INDEPENDENT AUDITOR'S REPORT

INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS FOR YEAR 2007 DIGIT-RAČUNARSKI INŽINJERING d.o.o., Belgrade Belgrade, March 31, 2008

CONTENTS Page INDEPENDENT AUDITOR'S REPORT...1 BALANCE SHEET...2 INCOME STATEMENT...4 CASH FLOW STATEMENT...6 STATEMENT OF CHANGES IN OWNERS EQUITY...8 LEGAL AND OTHER ISSUES...9 GENERAL INFORMATION...11 ACCOUNTING POLICIES...12 NOTES TO THE FINANCIAL STATEMENTS...20

TO THE BOARD OF DIRECTORS AND OWNERS OF INDEPENDENT AUDITOR'S REPORT We have audited the accompanying balance sheet of DIGIT-RAČUNARSKI INŽINJERING d.o.o., Belgrade (hereinafter referred to as Company ) as of December 31, 2007, and the related statements of income, cash flow, and changes in owners equity for that period. These financial statements, presented on pages 2 33 are the responsibility of Company s management. Our responsibility is to issue a report on these financial statements based on our audit. We conducted our audit in accordance with Law on accounting and auditing and International standards on auditing. These Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements give a true and fair view of the financial position of the Company as of December 31, 2007, and of the results of its operations, cash flow and changes in owners equity for the year then ended in accordance with International Financial Reporting Standards, International Accounting Standards and national accounting regulation. Without qualifying our opinion, we draw your attention to the following matter: In order to provide guarantee for successful execution of contract with Telekom Serbia, Belgrade, Company registered mortgage on premises in Kraljevo, 164 m2, in favor of Vojvodjanska banka. Belgrade, March 31, 2008

BALANCE SHEET As of December 31, 2007 P O S I T I O N Note Current Year Amount Previous Year A S S E T S A. NON-CURRENT ASSETS (I - V) 150,640 157,012 I. UNPAID REGISTERED CAPITAL 4.1 II. GOODWILL III. INTANGIBLE ASSETS 4.2, 4.4 IV. PROPERTY, PLANT, EQUIPMENT, AND BIOLOGICAL ASSETS (1+2+3) 4.3, 4.4, 4.5, 4.6 142,891 149,499 1. Property, plant and equipment 4.3, 4.6, 8 141,682 148,255 2. Investment property 4.4, 4.6, 8 1,209 1,244 3. Biological assets 4.5, 4.6, 8 V. INVESTMENTS (1+2) 4.7, 9 7,749 7,513 1. Investment in equity securities 4.7.1, 9 255 299 2. Other investments 4.7.2, 9 7,494 7,214 B. CURRENT ASSETS (I - IV) 134,386 168,740 I. INVENTORY 4.8,10 17,437 26,928 II. FIXED ASSETS DESIGNATED FOR SALE AND ASSETS OF DISCONTINUED OPERATIONS III. ACCOUNTS RECEIVABLE, SHORT- TERM INVESTMENTS, AND CASH (1-5) 4.9 116,384 141,636 1. Accounts receivable 4.10,11 32,212 36,807 2. Receivables from excessive payment of 4.11, 12 1,213 income tax 3. Short-term investments 4.12, 13 456 4. Cash and cash equivalents 4.13, 14 83,064 96,281 5. Value added tax and prepaid expenses 4.14, 15 652 7,335 IV. DEFERRED TAX ASSETS 4.15, 16 565 176 V. OPERATING ASSETS (A+B) 285,026 325,752 G. LOSS ABOVE EQUITY 4.16 D. TOTAL ASSETS (V+G) 285,026 325,752 DJ. OFF-BALANCE-SHEET ASSETS 28 THE ACCOMPANYING NOTES ON PAGES 9 TO 33 ARE INTEGRAL PART OF THE FINANCIAL STATEMENTS 2

