SAF Tehnika

Annual / Quarterly Financial Statement • Oct 28, 2013

A/S SAF Tehnika Consolidated financial statements

for year ended 30 June 2013

Contents

	Page
Information on the Parent company	3
Management Report	4 - 5
Statement of the Board's Responsibilities	6
Independent Auditors' Report	7 - 8
Consolidated financial statements:
Consolidated Statement of Financial Position	9
Consolidated Statement of Profit or Loss and Other Comprehensive Income	10
Consolidated Statement of Changes to the Shareholders' Equity	11
Consolidated Statement of Cash Flows	12 - 13
Notes to the Consolidated Financial Statements	14 - 45

Information on the Parent company

Name of the company	A/S "SAF Tehnika"
Legal status	Joint Stock Company
Number, place and date of registration	40003474109 Riga, Latvia, 27 December 1999 Registered with the Commercial Register on 10 March 2004
Address	Ganību dambis 24a Riga, LV -1005 Latvia
Name of shareholders	Didzis Liepkalns (17.05%) Andrejs Grišāns (10.03%) Normunds Bergs (9.74%) Juris Ziema (8.71%) Vents Lācars (6.08%) lvars Senbergs (5.27%) (until 4 September 2013) Koka Zirgs SIA (5.27%) (from 4 September 2013) Other shareholders (43.12%)
Names of the Council members, their positions	Vents Lacars - Chairman of the Council Juris Ziema - Member of the Council Andrejs Grišans - Member of the Council Ivars Senbergs - Member of the Council Aivis Olšteins - Member of the Council (from 13 November 2012)
Names of the Board members, their positions	Normunds Bergs - Chairman of the Board Didzis Liepkalns - Member of the Board Aira Loite - Member of the Board Jānis Ennītis - Member of the Board (until 1 March 2013)
Reporting period	1 July 2012 - 30 June 2013
Previous reporting year	1 July 2011 - 30 June 2012
Subsidiary	100% - SAF North America LLC 10500 E.54" Avenue, Unit D Denver, Colorado 80239, USA
Joint venture	50% - SAF Services LLC 10500 E.54" Avenue, Unit D Denver, Colorado 80239, USA
Auditors and address	KPMG Baltics SIA License No 55 Vesetas iela 7 Riga, LV -1013 Latvia
	Armine Movsisjana Sworn Auditor Certificate No. 178

Management Report

Line of business

The core business activity of SAF Tehnika AS (hereinafter - the Group) is the design, production and distribution of digital microwave transmission equipment. The Group offers comprehensive and costeffective solutions of wireless broadband connections for digital transmission of voice and data to the operators of fixed and mobile networks and providers of data transmission both in the public and private sector as an alternative to cable channels.

Activities during the reporting year

Net turnover of the Group in the 2012/ 2013 financial year was LVL 9.38 million (EUR 13.34 million) which represents a decrease by 3% comparing to the previous financial year. While the reporting year can be characterized by increasing global competition between producers of microwave transmission equipment, the Group managed to keep its customer base, meanwhile also attracting new customers by offering products according to market demands and highest quality standards. In addition, the Group developed customized solutions for particular client needs and provided support during installation and commissioning stages. Delays in the Group's supply chain and customer payments forced certain shipments to be put on hold, thus, affecting expected sales result.

Export represented 98.41% of turnover amounting to LVL 9.23 million (EUR 13.13 million). During the reporting period the products of the Group were exported to 86 countries in the world, three of which received the products of SAF for the first time.

Asia, Africa and Middle East regions has shown a 17% drop in total turnover accounting for comparatively smaller part (24%) for total revenue, whereas has been the only region that continued to show positive trends growing 21% on year-to-year basis and comprising 42% of the total Group's turnover. Although Europe, CIS region experienced strong results in the middle of FY 2012/ 2013, the annual revenue decreased by 13% while still retaining a strong portion (34%) from the total revenue. The continuously even split in revenues among the different regions has been the key element for maintaining stable revenue stream. This was achieved with the strong support provided by local partners as well as Group's offices and local SAF product warehouses in USA and Nigeria.

During reporting year the Group's Lumina products, apart from main Riga manufacturing site, were also produced at Siemens factory in Brazil, but due to closing of factory the production was ceased in September, 2013, after which the Group continues to make all further product deliveries from Riga factory.

The Group's export activities were supported by State agencies such as Latvian Guarantee Agency (LGA) which provided export credit guarantees committing to provide reimbursement in case foreign buyer does not make a contractual payment for the delivered goods or services in the specified time period. The Group also received support from Investment and Development Agency of Latvia (LIAA) in the form of co-financing for the Group's participation in industry exhibitions and for product development.

AfricaCom 2012 (Republic of South Africa), FutureCom 2012 (Brazil), CTIA Wireless 2013 (USA) and CeBIT 2013 (Germany) have to be mentioned as the most significant exhibitions SAF Tehnika participated in with the aim to strengthen the brand recognition and promote the SAF products in order to expand the customer and partner network. In addition, the Group increasingly introduced training programs on SAF Tehnika products and solutions via webinars and video tutorials, thus, focusing to reach broader audience and be more efficient in terms of receiving feedback and saving costs – both for client and the Group.

We are proud to mention that SAF Tehnika was acknowledged among 25 the best exporting brands of Latvia in the survey held in spring 2013 by branding professionals, Latvia Chamber of Commerce and Industry as well as Ministries of Economics and Foreign Affairs of Latvia.

The main CFIP product line retained the dominant share from total sales of the reporting year. CFIP Lumina proved to remain the flagship product, while other product modules, such as Freemile, CFIP 108, Marathon and Phoenix made a significant contribution to the Group still received orders for older CFM line which reflects that these products still can meet the needs of particular clients.

Management report (continued)

The establishment of local warehouse as well as sales EXW USA has been the main reason for increase in transportation and insurance expenses, marketing and various sales expenses reflected investments made into future sales, while delayed customer payments were reason for increased allowances for bad debts; in addition, unfavorable USD to LVL foreign exchange rates resulted in financial loss.

The Group's financial result of 2012/ 2013 was a loss of LVL 30 thousand (EUR 42 thousand).

Nevertheless, SAF Tehnika has retained financial stability. The audited net cash flow of the Group for 12 months was positive and amounted to LVL 646 thousand (EUR 919 thousand). In December 2012, the Parent company paid out dividends of LVL 0.1 per share amounting to LVL 297 thousand (EUR 423 thousand) in total.

During the reporting year the Group made investments in the amount of LVL 342 thousand (EUR 487 thousand) to acquire property, plant and equipment such as IT infrastructure, production and research equipment, as well as software and other licenses in order to improve manufacturing, R&D, testing and other company-wide processes. In addition Group invested in products certification.

Research and development

Continuous product development is the main driving force and success factor for the Group. During the reporting year the Group continued developing products for licensed and for the unlicensed frequencies by adding new features and customizing products for specific customer needs. New products are developed and designed not only being feature rich and cost effective in production and usage, but also designed to reduce installation and commissioning costs, which forms the largest part of expansion and operation expenses for communication networks. As a result, Spectrum Compact the world's first powerful handheld microwave spectrum analyzer - and the new Integra product line were introduced. With Integra product, the Group was proud to introduce the next generation product characterized by integrated antenna and next-generation microwave radio with industry leading compact form factor. These products are expected to become substantial components of the Group's product portfolio, help acquiring a new customer segment and increase the Group's global market share.

Future perspectives

The Group has diversified its portfolio to become a unique market player among the global point-topoint microwave manufacturers, not only providing equipment and managed services, but also providing solution for radio field engineers with the launch of the SAF Spectrum Compact. The Group sees demand for installation and commissioning and managed services and will broaden its offerings in this direction. Meanwhile, the Group prepares for full market enrolment of the announced Integra product, which is designed to be system optimized for small cell backhaul and other dense urban applications. At the same time the Group continues extensive R&D activities for further developing the new product line and adding new features to the existing products.

The Group will continue the market strategy of focusing on strategic niche markets both for products and regions.

The Group remains financially stable and with positive outlook for the next operating periods; however the Board of the Parent company refrains from giving any forward-looking sales and financial result statements.

Normunds Bergs Chairman of the Board

Didzis Liepkalns Member of the Board

Aira I nite Member of the Board Riga, 25 October 2013

5

Statement of the Board's responsibilities

The Board of SAF Tehnika A/S (hereinafter - the Parent company) is responsible for preparing the consolidated financial statements of the Company and its subsidiaries (hereinafter - Group).

The financial statements set out on pages 10 to 45 are prepared in accordance with the source documents and present fairly the consolidated financial position of the Group as at 30 June 2013 and the results of its financial performance and cash flows for the year then ended.

The above mentioned financial statements are prepared in accordance with International Financial Reporting Standards as adopted by the European Union on a going concern basis. Appropriate accounting policies have been applied on a consistent basis. Prudent and reasonable judgments and estimates have been made by the Management in the preparation of the financial statements.

The Board of SAF Tehnika A/S is responsible for the maintenance of proper accounting records, the safeguarding of the Group's assets and the prevention and detection of fraud and other irregularities in the Group. The Board is also responsible for compliance with requirements of normative acts of the countries where Group companies operate (Latvia and United States of America).

On behalf of the Board:

Normunds Bergs

Chairman of the Board

Didzis Liepkalns

Member of the Board

Aira Loite Member of the Board

Riga, 25 October 2013

KPMG Baltics SIA Vesetas iela 7 Riga LV 1013 I atvia

Phone +371 670 380 00 Fax +371 670 380 02 Internet: www.kpmg.lv

Independent Auditors' Report

To the shareholders of A/S "SAF Tehnika"

Report on the Consolidated Financial Statements

We have audited the accompanying consolidated financial statements of A/S "SAF Tehnika" and its subsidiaries ("the Group"), which comprise the consolidated statement of financial position as at 30 June 2013, the consolidated statements of profit and loss and other comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on pages 9 to 45.

Management's Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Reporting Standards as adopted by the European Union and for such internal controls as management determines are necessary to enable the preparation of these financial statements that are from material misstatement, whether due to fraud or error.

Auditors' Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance whether these financial statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of these financial statements, whether due to fraud or error. In making those risk assessments, we consider internal controls relevant to the Group's preparation and fair presentation of these financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal controls. An audit also includes evaluating the appropriateness of accounting principles used and the reasonableness of accounting estimates made by the Group management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Opinion

In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the A/S "SAF Tehnika" and its subsidiaries as at 30 June 2013, and of its consolidated financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union.

Report on Other Legal and Regulatory Requirements

In addition, our responsibility is to assess whether the accounting information included in the Consolidated Management Report, as set out on pages 4 to 5, the preparation of which is the responsibility of management, is consistent with the consolidated financial statements. Our work with respect to the Consolidated Management Report was limited to the aforementioned scope and did not include a review of any information other than drawn from the consolidated financial statements of the entity. In our opinion, the Consolidated Management Report is consistent with the consolidated financial statements.

