Akciju sabiedriba "VEF"

Quarterly Report • Nov 29, 2010

JOINT STOCK COMPANY VEF (Unified registration number 40003001328)

NON- AUDITED FINANCIAL STATEMENTS For the period ended on September 30, 2010

CONTENTS

General information

Report on the Management Board's responsibility

Balance sheet

Income statement

Cash flow statement

Statement of changes in equity

Notes to the financial statement

GENERAL INFORMATION
Title of enterprise	Joint stock company VEF
Legal type of enterprise	Public joint stock company
Registred:	On April 15, 1991 in the Register of Enterprises of the Republic of Latvia, re registred on December 7, 2000 with Nbr. 000300132
	On April 14, 2004 registered in the Commercial Register, Nbr. 40003001328
Taxpayers' Reg. Nbr.	LV 40003001328
Legal address	Brīvības gatve 214, Rīga, LV-1039, Republic of Latvia
	phone: 7270618, fax: 7552201
Equity capital 1 :	Ls 1 944 637 paid and registered equity capital.
Core businesses:
	Power supply - distribution of power; Letting and renting of real-estate property *Trade in a waste black and nonferrous scrap metal
Name of the holder of shares	As on september 30, 2010:
and share capital (%)	*VEF KOMUNIKĀCIJU SERVISS SIA - 45.52377% ;
	*Goldinvest Asset Management" AS	– 21.92579% ;
	*State Social Insurance Agency	- 5.01801 %;
	* Tamāra Kampāne	- 9.55576% ;
	* Gints Feņuks	- 7.01432% ;
	*Other shareholders	- 10.96235%.
Chief executive officer:	Chairman of the Board of the Company:
	GINTS FEŅUKS
Members of the Board:	TAMĀRA KAMPĀNE
	PĒTERIS AVOTIŅŠ
	AIVARS VĪTOLIŅŠ
Members of the Supervisory Council:	ANDRIS DENIŅŠ
	INTS KALNIŅŠ
	GUNTIS LIPIŅŠ
	JĀNIS LĀMA
Period of account:	01.01.2010. - 30.09.2010.
Qualified auditor:	Mara Liguta. Certificate Nbr.55
1

Paid-up and registred equity capital 1 944 637 common shares

The company's capital consists of the 623 528 bearer shares and 1 321 109 registered shares Nominal value of a common share is 1 LVL (one Latvian lat).

Report on the Management Board's responsibility to the non-audited financial statement of JSC "VEF" for the nine months of 2010

Management Board of JSC "VEF" (hereinafter – the Company) is responsible for preparation of the middle-term financial statements of the Company. The middle-term financial statements are not audited.

Middle-term financial statements are prepared based on justifying documents and represent true and clear overview on the Company's Assets and Equity and Liabilities, its financial standing and results of activity as well as cash flows within the reporting period ended on September 30, 2010.

Middle-term financial statements are prepared according to the approved International Standards of financial reports and observing principle of continuing business activity. Accounting principles used in preparation of the middle-term financial statements have not been changed comparing to the previous reporting period. During preparation of the middle-term financial statements decisions taken by the Management Board and estimations made have been cautious and well-founded. The information included in the middle-term management's report is true.

The Management Board of the Company is responsible for ensuring the corresponding accounting system, securing the assets of the Company, as well as for prevention and exposure of fraud and other violation within the Company.

On behalf of the Management Board of JSC "VEF",

Gints Feņuks Chairman of the Management Board

ASSETS	Final balance		Beginning balance
	LVL	LVL	EUR	EUR
	30.09.2010	30.09.2009	30.09.2010	30.09.2009
			0.702804	0.702804
LONG-TERM INVESTMENTS
Intangible assets
Concessions,patents,licences	306	76	435	108
Total intangible assets	306	76	435	108
Fixed Assets
Land,buildings and other property	4 161 347	4 202 385	5 921 064	5 979 455
Equipment and machinery		5 091		7 244
Other fixed assets and inventory	30 901	10 276	43 968	14 621
Advance payments for fived assets		15 575		22 160
Total fixed assets	4 192 248	4 233 326	5 965 032	6 023 480
Total long-term investments	4 192 554	4 233 402	5 965 467	6 023 588
Current assets
Inventory
Goods for sale	0	0	0	0
Total inventory	0	0	0	0
Debtors
Customers and client debts	7 780	56 265	11 070	80 058
Other debtors	16 241	31 788	23 109	45 230
Future period expenses		5 381		7 656
	18 903		26 897
Total debtors	42 924	93 434	61 76	132 945
Cash	4 351	13 511	6 191	19 224
Total Current assets	47 275	106 945	67 267	152 169
TOTAL ASSETS	4 239 829	4 340 347	6 032 734	6 175 757

