Akciju sabiedriba "VEF"

Quarterly Report • Aug 30, 2010

JOINT STOCK COMPANY VEF (Unified registration number 40003001328)

NON- AUDITED FINACIAL STATEMENTS For the period ended on June 30, 2010

CONTENTS

General information

Report on the Management Board's responsibility

Management report

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 June 30, 2010:
and share capital (%)	*VEF KOMUNIKĀCIJU SERVISS SIA- 45.52377% ;
	*Goldinvest Asset Management" SIA – 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. - 30.06.2010.
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 six 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 June 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

Management report

The Joint Stock Company "VEF" is a publicly traded company, dealing with management and administration of its real estate, rendering space rental and electrical services to consumers on the VEF territory, as well as trading in ferrous and non-ferrous scrap metal.

According to the balance statement of the Company, the revenue from the economic activity in 06 months of 2010 makes LVL 358 094 (509 522 EUR ), which is 44 386 LVL ( 63 156 EUR ) less than over the previous reporting period.

Having in view the overall national and global economic situation in the recession, a year ago the Company focused its business to the preservation and optimization of the existing volumes of cash flow and followed this target over the proceed in the accounting period.

The Company continues to provide a full scope of its services, while maintaining the jobs and implementing the fund-saving programme, by reducing the outsourcing volumes and prices, as well as diversifying markets and risks.

The Board of Joint Stock Company "VEF" follows the Company's strategic plans of the previous year, guiding from the economic situation in the country and in particular from the situation in the space rental market. This year the plan is to enhance the monitoring of the market in the rental segment and to react to the changes of the situation, to take also an active tenant attraction for the free spaces within the property of the Company, through enlargement and renovation of the area without any additional fund borrowing, as well as to increase the turnover of the ferrous and non-ferrous metal trading.

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
	30.06.2010	30.06.2009	30.06.2010	30.06.2009
			0.702804	0.702804
LONG-TERM INVESTMENTS
Intangible assets
Concessions,patents,licences	322	77	458	110
Total intangible assets	322	77	458	110
Fixed Assets
Land,buildings and other property	4 171 606	4 212 655	5 935 661	5 944 068
Equipment and machinery		7 708		10 968
Other fixed assets and inventory	33 584	12 240	47 585	17 416
Advance payments for fived assets		31 151		44 323
Total fixed assets	4 205 190	4 263 754	5 983 446	6 066 775
Total long-term investments	4 205 512	4 263 831	5 983 905	6 066 885
Current assets
Inventory
Goods for sale
Total inventory	0	0	0	0
Debtors
Customers and client debts	27 237	68 650	38 755	97 680
Other debtors	17 263	38 557	24 563	54 862
Future period expenses	163	2 993	232	4 259
Total debtors	44 663	110 200	63 550	156 801
Cash	5 030	23 781	7 157	33 837
Total Current assets	49 693	133 981	70 707	190 638
TOTAL ASSETS	4 255 205	4 397 812	6 054 612	6 257 523

LIABILITIES	Final balance		Beginning balance
	LVL	LVL	EUR	EUR
	30.06.2010	30.06.2009	30.06.2010	30.06.2009
			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	-1 256 658	-1 282 796
Retained earnings of the financial years	12 440	16 001	17 700	22 767
Total stockholder's equity	1 512 283	1 497 474	2 151 785	2 130 713
PROVISIONS
Other provisions	7 522	10 168	10 703	14 468
Total provisions	7 522	10 168	10 703	14 468
LIABILITIES
Long-term liabilities
Borrowings from credit institutions	2 359 177	2 431 277	3 356 806	3 459 396
Prepayments from buyers	28 468	66 675	40 506	94 870
Other liabilities	18 705	44 616	26 615	63 483
Deferred tax liability	148 039	142 163	210 642	202 279
Total long-term liabilities	2 554 389	2 684 731	3 634 569	3 820 028
Current liabilities
Borrowings from credit institutions	38 625	83 917	54 958	119 403
Accounts payable	38 455	49 498	54 716	70 429
Taxes and social security payments	49 769	34 031	70 815	48 422
Other liabilities	54 162	31 075	77 066	44 216
Future period income		6 918		9 844
Total current liabilities	181 011	205 439	257 555	292 314
Total liabilities	2 735 400	2 890 170	3 892 124	4 112 342
TOTAL LIABILITIES&STOCKHOLDER'S	4 255 205	4 397 812	6 054 612	6 257 523
EQUITY