KPMG Baltics SIA License No 55

Armine Movsisjana Member of the Board Sworn Auditor Certificate No 178 Riga, Latvia 25 October 2013

Consolidated statement of financial position

		30 June		30 June
	Note	2013 LVL	2012 LVL	2013 EUR	2012 EUR
ASSETS
Non-current assets
Property, plant and equipment	6	490 197	486 153	697 488	691 733
Intangible assets	6	66 664	92 404	94 854	131 479
Other long-term assets	6	77 067		109 656
Equity-accounted investees		10 106		14 380
Investments in other companies		835	500	1 188	711
Long term loans			1 898		2 701
Long term trade receivables Deferred tax asset	8	45 263		64 404
Total non-current assets	12	86 581	92 559	123 194	131 700
		776 713	673 514	1 105 164	958 324
Current assets
Inventories	7	2 988 179	2 975 301	4 251 795	4 233 472
Corporate income tax receivable		115 113	134 630	163 791	191 561
Trade receivables	8	1 883 827	1 257 693	2 680 444	1 789 536
Other receivables	9	155 120	272 597	220 716	387 871
Prepaid expenses		88 117	125 949	125 379	179 209
Loans	28	253 747	22 772	361 050	32 402
Placements with banks	10	415 063	1 858 393	590 581	2 644 255
Cash and cash equivalents	11	1 974 385	1 328 770	2 809 297	1 890 669
Total current assets Total assets		7 873 551	7 976 105	11 203 053	11 348 975
		8 650 264	8 649 619	12 308 217	12 307 299
SHAREHOLDERS' EQUITY
Share capital	13	2 970 180	2 970 180	4 226 185	4 226 185
Share premium		2 004 204	2 004 204	2 851 725	2 851 725
Translation reserve		(35)	51	(50)	73
Retained earnings		2 196 684	2 523 215	3 125 599	3 590 211
Total shareholders' equity		7 171 033	7 497 650	10 203 459	10 668 194
LIABILITIES
Current liabilities
Trade and other payables	14	920 896	736 937	1 310 317	1 048 567
Provisions	14	61 731	15 338	87 836	21 824
Other liabilities	14	302 121	366 736	429 880	521 818
Loans	15	9 896	5 485	14 081	7 805
Deferred income	16	184 587	27 473	262 644	39 091
Total liabilities		1 479 231	1 151 969	2 104 758	1 639 105
Total equity and liabilities		8 650 264	8 649 619	12 308 217	12 307 299

The accompanying notes on pages 14 to 45 form an integral part of these consolidated financial statements.

Normunds Bergs

orts

Didzis Liepkalns Member of the Board

Chairman of the Board

Aira Loite Member of the Board Riga, 25 October 2013

Consolidated Statement of Profit or Loss and Other Comprehensive Income

		For the year ended 30 June		For the year ended 30 June
	Note	2013 LVL	20172 LVL	2013 EUR	2012 EUR
Net sales Cost of goods sold	17 18	9 376 229 (7 092 090)	9 638 909 (7 319 608)	13 341 172 (10 091 135)	13 714 932 (10 414 864)
Gross profit Sales and marketing expenses	19 20	2 284 139 (1 722 391)	2 319 301 (1 475 838)	3 250 037 (2 450 742)	3 300 068 (2 099 928)
Administrative expenses Profit / (loss) from operating activities		(601 092) (39 344)	(438 310) 405 153	(855 277) (55 982)	(623 659) 576 481
Other income	21	59 503	67 567	84 665	96 139
Finance income	22	39 201	211 238	55 778	300 564
Finance expenses Net finance income/ (expenses)	23	(62 050) (22 849)	(649) 210 589	(88 289) (32 511)	(923) 299 641
Share of profit/ (loss) of equity- accounted investees, net of tax		(16 482)		(23 451)
Profit/ (loss) before taxes Corporate income tax	24	(19 172) (10 341)	683 309 (75 426)	(27 279) (14 714)	972 261 (107 322)
Current year's profit/ (loss)		(29 513)	607 883	(41 993)	864 939
Other comprehensive income Foreign currency recalculation differences for foreign operations		(86)	51	(123)	73
Total comprehensive income		(29 599)	607 934	(42 116)	865 012
Profit/ (loss) attributable to: Shareholders of the Parent		(29 513)	607 883	(41 993)	864 939
Total comprehensive income attributable to:
Shareholders of the Parent		(29 599)	607 934	(42 116)	865 012
Earnings per share attributable to the shareholders of the Parent (LVL / EUR per share)
Basic and diluted earnings/ (loss) per share	26	(0.010)	0.205	(0.014)	0.291
The accompanying notes on nages 14 to 45 form an integral part of these consolidated financial statements.

Normunds Bergs Chairman of the Board

aforts

Aira Loite Member of the Board

Riga, 25 October 2013

Didzis Liepkalns Member of the Board

Consolidated Statement of Changes to Shareholders' Equity

	Share capital LVL	Share premium LVL	Translation reserve LVL	Retained earnings LVL	Total LVL
Balance as at 30 June 2011	2 970 180	2 004 204		2 598 473	7 572 857
Transactions with owners of the Company, recognised directly in
Equity				(683 141)	(683 141)
Dividends for 2010 / 2011				(683 141)	(683 141)
Total comprehensive income			51	607 883	607 934
Profit for the year				607 883	607 883
Other comprehensive income			51		51
Balance as at 30 June 2012	2 970 180	2 004 204	51	2 523 215	7 497 650
Transactions with owners of the Parent company, recognised
directly in Equity				(297 018)	(297 018)
Dividends for 2011 / 2012				(297 018)	(297 018)
Total comprehensive income			(86)	(29 513)	(29 599)
Loss for the year				(29 513)	(29 513)
Other comprehensive income			(86)		(86)
Balance as at 30 June 2013	2 970 180	2 004 204	(35)	2 196 684	7 171 033
	Share capital	Share premium	Translation reserve	Retained	Total
	EUR	EUR	EUR	earnings EUR	EUR
Balance as at 30 June 2011	4 226 185	2 851 725		3 697 294	10 775 204
Transactions with owners of the Company, recognised directly in
Equity				(972 022)	(972 022)
Dividends for 2010 / 2011				(972 022)	(972 022)
Total comprehensive income			73	864 939	865 012
Profit for the year				864 939	864 939
Other comprehensive income			73		73
Balance as at 30 June 2012	4 226 185	2 851 725	73	3 590 211	10 668 194
Transactions with owners of the Parent company, recognised
directly in Equity				(422 619)	(422 619)
Dividends for 2011 / 2012				(422 619)	(422 619)
Total comprehensive income			(123)	(41 993)	(42 116)
Loss for the year				(41 993)	(41 993)
Other comprehensive income Balance as at 30 June 2013	4 226 185	2 851 725	(123) (20)	3 125 599	(123) 10 203 459

The accompanying notes on pages 14 to 45 form an integral part of these consolidated financial statements.

Normunds Bergs Chairman of the Board

Didzis Liepkalns Member of the Board

Dory

Aira Loite Member of the Board

Riga, 25 October 2013

Consolidated Cash Flow Statement

】【,】【"】【"】【"】【"】【"】【"】【"】【"】【"】【"】【"】【"】【"】【"】【"】【"】【"】【"】【"】【"】【"】【"】【"】【"】【"】【"】【

30 June 30 June 2013 2012 2013 LVL LVL EUR	2012 EUR
Profit/(loss) before taxes 683 309 (27 279) (19 172)	972 261
Adjustments for:
324 212 6 227 858 184 342 - depreciation	262 295
84 169 6 59 154 62 951 - amortization	89 571
- changes in write-down to net realizable
253 681 (99 837) 7 (70 166) value	360 956
- changes in provision for guarantees (15 546) 14 (3 607) (5 132)	(22 120)
- changes in provision for bonuses 71 144 14 50 000
- changes in accrued liabilities for unused 19 678 (39 232) 13 830 14	(55 822)
vacations 86 585 60 852 (152 282) - changes in doubtful debt allowances 8	(216 678)
(55 778) 21 (39 201) (55 047) - interest income	(78 325)
22 649 - interest expenses	923
- share of profit/ (loss) of equity-accounted
23 451 16 482 investees, net of tax
(54 141) (63 372) - government grants (44 538) 20	(77 036)
- (profit)/loss on disposal of property, plant
(1 555) (100) (1 092) and equipment	(142)
Operating profit before changes in current 356 286	1 235 883
250 400 868 584 assets	194 101
(Increase)/ decrease of stock 136 415 81 513 57 288 527 272	750 240
(Increase)/ decrease in receivables (848 840) (596 569)
Increase/(decrease) in payables (718 589) 316 955 450 988 39 947	(1 022 460) 1 157 764
Cash from operating activities 28 074 813 682 70 183	76 475
Government grants 49 325 53 747 20
(649) Interest payments Corporate income tax recovered/ (paid) (44 232) (410 955) 25	(923) (584 736)
(31 086) Other payments related to corporate income tax (3 927) (2 760)
24 Net cash flows from operating activities 455 825 61 971 43 553	648 580
Cash flows from investing activities
(166 140) Purchase of property, plant and equipment 6 (309 027) (439 706)	(236 396)
Proceeds from sales of property, plant and
1 636 100 1 150 equipment	142
Purchase of intangible assets (47 544) (87 881) 6 (33 414)	(125 043)
68 267 Interest income 64 130 47 978	91 249
Investments in other companies (335) (477)
Investment in equity-accounted investees (37 831) (26 588)
(400 000) Loans issued (281 122)
Loan repayment received 75 103 22 772 52 783	32 402
Net cash received from placements with banks/ 1 443 330 2 053 674 579 046	823 907
(placed with banks) Net cash flows from investing activities 1 273 122 894 755 412 027	586 261

The accompanying notes on pages 14 to 45 form an integral part of these consolidated financial statements.

Consolidated Cash Flow Statement (continued)

	Note	For the year ended 30 June		For the year ended 30 June
		2013 LVL	2012 LVL	2013 EUR	2012 EUR
Cash flows from financing activities
(Repaid) / received loans		4 411	(4 294)	6 276	(6 110)
Dividends paid		(297 018)	(683 141)	(422 618)	(972 022)
Net cash flows from financing activities		(292 607)	(687 435)	(416 342)	(978 132)
Effect of exchange rate fluctuations		(86)	51	(123)	73
Net increase of cash and cash equivalents		645 615	180 468	918 628	256 782
Cash and cash equivalents at the beginning of the
year		1 328 770	1 148 302	1 890 669	1 633 887
Cash and cash equivalents at the end of the year	11	1 974 385	1 328 770	2 809 297	1 890 669

The accompanying notes on pages 14 to 45 form an integral part of these consolidated financial statements.

Normunds Bergs Chairman of the Board

Didzis Liepkalns Member of the Board

Aira Loite Member of the Board

Riga, 25 October 2013

Notes to the consolidated financial statements

General information 1.

The core business activity of SAF Tehnika A/S (hereinafter - the Parent company) and its subsidiary (together hereinafter referred to as Group) is the design, production and distribution of microwave radio data transmission equipment offering an alternative to cable channels. The Group offers products to mobile network operators, data service providers (such as Internet service providers and telecommunications companies), as well as state institutions and private companies.

Promotion of the Parent's products and services, market research, attraction of new clients and technical support in North America is provided by a 100% subsidiary SAF North America LLC.

In August 2012 another company began operations in North America - SAF Services LLC in which the Parent company holds 50% shares (joint venture arrangement). The objective of establishing SAF Services LLC was to provide local clients with services connected with the creation, long-term maintenance and management of data transmission networks. Both of these companies are registered in the USA and operate in Denver, Colorado.

The Parent company is a public joint stock company incorporated under the Republic of Latvia. Its legal address is Ganību dambis 24a, Riga, Republic of Latvia.

The shares of the Parent company are listed on NASDAQ OMX Riga Stock Exchange, Latvia.

These consolidated financial statements (hereinafter - financial statements) were approved by the Parent company's Board on 25 October 2013. The financial statements will be presented for approval to the shareholders' meeting. The shareholders have the power to reject the financial statements prepared and issued by management and the right to request that new financial statements be issued.

2. Summary of accounting principles used

These consolidated financial statements are prepared using the accounting policies and valuation principles set out below. These policies have been applied consistently to all the years presented, unless otherwise stated.

The previous set of consolidated financial statements was prepared for the financial year ended 30 June 2012.

A Basis of preparation

These financial statements have been prepared in accordance with the International Financial Reporting Standards as adopted by the European Union (IFRSs). The financial statements have been prepared under the historical cost convention (including financial instruments available-for-sale as it is impracticable to determine their fair value).