LIABILITIES	Final balance		Beginning balance
	LVL	LVL	EUR	EUR
	30.09.2010	30.09.2009	30.09.2010	30.09.2009
			0.702804	0.702804
Stockholder's Equity
Common stock	1 944 637	1 944 637	2 766 969	2 766 969
Long-term investments revaluation reserve	438 390	438 390	623 773	623 773
Total accumulation
Retained earnings from the previous years	-883 184	-901 554	-1 256 657	-1 282 796
Retained earnings of the financial years	19 949	21 579	28 385	30 704
Total stockholder's equity	1 519 792	1 503 052	2 162 470	2 138 650
PROVISIONS
Other provisions	7 522		10 703
Total provisions	7 522		10 703
LIABILITIES
Long-term liabilities
Borrowings from credit institutions	2 332 777	2 354 208	3 319 243	3 349 736
Prepayments from buyers	29 945	65 623	42 608	93 373
Other liabilities		29 436		41 884
Deferred tax liability	149 445	149 078	212 641	212 119
Total long-term liabilities	2 512 167	2 598 345	3 574 492	3 697 112
Current liabilities
Borrowings from credit institutions	53 384	122 451	75 959	174 232
Accounts payable	26 751	30 646	38 063	43 605
Taxes and social security payments	57 903	45 635	82 388	64 933
Other liabilities	62 310	36 759	88 659	52 303
Future period income		3 459		4 922
Total current liabilities	200 348	238 950	285 069	339 995
Total liabilities	2 712 515	2 837 295	3 859 561	4 037 107
TOTAL LIABILITIES&STOCKHOLDER'S	4 239 829	4 340 347	6 032 734	6 175 757
EQUITY

PROFIT AND LOSSES ACCOUNT FOR YEAR, WHICH ENDS ON SEPTEMBER 30.2010.

		LVL 30.09.2010	LVL 30.09.2009	EUR 30.09.2010 - 0.702804	EUR 30.09.2009 - 0.702804
1	2	4	5	4	5
Net turnover		569 097	579 251	809 752	824 200
Cost of goods sold	1	-364 537	-389 377	-518 689	-554 034
Gross profit		204 560	189 874	291 063	270 166
Administrative expenses	2	-40 616	-44 370	-57 791	-63 133
Other income from operations	3	10 041	14 299	14 287	20 346
Other expenses from operations	4	-14 843	-2 148	-21 120	-3 056
Finansial services income	5	5	142	7	202
Finansial services expenses	6	-111 500	-104 463	-158 650	-148 637
Profit before taxes		47 647	54 334	67 796	75 888
Other taxes	7	-19 998	-21 008	-28 455	-29 892
Deferred tax		-7 700	-10 747	-10 956	-15 292
Net profit		19 949	21 579	28 385	30 704

Earnings per share (EPS) EPS on 30.09.2010-0.0103 LVL-0.0103 EUR Earnings per share (EPS) EPS on 30.09.2009-0.0111 LVL-0.0111 EUR