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

		LVL 30.06.2010	LVL 30.06.2009	EUR 30.06.2010 - 0.702804	EUR 30.06.2009 - 0.702804
1	2	4	5	4	5
Net turnover		358 094	402 480	509 522	572 677
Cost of goods sold	1	-237 043	-277 653	-337 282	-395 065
Gross profit		121 051	124 827	172 240	177 612
Administrative expenses	2	-27 183	-32 431	-38 678	-46 145
Other income from operations	3	8 141	8 886	11 584	12 644
Other expenses from operations	4	-1 155	-1 518	-1 643	-2 160
Finansial services income	5	4	141	6	201
Finansial services expenses	6	-72 143	-66 118	-102 650	-94 077
Profit before taxes		28 715	33 787	40 858	48 075
Other taxes	7	-9 981	-13 954	-14 202	-19 855
Deferred tax		-6 294	-3 832	-8 956	-5 453
Net profit		12 440	16 001	17 700	22 767

Earnings per share (EPS) EPS on 30.06.2010-0.0064 LVL-0.0064 EUR Earnings per share (EPS) EPS on 30.06.2009-0.00823 LVL-0.00823 EUR

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

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

		2010 30.06.	2009 30.06.	2010 30.06.	2009 30.06.
I.	CASH FLOW FROM OERATING ACTIVITIES	LVL	LVL	EUR 0.702804	EUR 0.702804
	Profit before outstanding items and taxes (+)	28 715	33 787	40 858	48 075
	Adjustments: fixed assets depreciation ( +)	26 653	29 787	37 924	42 383
	intangible assets depreciation (+)	33	3	47	4
	increase/decrease in provisions profit or losses from exchange rates fluctuation	-2 646	2 467	-3 765	3 510
	(+/-)	-176	48	-250	68
	finansial service income	-4 72 143	-141 66 118	-6 102 650	-201 94 077
	finacial services income Profit or losses before adjustments from current
	assets and liabilities Adjustments:	124 718	132 069	177 458	187 916
	debtors : increase (-); decrease (+) inventory: increase (-); decrease (+)	65 537	29 669	93 251	42 215
	liabilities: increase (-); decrease (+)	-77 534	12 879	-110 321	18 325
	Gross cash provide by operating activities	112 721	174 617	160 388	248 457
	Payments for financial Income tax payments	-72 143	-66 118	-102 650	-94 077
	Net cash provided by operating activities before outstanding items: Cash flow from outstanding items (-/+)	40 578	108 499	57 737	154 380
	Net cash provided by operating activities :	40 578	108 499	57 737	154 380
II.	CASH FLOWS FROM INVESTING ACTIVITIES :
	Fixed assets purchase	-3 246	-1 314	-4 619	-1 870
	Interest received	4	141	6	201
	Net cash used in investing activities :	-3 242	-1 173	-4 613	-1 669
III.	CASH FLOWS FROM FINANCING ACTIVITIES:
	Expenses for borrowings repayment	-38 625	-83 916	-54 958	-119 402
	Payment LPA for long term buy out of land	-17 636	-24 828	-25 094	-35 327
	Common stock issued		19 239		27 374
	Net cash provided by financing activities :	-56 263	-89 505	-80 055	-127 355
IV.	Exchange rate fluctuation result :	176	-48	250	-68
	Net cash flom	-18 751	17 773	-26 680	25 288
	CASH AT BEGINNING OF YEAR
	CASH AT END OF YEAR	23 781 5 030	6 008 23 781	33 837 7 157	8 549 33 837

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

	30.06.2010 LVL	30.06.2009 LVL	30.06.2010 EUR 0.702804	30.06.2008 EUR 0.702804
Stockholder's eguity
Balance at the beginning of the
financial year	1 944 637	1 901 654	2 766 969	2 705 809
Increase from		42 983		61 160
Decrease from
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	-1 256 658	-1 282 796
Profit or losses of the finacial year	12 440	16 001	17 700	22 767
Dividendes
Included in accumulations
Balance at the end of the financial year	-870 744	-885 553	-1 238 958	-1 260 028
Stockholder's eguity (total)
Balance at the beginning of the
financial year	1 497 474	1 424 727	2 130 713	2 027 203
Balance at the end of the financial year	1 512 283	1 497 474	2 151 785	2 130 713

Annex of the annual report of six 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 3 861 667 LVL, land – 343 523 LVL. Total value of fixed assets – 4 205 190 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 30.06.2010.