Standards, amendments to standards and interpretations that became effective on or after 1 July 2012 and are applicable to financial statements for year ending on 30 June 2013:

Amendments to IAS 1 Presentation of Financial Statements: Presentation of Items of Other Comprehensive Income (effective for annual periods beginning on or after 1 July 2012; to be applied retrospectively) The amendments require that the Group presents separately the items of other comprehensive income that may be reclassified to profit or loss in the future from those that would never be reclassified to profit or loss. If items of other comprehensive income are presented before related tax effects, then the aggregated tax amount should be allocated between these sections. The amendments change the title of the Statement of Comprehensive Income to Statement of Profit or Loss and Other Comprehensive Income; however, other titles are also allowed to be used. The Group has adopted these amendments to IAS 1 early, i.e. from 1 July 2011. Prior to the amendments the Group used the name Statement of Profit and Loss which was renamed to the Statement of Profit and Loss and Other Comprehensive Income. Adopting the amendments from 1 July 2012, the Group has the following items of the other comprehensive income to be presented as items that may be reclassified to profit or loss in the future: LVL 51 (EUR 73) recognized in the foreign currency translation reserve. The Group does not have any other comprehensive income at the date of initial application.

Notes to the Consolidated financial statements (continued)

2. Summary of accounting principles used (continued)

A Basis of preparation (continued)

B Consolidation

(a) Subsidiaries

Subsidiaries are entities controlled by the Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.

The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.

(b) Joint ventures

The Group's interests in equity-accounted investees comprise interest in a joint venture.

A joint venture is an arrangement in which the Group has joint control, whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities.

Interests in the joint venture are accounted for using the equity method. They are recognized initially at cost, which includes transaction costs. Subsequent to initial recognition, the consolidated financial statements include the Group's share of the profit or loss and other comprehensive income of equityaccounted investees, until the date on which joint control ceases.

Subsidiaries and joint ventures controlled by the Parent company:

	Residence country	Number of shares	Subsidiary and joint venture's equity		Subsidiary and joint venture's losses
			LVL	30.06.2013 30.06.2012 2012/ 2013 LVL	LVL	2011/2012 LVL
SAF North America" LLC	United States of America	100%	13 076	1 240	(4 323)	(4 380)
SAF Services" LLC	United States of America	50%	9 912		(32 963)

The accounting policies of subsidiaries were changed when necessary in order to ensure consistency with those of the Group.

(c) Transactions eliminated on consolidation

Internal transactions, account balances and unrealized gains from transactions between the Group companies are eliminated. Unrealized gains are also eliminated unless objective evidence exists that the asset involved in the transaction has impaired. Unrealized gains arising from transactions with a joint venture are also eliminated.

C Foreign currency revaluation

(a) Functional and reporting currency

Items of each structural unit of the Group included in the financial statements of the Group are measured using the currency of the primary economic environment in which the structural unit operates (the accounting currency'). The financial statements are presented in Latvian Lats (LVL), which is the Group's functional currency.

The requirements of Riga Stock Exchange prescribe that all balances should also be reported in EUR. Using EUR as the presentation currency, the statement of profit and loss and other comprehensive income and the related notes were denominated in LVL according to the exchange rates set by the Bank of Latvia at the transaction date, whereas the statement of financial position and the related notes were revalued according to the exchange rates set by the Bank of Latvia at the reporting date. The translation of the financial statements into EUR has not resulted in foreign exchange gains or losses as the Latvian lat is pegged to EUR at the exchange rate of EUR 1 = LVL 0.702804.

Notes to the Consolidated financial statements (continued)

2. Summary of accounting principles used (continued)

C Foreign currency revaluation (continued)

(b) Transactions and balances

Transactions denominated in foreign currency are recorded at functional currency at the transaction date. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the profit or loss. The following Bank of Latvia Exchange rates were effective as at following dates:

	30.06.2013.	30.06.2012.
	LVL	LVL
1 USD	0.539000	0.562000
EUR	0.702804	0.702804
1 GBP	0.827000	0.876000

(c) Group companies

The results of operations and the financial position of the Group companies (none of which are operating in hyperinflation economics) that operate with functional currencies other than the reporting currency are translated to the reporting currency as follows:

• (i) Assets and liabilities are converted according to exchange rate as at the date of statement of financial position;
• (ii) Transactions of the statement of profit and loss and other comprehensive income are revalued according to exchange rate as at the date of transaction; and
• (iii) all currency exchange differences are recognized as a separate item of equity.

D Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Cost includes expenses directly related to acquisition of property, plant and equipment. Such cost includes the cost of replacing part of such plant and equipment if the asset recognition criteria are met.

Leasehold improvements are capitalized and disclosed as property, plant and equipment. Depreciation of these assets is calculated over the shorter of the leasehold period or the estimated useful life on a straight line basis.

Where an item of property, plant and equipment has different useful live as the other items of the same property, plant and equipment, they are accounted for as separate items of property, plant and equipment.

The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The costs of the day-to-day servicing of property, plant and equipment is recognised in the profit or loss statement as incurred.

Maintenance costs of tangible assets are recognized in the profit and loss statement as incurred.

Depreciation is calculated on a straight-line basis to write down each asset to its estimated residual value over its estimated useful life using the following rates:

	% per year
Mobile phones	50
Equipment	33.33
Vehicles	20
Other equipment and machinery	25

Capital repair costs on leased Property, plant and equipment are written off on a straight line basis during the shortest of the useful lifetime of the capital repairs and the period of lease.

The assets residual values, useful lives and methods are reviewed, and adjusted if appropriate, at each reporting date. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount exceeds its estimated recoverable amount (see Note G).

Notes to the Consolidated financial statements (continued)

2. Summary of accounting principles used (continued)

D Property, plant and equipment (continued)

Gains and losses on disposals are determined by comparing proceeds with the respective carrying amount and included in the profit or loss statement.

E Intangible assets

(a) Trademarks and licenses

Trademarks and licenses have a definite useful life and are carried at cost less accumulated amortisation and any accumulated impairment losses. Amortisation is caculated on a straight-line basis to allocate the costs of trademarks and licenses over their estimated useful life, which usually is 3 years.

(b) Software

The acquired software licenses are capitalised on the basis of the purchase and installation costs. These costs are amortised over their estimated useful lives of three years.

F Cost of research and development activities

Research costs are recognized in profit and loss statement as incurred. An intangible asset arising from the development expenditure on an individual project is recognized only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intentions to complete and its ability to use or sell the asset will generate future economic benefits, the availability of resources to complete and the ability to measure reliably the expenditure during the development. Following the initial recognition of the development expenditure, the cost model is applied requiring the asset to be carried at cost less any accumulated amortisation and impairment losses. Any expenditure capitalized is amortized over the period of the expected future sales from the related project.

G Impairment of non - current assets

Intangible assets that are not put in use or have an indefinite useful life are not subject to amortisation and are reviewed for impairment on an annual basis.

Moreover, the carrying amounts of the Group's property, plant and intangible assets that are subject to amortisation and depreciation are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated.

An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that largely are independent from other assets and groups. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of cash-generating units are allocated to reduce the carrying amount of the assets in the unit (group of unit) on a pro rata basis.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset in relation to which the future cash flows have not been adjusted.

All Group's assets are allocated to two cash generating units that are identified as Group's operating segments (see note 17). There have been no impairment indicators noted.

In respect of non-current assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. Any impairment loss reversed is only reversed to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

Notes to the Consolidated financial statements (continued)

2. Summary of accounting principles used (continued)

H Segments

Information on the Group's operating segments is disclosed in Note 16. Segment results that are reported to the Chief Executive Officer include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets (primarily the Group's headquarters), head office expenses, and tax assets and liabilities.

I Government grants

Government grants are recognized where there is a reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognized as income over the period necessary to match the grant on a systematic basis to the costs that it is intended to compensate. Where the grant relates to an asset, the fair value is credited to a deferred income account and is released to the profit or loss statement over the expected useful life of the relevant asset by equal annual instalments.

J Stock

Stock is stated at the lower of cost or net realizable value. Cost is valued based on the FIFO method. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs necessary to make the sale. Costs of finished goods and work-in-progress include cost of materials, personnel and depreciation.

K Financial instruments

The Group's financial instruments consist of trade receivables, equity-accounted investees, investments in other companies' equity, other receivables, cash and cash equivalents, borrowings, trade payables and other payables and derivatives. Investments in other companies' equity are classified as available for sale. All other financial assets except for equity-accounted investees and derivatives are classified as loans and receivables but liabilities at amortised cost.

Financial instruments except for derivatives are initially recognised at fair value plus directly attributable transaction costs.

Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership.

Financial liabilities are derecognized if the Group's obligations specified in the contract expire or are discharged or cancelled.

Loans, receivables and other debts

Loans and receivables and other debts are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than held for trading. Loans and receivables are stated at their amortized cost after deducting allowance for estimated irrecoverable amounts. Amortized cost is determined using the effective interest rate method, less any impairment losses. The effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial asset. When calculating the effective interest rate, the Group estimates future cash flows considering all contractual terms of the financial instruments. An impairment allowance for impairment of loans and receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the loan or trade receivable is impaired. The allowance 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 asset is reduced and the amount of the loss is recognised in the profit or loss statement. When a loan, receivables and other debts are uncollectible, it is written off.

Notes to the Consolidated financial statements (continued)

2. Summary of accounting principles used (continued)

K Financial instruments (continued)

Available for sale financial investments

Financial investments available-for-sale are acquired to be held for an indefinite period of time. Financial investments, whose market value is not determined in an active market and whose fair value cannot be reliably measured, are carried at acquisition cost. All other financial investments availablefor-sale are carried at fair value. Gains or losses resulting from the change in fair value of financial investments available-for-sale, except for impairment losses, are recognised in other comprehensive income until the financial asset is derecognised; thereafter, the cumulative gain or loss previously recognised in other comprehensive income is recognised in profit or loss.

I iabilities

Liabilities are recognised initially at fair value plus directly attributable transaction costs and subsequently measured at amortised cost using the effective interest method.

Please see note 3 (2) for the description of accounting policy for derivatives.

L Cash and cash equivalents

Cash and cash equivalents comprise current bank accounts balances and deposits, and short term highly liquid investments with an original maturity of three months or less.

M Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are charged against the share premium account.

N Corporate income tax and Deferred tax

Corporate income tax comprises current and deferred tax.

The calculated current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the end of the reporting period, and any adjustment to tax payable in respect of previous years.

Deferred taxation arising from temporary differences between carrying amounts for accounting purposes and for tax purposes is calculated using the liability method. However, if the deferred tax arises from initial recognition of an asset or liability in a transaction other than a business acquisition that at the time of the transaction affects neither accounting, non- taxable profit or loss, it is not accounted for. Deferred tax is determined using tax rates (and laws) that have been enacted by the financial position date and are expected to apply when the related deferred tax asset is realised or the deferred income tax liability is settled. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Income taxes are recognized through profit or loss unless they relate to items recognized directly in equity.

O Employee benefits

The Group makes social insurance contributions under the State's health, retirement benefit and unemployment schemes at the statutory rates in force during the year, based on gross salary payments. The Group will have no legal or constructive obligations to pay further contributions if the statutory fund cannot settle their liabilities towards the employees. The cost of these payments is included into the profit or loss statement in the same period as the related salary cost.

Notes to the Consolidated financial statements (continued)

Summary of accounting principles used (continued)

P Revenue recognition

Revenue comprises the fair value of the goods and services sold, net of value-added tax and discounts. Revenue is recognised as follows:

(a) Sales of goods

Sale of goods is recognised when a Group entity has passed the significant risks and rewards of ownership of the goods to the customer, i.e. delivered products to the customer has accepted the products in accordance with the contract terms, and it is probable that the economic benefits associated with the transaction will flow to the Group.