Chairman of the Board G.Feņuks Member of the Board T.Kampane

CASH FLOW STATEMENT FOR YEAR THAT ENDS ON SEPTEMBER 30, 2010

		2010 30.09.	2009 30.09.	2010 30.09. EUR	2009 30.09. EUR
I.	CASH FLOW FROM OERATING ACTIVITIES	LVL	LVL	0.702804	0.702804
	Profit before outstanding items and taxes (+) Adjustments:	47 647	53 334	67 796	75 888
	fixed assets depreciation ( +) intangible assets depreciation (+) increase/decrease in provisions profit or losses from exchange rates fluctuation	39 990 49	44 639 4	56 901 70	63 516 6
	(+/-) finansial service income	-1 304 -5	-7	-1 855 -7	-10
	finacial services income Profit or losses before adjustments from current	111 500	104 463	158 650	148 637
	assets and liabilities Adjustments:	197 877	210 134	281 554	298 995
	debtors : increase (-); decrease (+) inventory: increase (-); decrease (+)	50 010	335 592	71 158	477 504
	liabilities: increase (-); decrease (+)	-38 090	-268 330	-54 197	-381 799
	Gross cash provide by operating activities	209 797	277 396	298 514	394 699
	Payments for financial	-111 500	-104 463	-158 650	-148 638
	Income tax payments	-19 998	-21 008	-28 455	-29 862
	Net cash provided by operating activities before outstanding items:	78 299	151 925	111 409	216 170
	Cash flow from outstanding items (-/+) Net cash provided by operating activities :	78 299	151 925	111 409	216 170
II.	CASH FLOWS FROM INVESTING ACTIVITIES :
	Fixed assets purchase	-3 246	-48 040	-4 619	-68 355
	Interest received	5	142	7	202
	Net cash used in investing activities :	75 058	104 027	106 798	148 017
III.	CASH FLOWS FROM FINANCING ACTIVITIES:
	Expenses for borrowings repayment Payment LPA for long term buy out of land Common stock issued	-53 384 -32 138	-122 451 -32 418	-75 959 -45 728	-174 232 -46 127
	Net cash provided by financing activities :	-10 464	-50 842	-14 889	-72 342
IV.	Exchange rate fluctuation result :	1 304	-7	1 855	-10
	Net cash flom	-9 160	-50 849	-13 034	-72 352
	CASH AT BEGINNING OF YEAR	13 511	64 360	19 244	91 576
	CASH AT END OF YEAR	4 351	13 511	6 191	19 224

STATEMENT OF CHANGES IN EQUITY FOR YEAR THAT ENDS ON SEPTEMBER 30, 2010

	30.09.2010 LVL	30.09.2009 LVL	30.09.2010 EUR 0.702804	30.09.2009 EUR 0.702804
Stockholder's eguity
Balance at the beginning of the
financial year	1 944 637	2 281 921	2 766 969	3 246 881
Increase from
Decrease from		-337 284		-479 912
Balance at the end of the financial year	1 944 637	1 944 637	2 766 969	2 766 969
Long-term investments revaluation reserve
Balance at the beginning of the financial year	438 390	438 390	623 773	623 773
Increase from
Decrease from
Balance at the end of the financial year	438 390	438 390	623 773	623 773
Accumulations
Balance at the beginning of the financial year
Increase from
Decrease from
Balance at the end of the financial year
Retained earnings
Balance at the beginning of the financial year	-883 184	-901 554	-1 256 657	-1 282 796
Profit or losses of the finacial year	19 949	21 579	28 385	30 704
Dividendes
Included in accumulations
Balance at the end of the financial year	-863 235	-879 975	-1 228 272	-1 252 092
Stockholder's eguity (total)
Balance at the beginning of the
financial year	1 503 052	1 799 967	2 138 650	2 561 122
Balance at the end of the financial year	1 519 792	1 503 052	2 162 469	2 138 650

Annex of the annual report of nine Months of 2010

General principles of methodology of accounting and evaluation

Foundation of preparation of financial report

• Annual report of the Company prepared according to the Laws of the Republic of Latvia "On Accounting", "On annual reports of companies", Latvian accounting standards: No. 1 "General principles of preparation of financial reports", No. 2 "Cash flow report", No.3 "Events after date of balance", No. 4 "Changes of accounting policies, accounting assumptions and mistakes of previous periods", No.5 "Long-term agreements", No.6 "Revenues", No.7 "Fixed assets", No. 8 "Reserves, probable liabilities and assets", and the Statues of JSC VEF "On preparations of annual reports".
• "Profit and loss statement" prepared according to the method of turnover payments.
• "Cash flow statement" prepared using indirect methods of calculating cash flows from basic activities.
• Comparing to the previous reporting period applied accounting and evaluation methods had not been changed (reclassification does not have effect on comparative indicators because indicators of 2010 are classified by principles of 2009 are comparable).

Net turnover

Net turnover is total amount of all values of provided services during the reporting period without value added tax.

