Turbon AG — Interim / Quarterly Report 2006

Aug 21, 2006

Turbon AG

Interim Report from January 1 to June 30, 2006

The companies of the Turbon Group develop, produce and distribute compatible imaging supplies for Laser, Inkjet, Dot Matrix and Thermal Transfer printers. Turbon operates production plants in Europe, Asia and the USA.

Turbon AG shares are listed on the regulated market of the Frankfurt (Main) and Duesseldorf stock exchanges.

The financial statements as of June 30, 2006 and June 30, 2005 respectively which are referred to in the Interim Report have been prepared in accordance with the applicable International Financial Reporting Standards (IFRS). The consolidated statement of income has been prepared in accordance with the cost-of-sales accounting format.

Sales Figures

In the first half of 2006 consolidated sales compared to first half of 2005 grew by 7.6 million Euro to 65.4 million Euro, 1.0 million Euro of which was due to positive currency effects at the time of sales consolidation. The individual figures:

Non impact products accounted for sales of 53.6 million Euro (81.9 % of total sales) in the first six months, compared to 44.1 million Euro (76.3 % of total sales) in the first half of 2005. Sales driver was the core area Laser Cartridges. Sales of laser cartridges grew to 47.7 million Euro (72.9 % of total sales) compared to 36.6 million Euro (63.3 % of total sales) in the first half of 2005.

The market-related decline in the area of impact products continued. Sales of these products were 10.2 million Euro (15.7 % of total sales). In the previous year sales of these products were 12.0 million Euro (20.8 % of total sales).

Sales of other products were 1.6 million Euro (previous year 1.7 million Euro). As in the previous year this figure includes rental income of 0.4 million Euro according to IFRS.

Earnings figures

Earnings before Interest and taxes (EBIT) in the first half of 2006 were 1.7 million Euro compared to 1.9 million Euro in the previous year. Income from ordinary operations was 1.3 million Euro compared to 1.4 million Euro in the previous year and net income was equal to the same period of 2005 0.9 million Euro.

The earnings figures are below our expectations. Reason are lower than expected sales in the second quarter. Despite the fact that sales were significantly higher than in the same period of 2005 the shortfall compared to the first quarter was larger than expected.

In addition to this we used when preparing the financial statements for the half year for the first time a revised method for the elimination of profits from intergroup sales. The accuracy of the method used becomes increasingly more relevant in preparing our financials because our group of companies meanwhile produces (Thailand and Romania) and stocks/distributes (Germany, England and USA) nearly completely in separate locations. The method used up to now has been as of June $30^{\text{th}}$ 2006 replaced by a more sophisticated method which is taking quarterly changes into consideration in a timely fashion. Due to this change an

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improved comparison of single quarters will be accomplished, as a result of a better consideration of variances in production outputs during the year.

For the first half of 2006 the change in method resulted in a negative income effect of 0.2 million Euro.

Whereas with the method used so far the gross margins of first and second quarter vary significantly, the retroactive use of the new method would result in similar gross margins for both quarters. The difference of the earnings figures does then to a large extent only result from differences in sales.

Earnings per share were calculated at 0.23 Euro after 0.25 Euro in the previous year. The calculation was based on average shares issued of 4,042,000 compared to 3,640,917 for first half of 2005.

Outlook

For the second half we expect the sales growth to continue and this strengthened by the additional customers taken over in an acquisition in the first half of August. The sales growth combined with the continuation of intensive cost cutting measures should result in respective positive earnings figures. Nevertheless from today's point of view we revise our present prognosis of net earnings exceeding three million Euro in 2006 by one million Euro to the downside.

Acquisition

On August 4, 2006 our subsidiary Turbon International Inc. has acquired assets of Tecknolaser Global Company, Canada and Tecknolaser USA Inc. The acquired assets include customers, inventories and production equipment. In addition Turbon and Tecknolaser entered into a supply agreement according to which Tecknolaser will purchase laser cartridges from Turbon to supply its remaining customer base. From 2007 we expect due to the combination of customers taken over and supply agreement sales of minimum US Dollar 15.0 million per annum. Based on the original customer/supplier relationship between the companies we calculated with sales to Tecknolaser of around US Dollar 6.0 million in 2006.

Financing

On July 20, 2006 we have issued fixed-income bonds in the amount of 10.0 million Euro with a term of seven years as part of the so called PULS bond program for midsized companies by Merril Lynch and Advisum (PULS CDO 2006-1 plc). This issuance is in the context of our refinancing of presently mainly short term orientated financing structure into a more long term orientated structure. The proceeds will initially be used for repayments on the existing lines of credit with our banks. In future we might also consider use of this financing for potential acquisitions.

In addition our German subsidiary Turbon International GmbH on August 3, 2006 has entered into a Factoring-Agreement with CommerzFactoring GmbH, a subsidiary of Commerzbank AG, according to which we will sell account receivables. The maximum amount of receivables we are entitled to sell under this agreement is 7.5 million Euro, of which we initially will use app. 5.0 million Euro.

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The financing measures described above will, due to their closing in August, for the first time effect the balance sheet of September 30, 2006.