(b) Provision of services

Revenue is recognised in the period when the services are rendered.

Q Lease

Leases of property, plant and equipment in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the profit or loss statement on a straight-line basis over the lease period.

R Payment of dividends

Dividends payable to the Parent company's shareholders are recognised as a liability in the Group's financial statements in the period in which the dividends are approved by the Parent company's shareholders.

S Financial income and expenses

Financial income and expenses comprise interest payable on borrowings calculated using the effective interest rate method, interest receivable on funds invested, and foreign exchange gains and losses. Interest income is recognised in the income statement as it accrues, using the effective interest method. The interest expenses of finance lease payments are recognized in profit or loss using the effective interest rate method.

T New standards and interpretations not yet adopted

The following new Standards and Interpretations are not yet effective for the annual period beginning 1 July 2012 and have not been applied in preparing these financial statements:

· Amendments to IFRS 7 and IAS 32 on Offsetting Financial Assets and Financial Liabilities

Amendments to IFRS 7 Disclosures (effective for annual periods beginning on or after 1 January 2013; to be applied retrospectively) contain new disclosure requirements for financial assets and liabilities that are offset in the statement of financial position or subject to master netting arrangements or similar agreements.

Amendments to IAS 32 (effective for annual periods beginning on or after 1 January 2014; to be applied retrospectively) clarify that an entity currently has a legally enforceable right to set-off if that right is not contingent on a future event and enforceable both in the normal course of business and in the event of default, insolvency or bankruptcy of the entity and all counterparties.

The Group does not expect the Amendments to have any impact on the financial statements since the Group does not apply offsetting to any of their financial assets and financial liabilities and have not entered into master netting arrangements.

Notes to the Consolidated financial statements (continued)

2. Summary of accounting principles used (continued)

T New standards and interpretations not yet adopted (continued)

· IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosure of Interests in Other Entities (effective for annual periods beginning on or after 1 January 2014; to be applied retrospectively). IFRS 10 provides a single model to be applied in the control analysis for all investees, including entities that currently are SPEs in the scope of SIC-12. IFRS 10 introduces new requirements to assess control that are different from the existing requirements in IAS 27 (2008). Under the new single control model, an investor controls an investee when:

• (1) it is exposed or has rights to variable returns from its involvements with the investee;
• (2) it has the ability to affect those returns through its power over that investee; and
• (3) there is a link between power and returns.

The new IFRS 10 also includes the disclosure requirements and the requirements relating to the preparation of consolidated financial statements.

Under the new IFRS 11, joint arrangements are divided into two types, each having its own accounting model defined as follows:

• · a joint operation is one whereby the jointly controlling parties, known as the joint operators, have rights to the assets, and obligations for the liabilities, relating to the arrangement.
• · A joint venture is one whereby the jointly controlling parties, known as joint venturers, have rights to the net assets of the arrangement.

IFRS 11 effectively carves out from IAS 31 jointly controlled entities those cases in which, although there is a separate vehicle for the joint arrangement, separation is ineffective in certain ways. These arrangements are treated similarly to jointly controlled assets/operations under IAS 31, and are now called joint operations. IFRS 11 eliminates the free choice of equity accounting or proportionate consolidation; the equity method must always be used in financial statements.

IFRS 12 requires additional disclosures relating to significant judgements and assumptions made in determining the nature of interests in an entity or arrangement, interests in subsidiaries, joint arrangements and associates and unconsolidated structured entities.

The Group did not complete the assessment of the impact of these new standards on the Group's operations.

· IFRS 13 Fair Value Measurement (effective prospectively for annual periods beginning on or after 1 January 2013). IFRS 13 replaces the fair value measurement guidance contained in individual IFRSs with a single source of fair value measurement guidance. It defines fair value, establishes a framework for measuring fair value and sets out disclosure requirements for fair value measurements. IFRS 13 explains 'how' to measure fair value when it is required or permitted by other IFRSs

The Group does not expect IFRS 13 to have a material impact on the financial statements since management considers the methods and assumptions currently used to measure the fair value of assets to be consistent with IFRS 13.

Notes to the Consolidated financial statements (continued)

2. Summary of accounting principles used (continued)

T New standards and interpretations not yet adopted (continued)

· Amendments to IAS 12: Deferred Tax: Recovery of Underlying Assets (effective for annual periods beginning on or after 1 January 2013; to be applied retrospectively). The amendments introduce a rebuttable presumption that the carrying value of investment property measured using the fair value model would be recovered entirely by sale. Management's intention would not be relevant unless the investment property is depreciable and held within a business model whose objective is to consume substantially all of the asset's economic benefits over the life of the asset. This is the only instance in which the presumption can be rebutted.

The amendments are not relevant to the Group's financial statements, since the Group does not have any investment properties measured using the fair value model in IAS 40.

· IAS 19 (2011) Employee Benefits (effective for annual periods beginning on or after 1 January 2013; to be applied retrospectively. Transitional provisions apply). The amendment requires actuarial gains and losses to be recognized immediately in other comprehensive income. The amendment removes the corridor method previously applicable to recognizing actuarial gains and losses, and eliminates the ability for entities to recognize all changes in the defined benefit obligation and in plan assets in profit or loss, which currently is allowed under the requirements of IAS 19. The amendment also requires the expected return on plan assets recognized in profit or loss to be calculated based on rate used to discount the defined benefit obligation.

The amendments are not relevant to the Group's financial statements, since the Group does not have any defined benefit plans. Other amendment impact is still being assessed by the Group.

• · IAS 28 (2011) Investments in Associates and Joint Ventures (Amendments effective for annual periods beginning on or after 1 January 2014; to be applied retrospectively). There are limited amendments made to IAS 28 (2008):
  • · Associates and joint ventures held for sale. IFRS 5, Non-current Assets Held for Sale and Discontinued Operations applies to an investment, or a portion of an investment, in an associate or a joint venture that meets the criteria to be classified as held for sale. For any retained portion of the investment that has not been classified as held for sale, the equity method is applied until disposal of the portion held for sale. After disposal, any retained interest is accounted for using the equity method if the retained interest continues to be an associate or a joint venture.
  • · Changes in interests held in associates and joint ventures. Previously, IAS 28 (2008) and IAS 31 specified that the cessation of significant influence or joint control triggered remeasurement of any retained stake in all cases, even if significant influence was succeeded by joint control. IAS 28 (2011) now requires that in such scenarios the retained interest in the investment is not remeasured.

The Group did not complete the assessment of the impact of these new standards on the Group's operations.

Notes to the Consolidated financial statements (continued)

3. Financial risk management

(1) Financial risk factors

The Group's activities expose it to a variety of financial risks:

• (a) foreign currency risk;
• (b) credit risk;
• (c) liquidity risk;
• (d) interest rate risk.

The Group's overall risk management focuses on the unpredictability of financial markets and seeks to minimise its potential adverse effects on the Group's financial performance. The Group uses derivative financial instruments to hedge certain risk exposures. The responsibility for risk management lies with the Finance Department. The Finance Department identifies and evaluates risks and seeks for solutions to avoid financial risks in close co-operation with other operating units of the Group. Financial risks are managed both on Parent company and consolidated level.

(a) Foreign currency risk

The Group operates internationally and is exposed to foreign currency risk arising mainly from fluctuations of the U.S. dollar.

Foreign currency risk arises primarily from future commercial transactions and recognised assets and liabilities. To manage the foreign currency risk arising from future commercial transactions and recognised assets and liabilities, the Group uses forward foreign currency contracts. Foreign currency risk arises when future commercial transactions and recognised assets and liabilities are denominated in a currency different from the Group's functional currency. The Finance Department analyses the net open position in each foreign currency. The Group might decide to enter to forward foreign currency contracts or to maintain borrowings (in form of credit line) in appropriate currency and amount.

The following schedule summarises net open positions for currencies other than LVL as at the reporting date:

	30/06/2013	30/06/2012	30/06/2013	30/06/2012
	USD	USD	EUR	EUR
	expressed in	expressed in	expressed in	expressed in
	LVL	LVL	LVL	LVL
Gross Trade receivables	1 762 028	1 089 951	520 320	439 633
Loans			253 747	24 670
Placements with banks	161 700		253 363	1 708 393
Cash and cash equivalents	612 504	279 605	1 197 281	836 302
Trade payables	(400 135)	(326 226)	(224 220)	(162 218)
Other liabilities	(68 308)	(94 751)	(28 627)	(14 862)
Loans	(4 626)	(1 932)	(4 532)	(282)
Net open positions	2 063 163	946 647	1 967 332	2 831 636

	30/06/2013 USD expressed in EUR	30/06/2012 USD expressed in EUR	30/06/2013 EUR expressed in EUR	30/06/2012 EUR expressed in EUR
Gross Trade receivables	2 507 140	1 550 860	740 349	625 542
Loans			361 050	35 102
Placements with banks	230 078		360 503	2 430 824
Cash and cash equivalents	871 515	397 841	1 703 577	1 189 951
Trade payables	(569 340)	(464 179)	(319 037)	(230 815)
Other liabilities	(97 194)	(134 819)	(40 733)	(21 147)
Loans	(6 582)	(2 749)	(6 448)	(401)
Net open positions	2 935 617	1 346 954	2 799 261	4 029 056

Notes to the Consolidated financial statements (continued)

3. Financial risk management (continued)

Financial risk factors (continued) (1)

Sensitivity analysis

A 10 percent weakening of the lat against the USD and a 1 percent weakening of the lat against the EUR on 30 June would have increased (decreased) profit or loss and equity by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. The analysis for 2011/2012 was performed on the same basis. The Latvian lat was pegged to Euro as at 30 June 2012 and 30 June 2013.

			2012/2013 Effect 2011/ 2012 Effect 2012/ 2013 Effect 2011/ 2012 Effect
	in LVL	in LVL	in EUR	in EUR
USD	206 316	94 665	293 562	134 695
EUR	19 673	28 316	27 993	40 291
	225 989	122 981	321 555	174 986

(b) Credit risk

The Group has significant exposure of credit risk with its customers. The Group's policy is to ensure that wholesale of products is carried out with customers having appropriate credit history. If the customers are residing in countries with high credit risk, then Letters of Credit issued by reputable credit institutions are used as credit risk management instruments. In situations where no Letters of Credit can be obtained from reputable credit institutions, the prepayments from the customers are requested or State Export Guarantees purchased. Customers' financial position is monitored on regular bases and assigned credit limits has been changed based on credit history and customer's paying behaviour.

As at 30 June 2013, the Group's credit risk exposure to a single customer amounted to 13.63% of the total short and long-term receivables (30 June 2012: 14.43%). With respect to credit risk arising from the other financial assets of the Group, which comprise cash and cash equivalents, the Group's exposure to credit risk arises from the default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments. The Group's maximum credit risk exposure amounts to LVL 4 991 546 or 57.13% of total assets (30 June 2012: LVL 5 003 202 or 57.84% of total assets).

For more information on the Group's exposure to credit risk please refer to Note 8.

(c) Liquidity risk

The Group follows a prudent liquidity risk management and hence maintain a sufficient quantity of liquid funds. The current ratio of the Group is 5.3 (30.06.2012: 6.9), quick ratio is 3.3 (30.06.2012: 4.3).

The Group's management monitors liquidity reserves for the operational forecasting, based on estimated net cash flows. Most of the Group's liabilities are short term.

Management believes that the Group will have sufficient liquidity to be generated from operating activities and does not see significant exposure to credit risk.

For more information on the Group's exposure to liquidity risk please refer to note 14.