Fixed assets

Fixed assets are evaluated according to their initial value or reevaluated value less accumulated depreciation. Depreciation of fixed assets is calculated starting from first day of next month after beginning of their exploitation and ended from first day of next month after they are excluded from fixed assets. Depreciation of fixed assets is calculated using linear methodology. Depreciation rates depending on division are following:

• Buildings, edifices = 1%;
• Equipment and machinery = 20%;
• Other fixed assets or inventory = 25%/

Increased values taken in the process of reevaluation are showed in the position of equity "Reserve of reevaluation of long-term investments", but decreased values are written-off from incremental additions to values of the particular fixed asset accumulated in previous periods – excess is appropriated in profit and loss calculations of the according period.

Residual value of fixed assets of the Company is 3 848 725 LVL, land – 343 523 LVL. Total value of fixed assets – 4 192 248 LVL.

Debts of debtors

In the balance sheet debts of debtors are showed in net values from initial values less special reserves for doubtful and bad debts. Special reserves for doubtful and bad debts are made in occasions when the Management decides that collection of particular debts of debtors is doubtful.

Debts of debtors and creditors are evaluated at the end of the reporting period according to accounting information and statements about comparison of mutual payments with debtors and creditors.

Debts of debtors are evaluated taking into account principles of precaution showing in the balance sheet only real debtors.

Actual amounts of debts of debtors agree with bills and amounts registered in other primary accounting documents.

Income tax of company

Income tax of the company in the reporting period is calculated according to requirements of normative acts of Republic of Latvia.

Deferred tax is calculated using liabilities methods concerning all temporary discrepancies between values of assets and liabilities shown in financial reports and their values in taxation calculations. In calculations of deferred tax there is used rate of tax that is expected in periods when discrepancies would disappear. Temporary discrepancies take place mainly because of use of different depreciation rates and losses from taxes that are transferable to next taxation periods. In occasions when total amount of deferred tax should be showed in active side of the balance sheet, it is included in the financial report only if it is expected that there would be income available for taxation from which it would be possible to except temporary discrepancies that constitute assets of deferred tax.

Reserves

Reserves for vacations of employees are created as an estimation taking into account unused vacations during the reporting period.

Reevaluation of foreign currencies to lats

Accounting in the company is made in lats. All transactions in foreign currencies are reevaluated in lats according to the official exchange rate of the Bank of Latvia in the particular day of transaction. Assets and liabilities that evaluated in foreign currencies are recalculated in lats according to the exchange rate of the Bank of Latvia at the last day of the reporting period. Profit or loss accumulated due to changes in exchange rates of foreign currencies are shown in the profit and loss statement,

Cash and its equivalents

In the cash flow statement cash and its equivalents consist of cash in the cashier's office and remains of current bank accounts.

Applied accounting standards of Latvia

Preparing the report, it is done according the following accounting standards of Latvia:

• LGS 2 "On cash flow statement"
• LGS 3 "On events after date of balance"
• LGS 4 "On changes of accounting policy, changes in accounting estimations and mistakes from previous periods"
• LGS 5 "On long-term agreements"
• LGS 6 "On revenues"
• LGS 7 "On assets"
• LGS 8 "On reserves, probable liabilities and probable assets"

Positions of annual reports are evaluated according the following accounting principles:

• It is taken that the company will continue its operations;
• Same evaluation methods are used as in last periods;
• Evaluation is made with accordant precaution;
• Only revenues taken during the reporting period are included in the report;
• All expected risks and losses that occurred in the reporting year or previous years are taken into account even if they are occurred during period of time between date of balance and date of preparation of annual report;
• Calculated and accounted all decreases in values and depreciations despite whether the reporting year is concluded with profit or loss;
• All revenues and costs are taken into account independently of dates of payments, reception of bills. Payouts are accordant with revenues at the end of the reporting period.
• Components of assets and liabilities are evaluated separately;
• Starting balance of the reporting year is equal to the closing balance of previous reporting year;

• All positions that substantially affect evaluation or decision making of users of the report are shown but all insignificant positions are consolidated and their detailed breakdown are shown in annexes;
• Business transactions in the annual report are shown taking into account their economical essence and content but not their legal form.

Reporting period

Reporting period is 06 months starting from 01.01.2010. Till 30.09.2010.