Investments

Capital expenditure on property, plant and equipment totalled 1.2 million Euro in the first half of 2006. The expenditure was mainly on the building of an extension at the Oltenita site in Romania, as already reported, which has been completed in the first quarter. Depreciation in the first half of 2006 totalled 1.1 million Euro.

Turbon AG has also made use of its rights to buy back purchase rights for two properties, which had been sold in 2005. The price of 1.8 million Euro at which the rights were bought back corresponded with the selling price. As the original purchase agreement was calling for payment of the purchase price only after the right to repurchase has expired the repurchase also didn't result in a cash flow.

Hattingen, August 21 2006

Executive Board

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Consolidated Balance Sheet Turbon Group

as of June 30, 2006

| | 06/30/06 1,000 Euro | 06/30/05¹ 1,000 Euro | | --- | --- | --- | | Assets | | | | Long-term assets | | | | Intangible assets | 2,268 | 530 | | Tangible assets | 16,621 | 15,342 | | Financial assets | 285 | 363 | | | 19,174 | 16,235 | | Deferred tax assets | 2,285 | 1,196 | | | 21,459 | 17,431 | | Short-term assets | | | | Inventories | 36,520 | 33,500 | | Trade receivables | 24,018 | 19,481 | | Other assets | 3,957 | 4,764 | | Cash and cash equivalents | 301 | 681 | | Deferred tax assets | 622 | 287 | | Deferred charges and prepaid expenses | 1,828 | 1,576 | | | 67,246 | 60,289 | | | 88,705 | 77,720 | | Shareholders' Equity and Liabilities | | | | Shareholders' Equity | | | | Subscribed capital | 10,333 | 10,300 | | Capital reserves | 14,956 | 14,917 | | Revenue reserves | 642 | 4,392 | | Retained earnings brought forward | 5,755 | 895 | | Net income | 911 | 894 | | Treasury stock | 0 | -1,988 | | | 32,597 | 29,410 | | Long-term liabilities | | | | Pension reserves | 2,858 | 2,641 | | Deferred tax liabilities | 1,697 | 1,379 | | | 4,555 | 4,020 | | Short-term liabilities | | | | Accrued taxes | 917 | 832 | | Other reserves and accrued liabilities | 4,628 | 4,304 | | Liabilities due to banks | 23,231 | 23,050 | | Trade payables | 18,532 | 12,516 | | Liabilities due to other group companies | 24 | 24 | | Other liabilities | 3,958 | 3,015 | | Deferred items | 263 | 549 | | | 51,553 | 44,290 | | | 88,705 | 77,720 |

¹ Owing to the inclusion of pension obligations of a subsidiary in the annual financial statements for 2005 for the first time, we have made the appropriate adjustments to the balance-sheet figures for Q2/2005 in this interim report to allow proper comparison.

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Consolidated Statement of Income - Turbon Group for the period from January 1 until June 30, 2006

In 1,000 Euro	Jan 1–Jun 30 2006	Jan 1–Jun 30 2005
Sales	65,410	57,825
Cost of sales	52,605	46,266
Gross profit	12,805	11,559
Selling expenses	7,097	6,029
Administrative expenses	3,814	4,157
Other operating income	681	1,187
Other operating expenses	863	632
Net interest	-459	-550
Result from ordinary operations	1,253	1,378
Income taxes	342	484
Group net income	911	894

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Consolidated Cash Flow Statement Turbon Group for the period from January 1 until June 30, 2006

| in 1,000 Euro | Jan 1-Jun 30 2006 | | Jan 1-Jun 30 2005 | | | --- | --- | --- | --- | --- | | Net income for the period | 911 | | 894 | | | Depreciation of fixed assets | 1,068 | | 1,020 | | | Change in pension reserves | -61 | | 41 | | | Other non-cash expenses and income | 72 | | 28 | | | Cash flow | 1,990 | | 1,983 | | | Result on disposals of fixed assets | 6 | | -164 | | | Change in inventories | -2,512 | | -5,252 | | | Change in trade receivables | -2,072 | | -1,138 | | | Change in other assets | 1,677 | | -161 | | | Change in short-term provisions | -361 | | 436 | | | Change in trade payables | 900 | | -1,219 | | | Change in other liabilities | 1,593 | | 51 | | | Cash flow from operating activities | | 1,221 | | -5,464 | | | | | | | | Exchange-rate-related change from consolidation | | -768 | | 1,558 | | Purchase of intangible assets² | -1,914 | | -488 | | | Purchase of tangible assets | -1,222 | | -1,370 | | | Proceeds from disposals of fixed assets | 43 | | 300 | | | Cash flow from investing activities | | -3,093 | | -1,558 | | Sale of treasury stock | 0 | | 821 | | | Dividend payment | 1,213 | | 1,110 | | | Change in bank debts | 3,282 | | 5,374 | | | Cash flow from financing activities | | 2,069 | | 5,085 | | Change in cash funds from cash relevant transactions | | -571 | | -379 | | Exchange-rate-related change in cash funds | | -31 | | 53 | | Cash funds at the beginning of period | | 903 | | 1,007 | | Cash funds at the end of period | | 301 | | 681 |

² Thereof 1.8 million Euro non-cash affecting payment (see explanations to Investments)