(d) Interest rate risk

As the Group does not have significant interest bearing liabilities, thus the Group's cash flows and net results are largely independent of changes in market interest rates. The Group's cash flows from interest bearing assets are dependent on current market interest rates; however as the Group mainly has short-term interest-bearing assets, the exposure is not significant.

Notes to the Consolidated financial statements (continued)

3. Financial risk management (continued)

(2) Accounting for derivative financial instruments

The Group uses derivative financial instruments such as forward currency contracts to hedge its risks associated with foreign currency fluctuations. Such derivative financial instruments are initially recognized at fair value on the date on which derivative contract is entered to and are subsequently remeasured at fair value through profit and loss. All derivatives are carried as assets when their fair value is positive and as liabilities when negative. The fair value of forward currency contracts is calculated by reference to current forward exchange rates with similar maturity profiles.

Any gains or losses arising from changes in fair value of derivatives that do not qualify as hedge accounting are taken directly to profit or loss for the year.

As at 30 June 2012 the Group did not have any open derivative financial instruments contracts.

(3) Fair value

The carrying amounts of financial assets and liabilities of the Group do not significantly differ from fair value, as the influence of the discounting factor for short term financial instruments is minor, and as the long term instruments bear no fixed interest rates, or the interest rates of those approximately correspond to the market rates effective 30 June 2013. Fair value of the financial instrument available for sale cannot be measured.

এ.. Management of the capital structure

The Group manages its capital to ensure that the Group will be able to continue as a going concern while maximizing the return to stakeholders through the optimization of the debt and equity balance. The capital structure indicator of the Group consists of debt, which includes the borrowings disclosed in note 15, cash and cash equity, comprising issued capital, retained earnings and share premium. The gearing ratio at the year-end was as follows:

	30/06/2013 I VL	30/06/2012 LVL	30/06/2013 EUR	30/06/2012 EUR
Debt	1 479 231	1 151 969	2 104 758	1 639 105
Cash	1 974 385)	(1 328 770)	(2 809 297)	1 890 669)
Net debt	(495 154)	(176 801)	(704 539)	(251 564)
Shareholders' equity	7 171 004	7 497 650	10 203 418	10 668 194
Debt to equity ratio	21%	15%	21%	15%
Net debt to equity ratio	-7%	-2%	-7%	-2%

The current year losses will be covered by retained earnings from previous years.

Notes to the Consolidated financial statements (continued)

5. Key estimates and assumptions

The management makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Recoverable amount and impairment of non-current assets

When the events and circumstances indicate a potential impairment, the Group performs impairment tests for items of property, plant and equipment and intangible assets. According to these tests assets are written down to their recoverable amounts, if necessary. When carrying out impairment tests management uses various estimates for the cash flows arising from the use of the assets, sales, maintenance, and repairs of the assets, as well as in respect of the inflation and growth rates. If the situation changes in the future, either additional impairment could be recognised, or the previously recognised impairment could be partially or fully reversed. See also note 2G.

Impairment of loans and receivables

The Group recognizes allowances for doubtful loans and receivables. In order to set unrecoverable amount of receivables, management estimates the basis of which is the historical experience are used. Allowances for doubtful debts are recognized based on an individual management assessment of recoverability of each receivable. See also note 2K.

Useful lives of property, plant and equipment

Management estimates the expected useful lives of property, plant and equipment in proportion to the expected duration of use of the asset based on historical experience with similar property, plant and equipment and based on future plans. Depreciation is charged to the income statement on a straightline basis over the estimated useful lives of each part of an item of property, plant and equipment. Depreciation of property, plant and equipment is calculated over the shortest period - lease term or over the useful life. No depreciation is calculated for land. See also note 2D.

Provisions

Provisions are recognized when the Group has a present legal or constructive obligation as a result of a past event and it is probable that an outflow of economic benefits will be required from the Group to settle the obligation, and the amount of obligation can be measured reasonably. If the Group foresees that the expenses required for recognizing the provision will be partly or fully repaid, for example, within an insurance contract, the recovery of such expenses is recognized as separate assets only when it is certain that such expenses will be recovered. Expenses connected with any provisions are recognized in the profit or loss statement less recovered amounts.

As at the reporting date, the following provisions were recognized:

• · provisions for potential warranty expenses are recognized based on the management assessment of the risk of expected warranty repairs relating to the concluded contracts.
• · accrued liabilities for unused vacations are calculated in accordance with the number of vacation days unused as at 30 June 2013 and the average remuneration during the last six months of the reporting year.
• · provision for bonuses is calculated in accordance with the procedures approved by management.

Recognition of deferred tax asset

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. See also note 2M.

Notes to the Consolidated financial statements (continued)

6. Property, plant and equipment and intangible assets

	Intangible assets LVL	Long term investments in leased fixed assets LVL	Equipment and machinery LVL	Other fixed assets LVL	Other long- term assets LVL	Total LVL
Reporting year ended 30 June 2012
Opening balance	67 474	318 922	162 593	20 383	2 457	571 829
Acquisitions	87 881		128 016	38 124		254 021
Reclassifications			2 457		(2 457)
Charge for the period	(62 951)	(67 938)	(97 118)	(19 286)		(247 293)
Closing balance	92 404	250 984	195 948	39 221		578 557
Reporting year ended 30 June 2013
Opening balance	92 404	250 984	195 948	39 221		578 557
Acquisitions	33 414	30 984	59 511	141 465	77 067	342 441
Disposals				(58)		(58)
Charge for the period	(59 154)	(82 945)	(116 889)	(28 024)		(287 012)
Closing balance	66 664	199 023	138 570	152 604	77 067	633 928
30 June 2011
Historical cost Accumulated	557 459	751 848	2 129 302	363 567	2 457	3 804 633
depreciation	(489 985)	(432 926)	(1 966 709)	(343 184)		(3 232 804)
Carrying amount	67 474	318 922	162 593	20 383	2 457	571 829
30 June 2012
Historical cost Accumulated	631 953	751 848	2 253 630	392 864		4 030 295
depreciation	(539 549)	(500 864)	(2 057 682)	(353 643)		(3 451 738)
Carrying amount	92 404	250 984	195 948	39 221		578 557
30 June 2013
Historical cost Accumulated	664 745	782 832	2 285 026	519 086	77 067	4 328 756
depreciation	(598 081)	(583 809)	(2 146 456)	(366 482)		3 694 828)
Carrying amount	66 664	199 023	138 570	152 604	77 067	633 928

During the reporting year, the Group did not enter into any operating or finance lease agreements.

Depreciation of LVL 135 586 is included in the profit or loss statement item Cost of sales (2011/ 2012: LVL 145 637); depreciation of LVL 111 684 in Sales and marketing costs (2011/ 2012: LVL 70 898); and depreciation of LVL 39 742 in Administrative expenses (2011/2012: LVL 30 758), including depreciation of LVL 742 under Other administration expenses (2011/ 2012: LVL 21).

The acquisition costs of fully depreciated property, plant and equipment that is still in use at the reporting date amounted to LVL 2 711 863 (2011/ 2012: LVL 2 733 318).

The Equipment and machinery group includes items bought with EU co-financing and according to the agreement with the EU have restrictions in their usage in operations. In total cost of such items amount to LVL 45 670 (2011/ 2012: LVL 304 043), the carrying amount of PPE as at 30 June 2013 is LVL 10 413 (2011/ 2012: LVL 25 635). The restrictions apply until December 2014.

Other long-term assets include property, plant and equipment under construction.

Notes to the Consolidated financial statements (continued)

6. Property, plant and equipment and intangible assets (continued)

	Intangible assets EUR	Long term investments in leased fixed assets EUR	Equipment and machinery EUR	Other fixed assets EUR	Other long-term assets EUR	Total EUR
Reporting year ended 30 June 2012
Opening balance	96 007	453 786	231 349	29 002	3 496	813 640
Acquisitions	125 043		182 151	54 246		361 440
Reclassifications			3 496		(3 496)
Charge for the period	(89 571)	(96 668)	(138 187)	(27 442)		(351 868)
Closing balance	131 479	357 118	278 809	55 806		823 212
Reporting year ended 30 June 2013
Opening balance	131 479	357 118	278 809	55 806
Acquisitions	47 544	44 086	84 676			823 212
Disposals				201 288	109 656	487 250
Charge for the period	(84 169)	(118 020)	(166 318)	(83) (39 874)		(83) (408 381)
Closing balance	94 854	283 184	197 167	217 137	109 656	901 998
30 June 2011
Historical cost	793 193	1 069 784	3 029 723	517 309	3 496	5 413 505
Accumulated
depreciation	(697 186)	(615 998)	(2 798 374)	(488 307)		(4 599 865)
Carrying amount	96 007	453 786	231 349	29 002	3 496	813 640
30 June 2012
Historical cost	899 188	1 069 783	3 206 627	558 995		5 734 593
Accumulated
depreciation	(767 709)	(712 665)	(2 927 818)	(503 189)		(4 911 381)
Carrying amount	131 479	357 118	278 809	55 806		823 212
30 June 2013
Historical cost Accumulated	945 847	1 113 869	3 251 299	738 594	109 656	6 159 265
depreciation	(850 993)	(830 685)	(3 054 132)	(521 457)		(5 257 267)
Carrying amount	94 854	283 184	197 167	217 137	109 656	901 998

During the reporting year, the Group did not enter into any operating or finance lease agreements.

Depreciation of EUR 192 921 is included in the profit or loss statement item Cost of sales (2011/2012: EUR 207 223); depreciation of EUR 158 912 in Sales and marketing costs (2011/2012: EUR 100 879); and depreciation of EUR 56 548 in Administrative expenses (2011/ 2012: EUR 43 766), including depreciation of EUR 1 056 under Other administration expenses (2011/ 2012: EUR 31).

The acquisition costs of fully depreciated property, plant and equipment that is still in use at the reporting date amounted to EUR 3 858 633 (2011/ 2012: EUR 3 889 161).

The Equipment and machinery group includes items bought with EU co-financing and according to the agreement with the EU have restrictions in their usage in operations. In total cost of such items amount to EUR 64 983 (2011/ 2012: EUR 432 614), the carrying amount of PPE as at 30 June 2013 is LVL 14 816 (2011/2012: EUR 36 475). The restrictions apply until December 2014.

Other long-term assets include property, plant and equipment under construction.

Notes to the Consolidated financial statements (continued)

7. Stock

	30/06/2013 LVL	30/06/2012 LVL	30/06/2013 EUR	30/06/2012 EUR
Raw materials	853 659	1 008 472	1 214 647	1 434 927
Work in progress	1 230 765	1 306 884	1 751 221	1 859 528
Finished goods	903 755	659 945	1 285 927	939 017
	2 988 179	2 975 301	4 251 795	4 233 472

During the reporting year, reduction in write-down to net realizable value of LVL 70 166 (EUR 99 837) (2011/2012: increase of LVL 253 681 (EUR 360 956)) was recognised and included in cost of sales.

The item Finished goods within Inventories include property, plant and equipment sent to clients for trial with an option to buy or return the equipment sent to substitute damaged equipment. As at 30 June 2013 the value of equipment sent due to the above reasons amounted to LVL 156 201 (EUR 222 254) (2011/2012: LVL 141 773 (EUR 201 725).

Included under inventories items "Work in Progress" and "Finished goods" are Salary expenses (including accruals for vacation pay) in amount of LVL 16 388 (EUR 23 318) (2011/2012: LVL 11 240 (EUR 15 993), Social insurance (including accruals for vacation pay) in amount of LVL 3 938 (EUR 5 603) (2011/2012: LVL 2 708 (EUR 3 853)) and depreciation and amortization expenses in amount of LVL 2 862 (EUR 4 072) (2011/2012: LVL 2 176 (EUR 3 096)).

