 8.5. 8.6. 8.7. Materials and services 24276 16171 34542 23010 8.8. 8.9 Other Total 492720 303141 701077 431331

9. Inventory changes of finished goods and unfinished production

10. Other revenues from economic activity: 10.1. Revenue from state subsidies - - - - 10.2. Revenue from exclusion of fixt assets - - - - 10.3. Revenue from insurance compensation - - - - Total --- - 11. Material costs, 427255 240212 607928 341790

12. Write-off of current assts, Including written off non-collectable receivables written off damaged goods - - - -

13. Other expense of economic activity, 31842 53199 45308 75695 including representative expense - - - -

14. Other interest receivable and similar income: 14.1. Interest 14.2. Fluctuation of foreign currencies - - - - 14.3. Penalties - - - - 14.4. Recovered doubtful and non- collectable receivables 1. 2. 3. 4. 3. 4. 14.5. Other revenue Total 15. Interest payable and similar expense: 12 JSC ”TALSU MEŽRŪPNIECĪBA” Not audited Financial report – 2005 on 31.03. 15.1. Interest paid and similar payments 1109 1980 1579 2818 including interest for long-term loans 257 - 365 - 15.2. Fluctuation of foreign currencies - - - - Penalties paid - - - - 15.4. Expense other than from economic --- - activity 15.5. Other expense - - - -

Total 1366 1980 1944 2818 16. Other taxes: 16.1. Real estate tax 332 147 473 210 16.2. Personal income tax 3360 4781 16.3.

Total 332 3507 473 4991

GUIDANCE REPORT

Action kind – timbercutting; woodworking An enerprice short action description in 2006 JSC “Talsu mezrupnieciba” the forest fund after long-term agreements was 3900.-m3. Actually in 03 month of the 2006 are produced 12000 m3 woods, (int.al. 9000 m3 timber and 3000 m3 firewood) and produced 2040 m3 poles and 5560.- m3 woodchips and earn Ls 16335. Our enterprice offered transport services about Ls 30990 .- JSC “Talsu mežrupnieciba” concluded the first quarter of 2006 with LVL 21875 of earnings, the earnings on an action LVL 0.044.

Chairman of the Board Gatis Štāks

13 JSC ”TALSU MEŽRŪPNIECĪBA” Not audited Financial report – 2005 on 31.03.