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.

Future revenues

Future revenues of next periods are written-off according to depreciation rate of financial assets – 20% per annum.

Future revenues of next periods from value differences between purchase value of privatization certificates and their nominal valuation are deprecated in 5 years.

(1) Net turnover

Turnover consists of revenues that the Company gained in the first six months of 2009 from its core business-service provision without VAT

Type of commercial operations	2010.06.30	2009.06.30	2010.06.30	2009.06.30
	LVL	LVL	EUR	EUR
power supply, distribution and servicing	52 501	62 705	74 202	89 221
water supply and sewage services	210	1 686	299	2 399
office renting service	211 935	252 643	301 556	359 479
utility services	71 494	85 446	101 727	121 578
ferrous and non-ferrous metal trading	21 954	85 446	31 238	121 578
Total	358 094	402 480	509 522	572 677

Distribution of net turnover by geographical markets

	2010.06.30	2009.06.30	2010.06.30	2009.06.30
Country	LVL	LVL	EUR	EUR
Latvia	353 066	402 480	502 368	572 677
Estonia	5 028		7 154
Total	358 094	402 480	509 522	572 677

(2) Cost of sales

	2010.06.30	2009.06.30	2010.06.30	2009.06.30
	LVL	LVL	EUR	EUR
personnel	40 430	47 720	57 527	67 900
depreciation	26 653	29 787	37 924	42 383
transport	3 828	5 117	5 447	7 281
other outstanding costs	98 636	107 405	140 346	152 824
personnel training	120	260	171	370
telecommunication service	447	712	636	1 013
other costs tied to commercial operations	39 910	52 404	56 787	74 564
insurance (buildings)	1 472	2 344	2 094	3 335
maintenance of buildings 1 and 1a		23 230		33 053
land rent to LPA	7 728	8 671	10 996	12 338
depreciation of license	33	3	47	4
purchare costs and delivery of materials	17 786		25 307
Total	237 043	277 653	337 282	395 065

(3)	Costs of administration	2010.06.30	2009.06.30	2010.06.30	2009.06.30
		LVL	LVL	EUR	EUR
	personnel	19 178	23 863	27 288	33 954
	telecommunication service	448	712	637	1 013
	office supplies	440	668	626	950
	cash turnover expenses	151	151	215	215
	transport expenses for administrative needs	3 828	5 117	5 447	7 281
	representative expenses	42	70	60	100
	legal assistance or raid	596	600	848	854
	RFB annual fee	2 500	1 250	3 557	1 778
	Total	27 183	32 431	38 678	46 145

Other revenues from commercial

(4) operation

	2010.06.30	2009.06.30	2010.06.30	2009.06.30
	LVL	LVL	EUR	EUR
disposal of fixed assets
fines	7 660	1 118	10 890	1 591
1/5 of revenue from writing-off PS
purchase		2 155		3 066
1/5 from financial support given for Gold
equipment		4 763		6 778
other revenues	305	850	434	1 209
revenues from changes in currency rates	176		250
Total	8 141	8 886	11 584	12 644

Other costs of commercial

(5) operations

	2010.06.30	2009.06.30	2010.06.30	2009.06.30
	LVL	LVL	EUR	EUR
losses from changes in currency rates		48		68
60% of representative costs	64	45	91	64
donations to Latvian orphans fund		553		787
allowances and bonuses	421	700	599	996
fines	670	172	953	245
Total	1 155	1 518	1 643	2 160

(6) Other revenues from interests or

	similar sources
		2010.06.30	2009.06.30	2010.06.30	2009.06.30
		LVL	LVL	EUR	EUR
	interest from balances of accounts	4	141	6	201
	Total	4	141	6	201
(7)	Payments of interest and similar expenses
		2010.06.30	2009.06.30	2010.06.30	2009.06.30
		LVL	LVL	EUR	EUR
	credit interests	71 681	63 386	101 993	90 190
	interest to LPA for long term buy-out of
	land	462	2 732	657	3 887
	Total	72 143	66 118	102 650	94 077
(8)	Other taxes	2010.06.30	2009.06.30	2010.06.30	2009.06.30
		LVL	LVL	EUR	EUR
	real estate tax (buildings)	9 981	11 716	14 202	16 670
	real estate tax (land)		2 238		3 185
	Total	9 981	13 954	14 202	19 855