8. Trade receivables

	30/06/2013	30/06/2012	30/06/2013	30/06/2012
	LVL	LVL	EUR	EUR
Long term trade receivables	45 263		64 404
Due from joint venture Trade receivables Allowances for bad and doubtful	34 891 2 204 969	1 552 874	49 646 3 137 388	2 209 541
trade receivables	(356 033)	(295 181)	(506 590)	(420 005)
Short-term trade receivables, net	1 883 827	1 257 693	2 680 444	1789 536
Total trade receivables, net	1 929 090	1 257 693	2 744 848	1 789 536

As at 30 June 2013, trade receivables do not include any letters of credit (2011/ 2012: one) with the original payment up to 180 days (2011/ 2012: LVL 224 084 (EUR 318 843)). As at 30 June 2013, the fair value of receivables approximated their carrying amount.

In the reporting year, included in the profit or loss statement caption Administrative expenses was the net increase of allowances for bad and doubtful trade receivables in the amount of LVL 60 852 (EUR 86 585) (2011/2012 - increase of LVL 152 282 (EUR 216 678)) (see Note 20).

The maturity of long-term receivables is 5 November 2014.

Movement in Allowances for bad and doubtful trade receivables

	------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Allowances for bad and doubtful trade receivables 30 June 2011	447 463	636 682
Written-off	(21 270)	(30 264)
Additional allowances	45 616	64 906
Recovered debts	(176 628)	(251 319)
Allowances for bad and doubtful trade receivables 30 June 2012	295 181	420 005
Written-off	(26 294)	(37 413)
Additional allowances	116 283	165 456
Recovered debts	(29 137)	(41 458)
Allowances for bad and doubtful trade receivables 30 June 2013	356 033	506 590

I VII

CIID

Notes to the Consolidated financial statements (continued)

8. Trade receivables (continued)

Split of Gross Trade receivables by currencies expressed in LVL

	30/06/2013 LVL	30/06/2013 0/0	30/06/2012 LVL	30/06/2012 %
LVL	2775	0.12	23 290	1.50
USD	1 762 028	77.11	1 089 951	70.19
EUR	520 320	22.77	439 633	28.31
Total trade receivables	2 285 123	100%	1 552 874	100%

Split of Gross Trade receivables by currencies expressed in EUR

	30/06/2013 EUR	30/06/2013 0/0	30/06/2012 EUR	30/06/2012 0/0
LVL	3 948	0.12	33 139	1.50
USD	2 507 140	77.11	1 550 860	70.19
EUR	740 349	22.77	625 542	28.31
Total trade receivables	3 251 437	100%	2 209 541	100%

Ageing of Trade receivables at the reporting date

	30/06/2013 Gross LVL	30/06/2013 Impairment I VI	30/06/2012 Gross LVL	30/06/2012 Impairment LVL
Not overdue	1 546 313	(31 150)	994 143
Overdue by 0 - 89 days	389 098	(1 080)	141 171	(37 106)
Overdue by 90 and more days	349 712	(323 803)	417 560	(258 075)
Total trade receivables	2 285 123	(356 033)	1 552 874	(295 181)
	30/06/2013 Gross EUR	30/06/2013 Impairment EUR	30/06/2012 Gross EUR	30/06/2012 Impairment EUR
Not overdue	2 200 205	(44 323)	1 414 538
Overdue by 0 - 89 days	553 637	(1 537)	200 868	(52 797)
Overdue by 90 and more days	497 595	(460 730)	594 135	(367 208)
Total trade receivables	3 251 437	(506 590)	2 209 541	(420 005)
9. Other receivables
	30/06/2013 LVL	30/06/2012 LVL	30/06/2013 EUR	30/06/2012 EUR
Government grants* Overpaid value added tax (refer to	32 156	42 270	45 754	60 145
Note 25)	31 886	8 316	45 370	11 833
Advance payment to suppliers	17 402	58 236	24 761	82 862
Other receivables	73 676	163 775	104 831	233 031
	155 120	272 597	220 716	387 871

* - Government grants receivable relate to projects on improvement of employees professional skills and on participation in international exhibitions.

Notes to the Consolidated financial statements (continued)

10. Placements with banks

	30/06/2013	30/06/2012	30/06/2013	30/06/2012
	LVL	LVL	EUR	EUR
Deposits	415 063	1 858 393	590 581	2 644 255
	415 063	1 858 393	590 581	2 644 255

As at 30 June 2013 free cash resources were deposited in short term deposits (with maturity exceeding 90 days). The average maturity of deposits as at 30 June 2013 is 11 months (30.06.2012: 6 months). The average annual interest rate on deposits in other currencies was 1.55% (30.06.2012: 2.49%). No placements were made in lats (30.06.2012: 1.88%).

Split of Deposits by currencies expressed in LVL

	30/06/2013 LVL	30/06/2013 %	30/06/2012 LVL	30/06/2012 0/0
LVL EUR USD Deposits	253 363 161 700 415 063	61.04 38.96 100%	150 000 1 708 393 1 858 393	8.07 91.93 100%
Split of Deposits by currencies expressed in EUR
	30/06/2013 EUR	30/06/2013 0/0	30/06/2012 EUR	30/06/2012 0/0
LVL EUR USD Deposits	360 503 230 078 590 581	61.04 38.96 100%	213 431 2 430 824 2 644 255	8.07 91.93 100%
Split of Deposits by banks
	30/06/2013 LVL	30/06/2012 LVL	30/06/2013 EUR	30/06/2012 EUR
Trasta Komercbanka AS PrivatBank AS Citadele Banka AS Deposits	415 063 415 063	1 114 017 290 561 453 815 1 858 393	590 581 590 581	1 585 104 413 431 645 720 2 644 255

Notes to the Consolidated financial statements (continued)

11. Cash and cash equivalents

	30/06/2013 LVL	30/06/2012 LVL	30/06/2013 EUR	30/06/2012 EUR
Cash in bank	1 974 385	1 216 770	2 809 297	1 731 308
Short-term deposits in banks		112 000		159 361
	1 974 385	1 328 770	2 809 297	1 890 669

As at 30 June 2012 free cash resources were deposited in short term deposits with maturity up to 90 days. The average annual interest rate for short-term placements in lats was 0.48%. As at 30 June 2013 no short-term placements of free cash for a term up to 90 days were made.

Split of cash and cash equivalents by currencies expressed in LVL

	30/06/2013	30/06/2013	30/06/2012	30/06/2012
	LVL	0/0	LVL	%
LVL USD EUR GBP Cash and cash equivalents	164 600 612 504 1 197 281 1 974 385	8 34 31.02 60.64 100%	212 800 279 605 836 302 63 1 328 770	16.01 21.04 62.95 0.00 100%

Split of cash and cash equivalents by currencies expressed in EUR

	30/06/2013	30/06/2013	30/06/2012	30/06/2012
	EUR	0/0	EUR	%
LVL	234 205	8.34	302 787	16.01
USD	871 515	31.02	397 841	21.04
EUR GBP Cash and cash equivalents	1 703 577 2 809 297	60.64 100%	1 189 951 90 1 890 669	62 95 0.00 100%

Split of cash and cash equivalents by banks

	30/06/2013 LVL	30/06/2012 LVL	30/06/2013 EUR	30/06/2012 EUR
Trasta Komercbanka AS	3	112 000	ব	159 361
Citadele Banka AS	11 845	6 953	16 854	9 894
Swedbank AS	679 173	445 135	966 376	633 370
Nordea Bank Finland plc Latvian
branch	1 101 599	700 225	1 567 435	996 330
JP Morgan Chase bank	181 765	64 457	258 628	91 714
	1 974 385	1 328 770	2 809 297	1 890 669

Notes to the Consolidated financial statements (continued)

12. Deferred tax (assets)/ liabilities

、アイアン 【アイトリー】【アイト】【アイトリー】【アイト】【アイトリー】【アイト】【アイト

Deferred tax has been calculated from the following temporary differences between assets and liabilities values for financial accounting and tax purposes:

	Balance at 30/06/2011 LVL	Recognized in profit or loss 2011/ 2012 LVL	Balance at 30/06/2012 LVL	Recognized in profit or loss 2012/ 2013 LVL	Balance at 30/06/2013 LVL
Temporary difference on
Property, plant and equipment
depreciation and intangible
asset amortisation	650	8 808	9 458	4 487	13 945
Temporary difference in the
accrued liabilities for unused
vacations	(23 753)	5 885	(17 868)	(2 074)	(19 942)
Temporary difference on inventory write-down to net
realizable value	(43 796)	(38 052)	(81 848)	10 524	(71 324)
Temporary difference on
provisions for guarantees	(4 633)	2 332	(2 301)	541	(1 760)
Temporary difference on
provisions for bonuses	(1 500)	1 500		(7 500)	(7 500)
Temporary difference on
allowance for trade receivables	(67 119)	22 842	(44 277)	(9 128)	(53 405)
Unrecognized temporary
differences	67 119	(22 842)	44 277	9 128	53 405
Deferred tax (asset), net	(73 032)	(19 527)	(92 559)	5 978	(86 581)

		Recognized in		Recognized in
	Balance at	profit or loss	Balance at	profit or loss	Balance at
	30/06/2011	2011/ 2012	30/06/2012	2012/ 2013	30/06/2013
	EUR	EUR	EUR	EUR	EUR
Temporary difference on
Property, plant and equipment
depreciation and intangible
asset amortisation	925	12 533	13 458	6 384	19 842
Temporary difference in the
accrued liabilities for unused
vacations	(33 798)	8 374	(25 424)	(2 951)	(28 375)
Temporary difference on
correction of valuation of
inventories	(62 316)	(54 144)	(116 460)	14 975	(101 485)
Temporary difference on
provisions for guarantees	(6 592)	3 318	(3 274)	770	(2 504)
Temporary difference on
provisions for bonuses	(2 134)	2 134		(10 672)	(10672)
Temporary difference on
allowance for trade receivables	(95 502)	32 502	(63 000)	(12 988)	(75 988)
Unrecognized temporary
differences	95 502	(32 502)	63 000	12 988	75 988
Deferred tax (asset), net	(103 915)	(27 785)	(131 700)	8 506	(123 194)

Deferred income tax asset for the Group is recognised to the realisation of the related tax benefit through the future taxable profits is probable. Management believes that there is reasonable assurance that taxable profits in the next taxation periods will be sufficient to recover the recognized deferred tax asset in full.

Notes to the Consolidated financial statements (continued)

13. Share capital

As at 30 June 2013, the registered, issued and paid-up share capital is LVL 2 970 180 (EUR 4 226 185) and consists of 2 970 180 ordinary bearer shares with unlimited voting rights (2011/ 2012: 2 970 180 shares).

14. Payables, provisions and other liabilities

	30/06/2013 LVL	30/06/2012 LVL	30/06/2013 EUR	30/06/2012 EUR
Trade accounts payable	725 588	533 669	1 032 419	759 343
Due to joint venture	431		613
Other accounts payable	194 877	203 268	277 285	289 224
Trade and other payables	920 896	736 937	1 310 317	1 048 567
Provisions for guarantees	11 731	15 338	16 692	21 824
Provision for bonuses	50 000		71 144
Provisions	61 731	15 338	87 836	21 824
Accrued liabilities for unused
vacations	132 949	119 119	189 170	169 491
Customer advances	68 770	23 612	97 850	33 597
Taxes and social security
payments (refer to note 26)	78 238	79 750	111 323	113 474
Other liabilities	22 164	144 255	31 537	205 256
Other liabilities	302 121	366 736	429 880	521 818
Total Payables, provisions and
other liabilities	1 284 748	1 119 011	1 828 033	1 592 209

During the reporting period the increase in accrued liabilities for unused vacation pay included in profit or loss amounted to LVL 13 830 (EUR 19 678) (2011/2012: decrease of LVL 39 232 (EUR 55 822)).