BALANCE SHEET (continued) P O S I T I O N Note Current Year Amount Previous Year EQUITY AND LIABILITIES 5.1 A. EQUITY (I+II+III+IV+V-VI-VII) 14, 17 248,311 236,016 I. OWNERS' AND OTHER CAPITAL 17 3,772 4,501 II. UNPAID SUBSCRIBED CAPITAL 17 III. RESERVES 17 337 337 IV. REVALUATION RESERVES 17 V. RETAINED EARNINGS 17 244,202 231,178 VI. LOSS 17 VII. REDEEMED STOCK 17 B. LONG-TERM PROVISIONS AND 36,715 89,736 LIABILITIES (I - IV) I. LONG-TERM PROVISIONS 5.2 II. LONG-TERM LIABILITIES (1+2) 5.3 1. Long-term loans 2. Other long-term liabilities III. SHORT-TERM LIABILITIES (1-6) 36,715 89,736 1. Short-term financial liabilities 5.4 2. Liabilities for fixed assets designated to sale and assets of discontinued operations 3. Accounts payable 5.6, 18 27,433 82,582 4. Other short-term liabilities and accrued 5.7, 19 4,508 2,457 expenses 5. Value-added tax and other public revenue 5.8, 20 3,870 4 payable 6. Income tax liability 5.9, 21 904 4,693 IV. DEFERRED TAXES PAYABLE 5.10 V. TOTAL EQUITY AND LIABILITIES 285,026 325,752 (A+B) G. OFF-BALANCE-SHEET EQUITY AND LIABILITIES 28 THE ACCOMPANYING NOTES ON PAGES 9 TO 33 ARE INTEGRAL PART OF THE FINANCIAL STATEMENTS 3

INCOME STATEMENT For period January 1 December 31, 2007 P O S I T I O N Note Current Year Amount Previous Year A. REVENUE AND EXPENSES FROM REGULAR ACTIVITIES I. OPERATING REVENUE (1+2+3-4+5) 7.1.1, 22 280,189 410,128 1. Sales revenue 22 280,173 410,058 2. Internal purchase 22 3. Increase in work-in-process and 22 finished goods inventory 4. Decrease in work-in-process and 22 finished goods inventory 5. Other operating revenue 22 16 70 II. OPERATING EXPENSES (1-5) 7.1.2, 23 266,856 361,611 1. Cost of merchandise sold 23 12,325 50,349 2. Cost of material 23 100,288 166,340 3. Payroll expense 23 85,580 77,536 4. Depreciation and provision expense 23 10,988 11,220 5. Other operating expenses 23 57,675 56,166 III. OPERATING INCOME (I - II) 13,333 48,517 IV. OPERATING LOSS (II - I) V. FINANCIAL REVENUE 7.2.1, 24 8,663 3,385 VI. FINANCIAL EXPENSES 7.2.2, 25 2,273 6,375 VII. OTHER REVENUE 7.3.1, 5,277 2,988 7.4.1, 26 VIII. OTHER EXPENSES 7.3.2, 27 1,888 5,526 IX. INCOME FROM REGULAR ACTIVITIES (III-IV+V-VI+VII-VIII) X. LOSS FROM REGULAR ACTIVITIES (IV-III-VI+V-VIII+VII) XI. NET INCOME OF DISCONTINUED OPERATIONS XII. NET LOSS OF DISCONTINUED OPERATIONS B. INCOME BEFORE TAXES (IX+XI-X-XII) V. LOSS BEFORE TAXES (X+XII-IX-XI) 23,112 42,989 23,112 42,989 THE ACCOMPANYING NOTES ON PAGES 9 TO 33 ARE INTEGRAL PART OF THE FINANCIAL STATEMENTS 4

INCOME STATEMENT (Continued) P O S I T I O N Note Current Year Amount Previous Year G. INCOME TAX 7.5. 1. Tax expense of period 2,700 4,693 2. Differed tax expenses of period 3. Differed tax revenue of period 389 394 D. Personal earnings paid to employer DJ. NET EARNINGS (B-V-1-2+3-D) 20,801 38,690 E. NET LOSS (V-B+1+2-3+D) Z. NET EARNINGS ALLOTTED TO MINORITY OWNERS Z. NET EARNINGS ALLOTTED TO PARENT COMPANY OWNERS I. EARNINGS PER SHARE 1. Basic earnings per share 2. Diluted earnings per share 20,801 38,690 THE ACCOMPANYING NOTES ON PAGES 9 TO 33 ARE INTEGRAL PART OF THE FINANCIAL STATEMENTS 5