Short-term and long-term positions

Long-term positions contain sums which maturity terms of reception, pay-out or write-off will take place more than a year after the end of the reporting period. All sums that are receivable or payable during a year are shown in short-term positions.

(1) Net turnover

Turnover consists of revenues that the Company gained in the first nine months of 2010 from its core business-service provision without VAT

Type of commercial operations	2010.09.30	2009.09.30	2010.09.30	2009.09.30
	LVL	LVL	EUR	EUR
power supply, distribution and servicing	90 121	89 703	128 231	127 636
water supply and sewage services	371	2 530	528	3 599
office renting service	314 434	372 119	447 399	529 478
utility services	114 171	114 899	162 451	163 487
ferrous and non-ferrous metal trading	50 000		71 144
Total	569 097	579 251	809 752	824 200

Distribution of net turnover by geographical markets

		2010.09.30	2009.09.30	2010.09.30	2009.09.30
	Country	LVL	LVL	EUR	EUR
	Latvia	564 069	579 251	802 598	824 200
	Estonia	5 028		7 154
Total		569 097	579 251	809 752	824 200

(2) Cost of sales

	2010.09.30	2009.09.30	2010.09.30	2009.09.30
	LVL	LVL	EUR	EUR
personnel	63 194	66 392	89 917	94 467
depreciation	39 990	44 639	56 901	63 516
transport	5 679	7 095	8 080	10 095
other outstanding costs	141 732	147 213	201 666	209 465
personnel training	120	310	171	441
telecommunication service	686	988	976	1 406
other costs tied to commercial operations	60 219	79 102	85 684	112 552
insurance (buildings)		30 902		43 970
maintenance of buildings 1 and 1a
land rent to LPA	8 493	8 671	12 084	12 338
depreciation of license	49	4	70	6
purchare costs and delivery of materials	42 214		60 065
Total	364 537	389 377	518 689	554 034

(3)	Costs of administration	2010.09.30	2009.09.30	2010.09.30	2009.09.30
		LVL	LVL	EUR	EUR
	personnel	29 902	32 673	42 547	46 489
	telecommunication service	686	988	976	1 406
	office supplies	578	826	822	1 175
	cash turnover expenses	225	234	320	333
	transport expenses for administrative needs	5 679	7 095	8 081	10 095
	representative expenses	50	79	71	113
	legal assistance or raid	996	600	1 417	854
	RFB annual fee	2 500	1 875	3 557	2 668
	Total	40 616	44 370	57 791	63 133

Other revenues from commercial

(4) operation

	2010.09.30	2009.09.30	2010.09.30	2009.09.30
	LVL	LVL	EUR	EUR
disposal of fixed assets
fines	8 430	1 955	11 995	2 782
1/5 of revenue from writing-off PS
purchase		3 232		4 599
1/5 from financial support given for Gold
equipment		7 145		10 166
other revenues	305	850	434	1 209
insurance recompense		1 069		1 521
revenues from changes in currency rates	1 304	48	1 855	69
Total	10 039	14 299	14 284	20 346

Other costs of commercial

(5) operations

	2010.09.30	2009.09.30	2010.09.30	2009.09.30
	LVL	LVL	EUR	EUR
losses from changes in currency rates		55		79
60% of representative costs	74	53	105	75
donations to Latvian orphans fund		553		786
allowances and bonuses	597	1 220	850	1 736
fines	1 085	267	1 544	380
	13 087		18 621
Total	14 843	2 148	21 120	3 056

Other revenues from interests or

(6)	similar sources
		2010.09.30	2009.09.30	2010.09.30	2009.09.30
		LVL	LVL	EUR	EUR
	interest from balances of accounts	5	142	7	202
	Total	5	142	7	202
(7)	Payments of interest and similar expenses
		2010.09.30	2009.09.30	2010.09.30	2009.09.30
		LVL	LVL	EUR	EUR
	credit interests interest to LPA for long term buy-out of	111 038	99 276	157 993	141 257
	land	462	5 187	657	7 380
	Total	111 500	104 463	158 650	148 637
(8)	Other taxes	2010.09.30	2009.09.30	2010.09.30	2009.09.30
		LVL	LVL	EUR	EUR
	real estate tax (buildings,land)	19 998	21 008	28 455	29 892
	Total	19 998	21 008	28 455	29 892