Movement in Provisions

	Guarantees LVL	Bonuses LVL	Total LVL	Guarantees EUR	Bonuses EUR	Total EUR
Balance at 1 January 2013 Provisions made during	15 338		15 338	21 824		21 824
the year Provisions used during the		50 000	50 000		71 144	71 144
year Provisions reversed during	(1 537)		(1 537)	(2 187)		(2 187)
the year Balance at 31 December	(2 070)		(2 070)	(2 945)		(2 945)
2013	11 731	50 000	61 731	16 692	71 144	87 836

In the reporting year, movement in Provisions was included in the profit or loss statement.

Notes to the Consolidated financial statements (continued)

14. Payables, provisions and other liabilities (continued)

Split of trade accounts payable by currencies expressed in LVL

	30/06/2013 LVL	30/06/2013 0/0	30/06/2012 LVL	30/06/2012 0/0
LVL	101 664	14.01	45 225	8.47
usd	400 135	55.11	326 226	61.13
EUR	224 220	30.88	162 218	30.40
Trade accounts payable	726 019	100%	533 669	100%

Split of trade accounts payable by currencies expressed in EUR

	30/06/2013	30/06/2013	30/06/2012	30/06/2012
	EUR	0/0	EUR	0/0
LVL	144 655	14.01	64 349	8.47
USD	569 340	55.11	464 179
EUR Trade accounts payable	319 037 1 033 032	30.88 100%	230 815 759 343	61.13 30.40 100%

Ageing analysis of trade accounts payable

	30/06/2013	30/06/2012	30/06/2013	30/06/2012
	LVL	LVL	EUR	EUR
Not overdue	607 176	520 055	863 933	739 971
Overdue by 0 - 30 days	118 843	13614	169 099	19 372
Trade accounts payable	726 019	53 669	1 033 032	759 343
15. Loans
	30/06/2013	30/06/2012	30/06/2013	30/06/2012
	LVL	LVL	EUR	EUR
Credit cards	9 896	5 485	14 081	7 805

16. Deferred income

	30/06/2013 LVL	30/06/2012 LVL	30/06/2013 EUR	30/06/2012 EUR
Billing in advance of transfer of goods Billing in advance for extended	164 032		233 397
quarantee period	16 910	18 501	24 061	26 325
Government grants	3 645	8 972	5 186	12 766
	184 587	27 473	262 644	39 091

Notes to the Consolidated financial statements (continued)

17. Segment information and sales

• a) The Group's operations are divided into two major structural units:
  • · SAF branded equipment designed and produced in-house CFM (Hybrid/ PDH Radios), CFIP (Etherent/Hybrid/ superPDH systems) and FreeMile (Hybrid Radios for unlicensed frequency bands) as the first structural unit.

CFIP - product line is represented by 4 respectable models:

• a split configuration (IDU+ODU) Phoenix hybrid radio system with Gigabit Ethernet + 20 . E1 interfaces;
• Lumina high capacity Full Outdoor all-in-one radio with Gigabit Ethernet traffic interface;
• economic CFIP-108 radio system with Ethernet and 4xE1 ports perfect for upgrade of E1 networks into packet data networks.
• Marathon FIDU low frequency low capacity system for servicing rural and industrial applications.

All CFIP radios are offered in most widely used frequency bands from 1.4 to 38 GHz, thus enabling the use of CFIP radios all across the globe.

CFIP Phoenix radio represents the type of microwave radio which is taking the commanding role on the market at present.

Full Outdoor units of Lumina and 108 modifications are of growing and developing radio type 'all-in-one' which has biggest potential as part of future data/packet networks.

CFM microwave radio product line has been the main type of radio SAF, however, demand for these products is decreasing. Nevertheless, such medium capacity, simple yet extremely reliable and feature rich radio forms the basis of many new deployments in the areas of rapid development of telecom networks.

FreeMile product line consists of 3 model radio for unlicensed 5.8, 17 and 24 GHz frequency bands, in more and more countries these frequencies become available to clients and usage of such equipment is becoming more common.

· Operations related to sales of products purchased from other suppliers, like Antennas, cables, in SAF name renamed (OEMed) products and different accessories - as the second unit.

Notes to the Consolidated financial statements (continued)

17. Segment information and sales (continued)

	CFM; CFIP; FreeMile		Other		Total
	2012/13	2011/12	2012/13	2011/12	2012/13	2011/12
	LVL	LVL	LVL	LVL	LVL	LVL
Assets
Reportable segment assets	4 177 555	3 369 019	1 531 665	1 891 737	5 709 220	5 260 756
Unallocated assets					2 941 044	3 388 863
Total assets					8 650 264	8 649 619
Segment liabilities	783 236	660 445	229 231	247 847	1 012 467	908 292
Unallocated liabilities					466 764	243 677
Total liabilities					1 479 231	1 151 969
Net sales	6 930 678	6 813 824	2 445 551	2 825 085	9 376 229	9 638 909
Segment result	1 795 939	1 917 956	979 017	912 907	2 774 956	2 830 863
Unallocated expenses Profit/(loss) from operating					(2 814 300)	(2 425 710)
activities					(39 344)	405 153
Other income					59 503	67 567
Financial income/(expenses), net					(22 849)	210 589
Share of profit/ (loss) of equity-
accounted investees, net of tax					(16 482)	683 309
Profit/ (loss) before taxes					(19 172)
Corporate income tax					(10 341)	(75 426)
Current year's profit/ (loss)					(29 513)	607 883
Other information
Additions of property plant and
equipment and intangible assets Unallocated additions of property	84 439	140 364		2 360	84 439	142 724
plant and equipment and intangible assets					258 002	111 297
Total additions of property plant
and equipment and intangible assets					342 441	254 021
Depreciation and amortization Unallocated depreciation and	134 467	139 273	1 809	6 364	136 276	145 637
amortization					150 736	101 656
Total depreciation and amortisation					287 012	247 293

Notes to the Consolidated financial statements (continued)

17. Segment information and sales (continued)

】【,】【于】【,】【,】【,】【,】【,】【,】【,】【,】【,】【,】【,】【,】【,】【,】【,】【,】【,】【

	CFM; CFIP; FreeMile		Other		Total
	2012/13	2011/12	2012/13	2011/12	2012/13	2011/12
	EUR	EUR	EUR	EUR	EUR	EUR
Assets
Reportable segment assets	5 944 125	4 793 682	2 179 362	2 691 699	8 123 487	7 485 381
Unallocated assets					4 184 730	4 821 918
Total assets					12 308 217	12 307 299
Segment liabilities	1 114 444	939 729	326 166	352 655	1 440 610	1 292 384
Unallocated liabilities					664 148	346 721
Total liabilities					2 104 758	1 639 105
Net sales	9 861 466	9 695 198	3 479 706	4 019 734	13 341 172	13 714 932
Segment result	2 555 391	2 729 006	1 393 016	1 298 950	3 948 407	4 027 956
Unallocated expenses					(4 004 389)	(3 451 475)
Profit/(loss) from operating
activities					(55 982)	576 481
Other income					84 665	96 139
Financial income/(expenses), net					(32 511)	299 641
Share of profit/ (loss) of equity-
accounted investees, net of tax					(23 451)
Profit/ (loss) before taxes					(27 279)	972 261
Corporate income tax					(14 714)	(107 322)
Current year's profit/ (loss)					(41 993)	864 939
Other information Additions of property plant and
equipment and intangible assets	120 146	199 720		3 358	120 146	203 078
Unallocated additions of property plant and equipment and
intangible assets					367 104	158 362
Total additions of property plant
and equipment and intangible assets					487 250	361 440
	191 329	198 168	2 574	9 055	193 903	207 223
Depreciation and amortization Unallocated depreciation and
amortization					214 478	144 644
Total depreciation and amortisation					408 381	351 867

Notes to the Consolidated financial statements (continued)

17. Segment information and sales (continued)

b) This note provides information on division of the Group's net sales and assets by geographical segments (only trade receivables are allocated to regions based on customer residency, all other assets remain unallocated).

	Net sales		Assets
	2012/2013	2011/2012	30/06/2013	30/06/2012
	LVL	LVL	LVL	LVL
USA	3 973 865	3 290 854	915 000	418 036
Europe, CIS	3 188 757	3 678 375	458 937	374 110
Asia, Africa, Middle
East	2 213 607	2 669 680	555 891	465 547
	9 376 229	9 638 909	1 929 828	1 257 693
Unallocated assets			6 720 407	7 391 926
	9 376 229	9 638 909	8 650 235	8 649 619

	Net sales		Assets
	2012/2013	2011/2012	30/06/2013	30/06/2012
	EUR	EUR	EUR	EUR
USA	5 654 300	4 682 463	1 301 928	594 812
Europe, CIS	4 537 193	5 233 856	653 008	532 310
Asia, Africa, Middle
East	3 149 679	3 798 613	790 963	662 414
	13 341 172	13 714 932	2 745 899	1 789 536
Unallocated assets			9 562 276	10 517 763
	13 341 172	13 714 932	12 308 175	12 307 299

Please also refer to note 3 (1b) for the description of dependence on individual customers.

18. Cost of goods sold

	01.07.2012- 30.06.2013 LVL	01.07.2011- 30.06.2012 LVL	01.07.2012- 30.06.2013 EUR	01.07.2011- 30.06.2012 EUR
Purchases of components
and subcontractors services	5 409 545	5 565 960	7 697 089	7 919 648
Salary expenses
(including accruals for
vacation pay)	1 017 724	1 069 574	1 448 091	1 521 867
Depreciation and
amortization (refer to Note 6)	132 724	143 461	188 849	204 127
Social insurance (including
accruals for vacation pay)	243 074	255 880	345 863	364 084
Rent of premises	126 298	113 049	179 706	160 854
Public utilities	74 723	69 058	106 321	98 260
Transport	18 682	24 948	26 582	35 498
Communication expenses	10 261	11 071	14 600	15 753
Business trip expenses	4 045	2 935	5 756	4 176
Low value articles	2 708	1 634	3 853	2 325
Other production costs	52 306	62 038	74 425	88 272
	7 092 090	7 319 608	10 091 135	10 414 864

Research and development related expenses of LVL 725 080 (EUR 1 031 696) (2011/ 2012: LVL 666 455 (EUR 948 280)) are included in the profit or loss statement caption Purchases of components and subcontractors services.

Notes to the Consolidated financial statements (continued)

19. Sales and marketing expenses

	01.07.2012- 30.06.2013 LVL	01.07.2011- 30.06.2012 LVL	01.07.2012- 30.06.2013 EUR	01.07.2011- 30.06.2012 EUR
Advertisement and marketing
expenses	99 716	66 939	141 883	95 246
Salary expenses
(including accruals for vacation pay)	626 913	638 454	892 017	908 438
Business trip expenses	268 507	260 847	382 051	371 152
Depreciation and amortization
(refer to Note 6)	111 684	70 898	158 912	100 879
Delivery costs	298 446	197 867	424 650	281 539
Social contributions
(including accruals for vacation	142 287	151 911	202 456	216 150
pay) Other selling and distribution
costs	174 838	88 922	248 773	126 524
	1722 391	1 475 838	2 450 742	2 099 928
Administrative expenses 20.
	01.07.2012-	01.07.2011-	01.07.2012-	01.07.2011-
	30.06.2013 LVL	30.06.2012 LVL	30.06.2013 EUR	30.06.2012 EUR
Salary expenses (including
accruals for vacation pay)	216 245	235 462	307 689	335 032
Depreciation and amortization				43 735
(refer to Note 6) Social insurance (including	39 000	30 737	55 492
accruals for vacation pay)	52 093	49 186	74 122	69 985
IT services	22 253	20 647	31 663	29 378
Expenses on cash turnover	11 162	16 339	15 882	23 248
Representation expenses	35 887	35 074	51 063	49 906
Training	23 214	41 050	33 031	58 409
Public utilities	9 887	8 802 5 246	14 068 57	12 524 7 464
Business trip expenses Rent of premises	40 15 499	14 106	22 053	20 071
Insurance	16 876	9 936	24 012	14 138
Office maintenance	1 936	2 665	2 755	3 792
Sponsorship	1 910	23 525	2 718	33 473
Communication expenses	3 058	3 546	4 351	5 046
Allowances for bad and	87 146	(131 012)	123 998	(186 413)
doubtful trade receivables Other administrative expenses	64 886	73 001	92 323	103 871
	601 092	438 310	855 277	623 659

Other administrative expenses include the annual statutory audit fee in the amount of LVL 6 817 (year ended 30 June 2012 – LVL 6 817). During the year the Group did not receive any other services from the auditor.