CASH FLOW STATEMENT For period January 1 December 31, 2007 P O S I T I O N Amount Current year Previous year A. CASH FLOW FROM OPERATING ACTIVITIES I. Inflows from operating activities (1-3) 330,910 501,047 1. Sales and received advance payments 325,725 496,589 2. Received interest from operating activities 5,070 1,470 3. Other inflows from regular activities 115 2,988 II. Outflows from operating activities (1-5) 327,644 402,916 1. Payments to suppliers and advance payments 219,881 334,792 2. Payroll payments 84,356 63,778 3. Paid interest 7 2,594 4. Income tax 677 5. Payments for other public revenues 22,723 1,752 III. Net inflow from operating activities (I - II) 3,266 98,131 IV. Net outflow from operating activities (II I) B. CASH FLOW FROM INVESTMENT ACTIVITIES I. Inflows from investment activities (1-3) 1,670 1. Sale of shares (net inflows) 9 2. Sale of intangibles, prop., plant, equip. and biol. 11 assets 3. Received dividends 1,650 II. Outflows from investment activities (1 2) 4,379 10,114 1. Acquisition of intangible assets, property, plant, 4,379 6,319 equipment, and biological assets 2. Other investments (net outflows) 3,795 III. Net inflow from investment activities (I II) IV. Net outflow from investment activities (II I) 2,709 10,114 THE ACCOMPANYING NOTES ON PAGES 9 TO 33 ARE INTEGRAL PART OF THE FINANCIAL STATEMENTS 6

V. CASH INFLOW FROM FINANCING ACTIVITIES I. Inflows from financing activities (1) 1,390 1. Other long-term liabilities and short-term 1,390 liabilities II. Outflows from financing activities (1-2) 14,841 1. Long-term loans and short-term loans (net 1,641 outflows) 2. Paid dividends 13,200 III. Net inflow from financial activities (I II) IV. Net outflow from financial activities (II I) 13,451 G. TOTAL CASH INFLOW (AI + BI + VI) 333,970 501,047 D. TOTAL CASH OUTFLOW (AII + BII + VII) 346,864 413,030 DJ. NET CASH INFLOW (G -D) 88,017 E. NET CASH OUTFLOW (D - G) 12,894 Z. CASH AT BEGINNING OF THE PERIOD 96,281 10,128 Z. POSITIVE FOREIGN CURRENCY 1,943 1,916 TRANSLATION OF CASH I. NEGATIVE FOREIGN CURRENCY 2,266 3,780 TRANSLATION OF CASH J. CASH AT THE END OF THE PERIOD 83,064 96,281 THE ACCOMPANYING NOTES ON PAGES 9 TO 33 ARE INTEGRAL PART OF THE FINANCIAL STATEMENTS 7

STATEMENT OF CHANGES IN OWNERS EQUITY For period January 1 December 31, 2007 Description Owners' capital Other capital Reserves Retained earnings Total Balance as of Jan 1, 2006 1,934 347 337 193,790 196,408 Adjusted opening balance as 1,934 347 337 193,790 196,408 of Jan 1, 2006 Total increase in previous year 1,838 382 41,487 43,707 Total decrease in previous 4,099 4,099 year Balance as of Dec 31, 2006 3,772 729 337 231,178 236,016 Adjusted opening balance 3,772 729 337 231,178 236,016 Total increase in current year 26,224 26,224 Total decrease in current year 729 13,200 13,929 Balance as of Dec 31, 2007 3,772 337 244,202 248,311 THE ACCOMPANYING NOTES ON PAGES 9 TO 33 ARE INTEGRAL PART OF THE FINANCIAL STATEMENTS 8