Notes to the Consolidated financial statements (continued)

21. Other income

	01.07.2012- 30.06.2013 LVL	01.07.2011- 30.06.2012 LVL	01.07.2012- 30.06.2013 EUR	01.07.2011- 30.06.2012 EUR
Government grants	44 538	54 141	63 372	77 036
Other income	14 965	13 426	21 293	19 103
	59 503	67 567	84 665	96 139

During the reporting year, the Group received a government grant of LVL 49 325 (EUR 70 182) (2011/ 2012: LVL 53 747 (EUR 76 475)).

22. Finance income

	01.07 2012- 30.06.2013 LVL	01.07.2011- 30.06.2012 LVL	01-07-2012- 30.06.2013 EUR	01.07.2011- 30.06.2012 EUR
Interest income Net result of currency	39 201	55 047	55 778	78 325
exchange fluctuations	39 201	156 191 211 238	55 778	222 239 300 564

23. Finance expenses

	01.07.2012- 30.06.2013 LVL	01.07.2011- 30.06.2012 LVL	01.07.2012- 30.06.2013 EUR	01.07.2011- 30.06.2012 EUR
Interest expenses		649		923
Net result of currency
exchange fluctuations	62 050		88 289
	62 050	649	88 289	923

24. Corporate income tax

	01.07.2012-	01.07.2011-	01.07.2012-	01.07.2011-
	30.06.2013	30.06.2012	30.06.2013	30.06.2012
	LVL	LVL	EUR	EUR
Change in deferred tax asset (see Note 12) Corporate income tax for the	5 978	(19 527)	8 506	(27 785)
reporting year Other charges related to	1 603	94 657	2 281	134 686
corporate income tax	2 760	296	3 927	421
	10 341	75 426	14 794	107 3222

Notes to the Consolidated financial statements (continued)

24. Corporate income tax (continued)

Corporate income tax differs from the theoretically calculated tax amount that would arise applying the statutory 15% rate to the Parent company's profit before taxation:

	01.07.2012- 30.06.2013 LVL	01.07.2011- 30.06.2012 LVL	01.07.2012- 30.06.2013 EUR	01.07.2011- 30.06.2012 EUR
Profit before tax	(19 172)	683 309	(27 279)	972 261
Tax rate	15%	15%	15%	15%
Tax calculated theoretically	(2 876)	102 496	(4 092)	145 839
Effect of non-deductible expenses Effect of changes in unrecognized	12 598	16 821	17 925	23 934
temporary differences	13 072	(18 158)	18 600	(25 836)
Impact of tax benefit	(12 453)	(25 733)	(17 719)	(36 615)
Corporate income tax	10 341	75 426	14 714	107 322

The State Revenue Service may inspect the Group's books and records for the last 3 years and impose additional tax charges with penalty interest and penalties. The Group's management is not aware of any circumstances, which may give rise to a potential material liability in this respect (State Revenue Service had not performed all-inclusive tax audit at the financial position date).

25. Taxes and compulsory state social security contributions

	VAI LVL	Social contributions LVL	Resident income tax LVL	Corporate income tax LVL	Business risk duty LVL	CITTOR services provided by non- residents LVL	Total LVL
Payable as at 30.06.2012 (Overpaid) 30.06.2012.	(8 316)	50 269	29 415	(134 547)	66	(83)	79 750 (142 946)
Calculated during the reporting period Refund from the	(209 257)	655 807	393 721	1 603	1 550	733	844 157
SRS Transferred to/from other	60 460			79 508			139 968
taxes	125 227	(174 227)		49 000
Paid during the reporting period Foreign currency		(480 965)	(395 952)	(110 594)	(1 407)	(733)	(989 651)
difference		(20)	(17)		(2)		(39)
Payable as at 30.06.2013 (Overpaid) as at		50 864	27 167		207		78 238
30.06.2013	(31 886)			(115 030)		(83)	(146 999)

Notes to the Consolidated financial statements (continued)

25. Taxes and compulsory state social security contributions (continued)

	VAT EUR	Social contributions EUR	Resident income tax EUR	Corporate income tax EUR	Business risk duty EUR	Cliffor services provided by non- residents EUR	Total EUR
Payable as at 30.06.2012 (Overpaid)		71 526	41 854		94		113 474
30.06.2012.	(11 833)			(191 443)		(118)	(203 394)
Calculated during the reporting
period Refund from the	(297 746)	933 130	560 215	2 281	2 205	1 043	1 201 128
SRS Transferred to/from other	86 027			113 129			199 156
taxes	178 182	(247 903)		69 721
Paid during the reporting period Foreign currency		(684 352)	(563 389)	(157 361)	(2 002)	(1 043)	(1 408 147)
difference Payable as at		(28)	(24)		(3)		(55)
30.06.2012 (Overpaid) as at		72 373	38 656		294		111 323
30.06.2012	(45 370)			(163 673)		(118)	(209 161)

26. Earnings/ loss per share

Losses per share are calculated by dividing profit by the weighted average number of shares during the year.

	30.06.2013 LVL	01.07.2012- 01.07.2011- 01.07.2012- 30.06.2012 LVL	30.06.2013 EUR	01.07.2011- 30.06.2012 EUR
Profit / (loss) of the reporting year (a) Ordinary shares as at 1 July (b)	(29 513) 2 970 180	607 883 2 970 180	(41 993) 2 970 180	864 939 2 970 180
Basic and diluted earnings/ (losses) per share for the reporting year (a/b)	(0.010)	0.205	(0.014)	0.291

27. Remuneration to management

Information on the remuneration of the members of the Board of Directors and Council

	30.06.2013 LVL	01.07.2012- 01.07.2011- 01.07.2012- 01.07.2011- 30.06.2012 LVL	30.06.2013 EUR	30.06.2012 EUR
Remuneration of the Board members - salary - social contributions	148 850 35 822	157 501 37 942	211 794 50 970	224 104 53 987
Remuneration of the Council members - salary - social contributions I otal	80 853 19 477 285 002	81 040 19 522 296 005	115 043 27 713 405 520	115 309 27 777 421 177

Notes to the Consolidated financial statements (continued)

28. Related party transactions

Related parties represent both legal entities and private individuals related to the Group in accordance with the following rules.

• a) A person or a close member of that person's family is related to a reporting group entity if that person:
  • i. has control or joint control over the reporting group entity;
  • ii. has a significant influence over the reporting group entity; or
  • iii. is a member of the key management personnel of the reporting group entity or of a parent of the reporting entity.
• b) An entity is related to a reporting group entity if any of the following conditions applies:
  • i. The entity and the reporting group entity are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).
  • ii. One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member).
  • iii. Both entities are joint ventures of the same third party.
  • iv. One entity is a joint venture of a third entity and the other entity is an associate of the third entity.
  • v. The entity is a post-employment benefit plan for the benefit of employees of either the reporting group entity or an entity related to the reporting entity. If the reporting entity is itself such a plan, the sponsoring employers are also related to the reporting entity.
  • vi. The entity is controlled, or jointly controlled by a person identified in (a).
• vii. A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).

Related party transaction - a transfer of resources, services or obligations between a reporting entity and a related party, regardless of whether a consideration is determined.

	Transaction values for the year ended 30 June		Balance outstanding as at 30 June
	2013 LVL	2013 EUR	2013 LVL	2013 EUR
Sale of goods and services Joint venture	35 064	49 892	34 891	49 645
Purchase of goods and services Joint venture	2 086	2 968	431	613
Loans issued and related interest Other related parties	290 062	412 721	253 747	361 050

In the period 1 July 2011 to 30 June 2012 the Group had no transactions with related parties.

On 18 June 2012 the Parent company signed a loan agreement with the related party SIA Namīpašumu pārvalde regarding the issuance of a loan of LVL 281 122 (EUR 400 000). The loan has been transferred to borrower's account as at 2 July 2012. In the reporting year, a share of the loan was repaid amounting to LVL 28 112 (EUR 40 000) and the outstanding loan balance as at 30 June 2013 was LVL 253 747 (EUR 361 050), including principal of LVL 253 009 (EUR 360 000) and unpaid interest of LVL 738 (EUR 1 050). The annual interest rate of the loan is 3.5%. The loan matures on 31 December 2013. The loan is secured with a mortgage of real estate.

All outstanding balances with these related parties are priced on an arm's length basis and are to be settled in cash. None of the balances apart from the loan issued is secured. No expense has been recognized in the current year or prior year for bad or doubtful debts in respect of amounts owed by related parties.

Notes to the Consolidated financial statements (continued)

29 Personnel costs

	01.07.2012-	01.07.2011-	01.07.2012-	01.07.2011-
	30.06.2013	30.06.2012	30.06.2013	30.06.2012
	LVL	LVL	EUR	EUR
Remuneration to staff	1 860 882	1 954 730	2 647 797	2 781 330
Social contributions	437 454	459 685	622 441	654 073
Total	2 298 336	2 414 415	3 270 238	3 435 403
Average number of employees 30.
			01.07.2012- 30.06.2013	01.07.2011- 30.06.2012

Average number of staff in the reporting year: 169 165

31. Operating lease

On 10 December 2002 the Parent company signed the rent agreement Nr. S-116/02 with AS Dambis on the rent of premises with the total area of 5,851 m2 until 16 September 2009. Starting 17 September 2009 the total leased area reduced to 5,672 m2. The premises are located at 24a Ganibu dambis. The agreement expires on 1 March 2016.

Lease agreement No. SAFNA-2013-003 was concluded on 24 June 2013 with The Realty Associates Fund VII.L.L. According to the agreement the lessor commissions and SAF North America LLC accepts premises in the total area of 3 286 ft2. The premises are located at 10500 E.54th Avenue, Unite D, Denver, USA. The agreement expires on 31 August 2017.

According to the signed agreements, the Group has the following lease payment commitments as at 30 June 2013.

LVL	EUR
190 881	271 599
507 705	722 399
698 586	993 998

32. Contingent liabilities

As part of its primary activities, the Parent company has issued performance guarantees to third parties amounting to LVL 9 132 (EUR 12 994) (2011/2012: LVL 21 728 (EUR 30 916),

33. Going concern

The Group's cash flows from operating activities in the reporting year amount to LVL 44 thousand (EUR 62 thousand) (2011/ 2012: LVL 456 thousand (EUR 649 thousand)), cash position is LVL 1 974 thousand (EUR 2 809 thousand) and the liquidity ratio at the reporting date is 5 (30.06.2012: 7).

Group will continue pursuing its strategy to develop new competitive wireless data transmission products and solutions for export markets, maintain the current sound financial position and control over the production process with the aim to increase sales and profitability.

34. Subsequent events

No significant subsequent events have occurred in the period from the year-end to the date of these consolidated financial statements that would have a material impact on the Group's financial position as at 30 June 2013 or its performance and cash flows for the year then ended.