LEGAL AND OTHER ISSUES NOTES TO THE FINANCIAL STATEMENTS 1. LEGAL AND OTHER ISSUES 1.1. Under Article 7 of Law on Accounting and Auditing (''Sluzbeni glasnik RS'', 46/06), Company is classified as small-sized legal entity, and according to paragraph 1 of Article 37 of the Law, it is mandatory to have its financial statements audited. 1.2. Individuals responsible for financial statements compilation are: 1. Mihajlo Knezevic, director 2. Cedomir Rsumovic, chief accountant 1.3. Audit documentation consists of Company s financial statements (Balance sheet, Income statement, Cash Flow Statement, Statement on Changes in Equity), as well as trial balance, physical count lists, governing bodies and management decisions, accounting documentation, reports, control memos, book of rules on accounting and accounting policies, normative acts, abstracts from registry, other corroborating evidence and explanations requested by auditors. In its Statement dated March 31, 2008, management confirms that accompanying financial statements encompass overall assets and liabilities of the Company. In its Statement dated March 31, 2008, management confirms that financial statements delivered to audit firm EUROAUDIT, Belgrade equal financial statements delivered to National Bank of Serbia Solvency Center, and Agency for Business Registers, and that they are sign by authorized persons. 1.4. Documentation and data were presented to us by: 1. Cedomir Rsumovic 2. Slobodan Trisic 1.5. Data processing software is used for maintaining financial accounting data and it satisfies all necessary analytical and synthetic requirements. Accounting records are maintained by Company according to formal principles of ordinate accounting. 1.6. Internal control is not organized as a separate organizational unit and it is performed according to necessary guidelines and self controls which are derived from job descriptions. 1.7. Audit team: 1. Milovan Filipovic, Ph.D., certified public accountant 2. Jovan Rodic Ph.D., certified public accountant 3. Milisav Djurica, auditor 1.8. Audit engagement: March 22, 2008 March 28, 2008 9

LEGAL AND OTHER ISSUES 1.9. Accounting policies are based on following accounting regulation: - Law on accounting and auditing ( "Sluzbeni glasnik RS" 46/06), - International Accounting Standards, - International Financial Reporting Standards, - Book of regulations concerning Chart of accounts and content of accounts for companies and cooperatives ("Sluzbeni glasnik RS" 114/06), - Law on changes and supplements of Law on company's income tax ("Sluzbeni glasnik RS",84/04), - Value Added Tax Law ("Sluzbeni glasnik RS",84/04), - Book of regulations concerning form of financial statements and content of accounts in financial statements for companies, cooperatives, and entrepreneurs ("Sluzbeni glasnik RS", 114/06). According to Law of Accounting and Auditing, companies and cooperatives apply International accounting standards beginning with January 1, 2004. Accounting policies are disclosed in Book of rules on accounting which was adopted at the end of June 20, 2004 by Company s Director and applied starting from January 1, 2004. 10

GENERAL INFORMATION 2. GENERAL INFORMATION Information technology and communication engineering company "DIGIT - racunarski inzenjering", limited partnership company, Belgrade has been established for the production of computers and other data processing equipment, as well as software engineering, representation of foreign companies, wholesale and retail sale. With Decision IV Fi. 13731/02, December 16, 2002 (Code: 1-12942-00), in Trade Court in Belgrade, reconciliation with Company Law and Law of classification of activities, expansion of activities and change of owner has been accomplished. Company is registered in Business entities registry at Business registry agency. Registration number is 13409 and date of registration is June 29, 2005. Company deals with production of calculating machines and other equipment for data processing, rendering services of programming and advocacy of foreign companies, wholesale and retail sale, as well as foreign trade in connection with Company's activities. Company's register number is 07517076, and Unique tax number is 100001214. Company has 70 employees (calculated according to monthly average in year 2007). 11

ACCOUNTING POLICIES 3. ACCOUNTING POLICIES In a process of financial statements compilation, company is obligated to use following principles: 3.1.1. GOING CONCERN PRINCIPLE states that asset, financial and profitability position of a company, as well as the state economic policy and surrounding conditions provide conditions for conducting operations in unlimited period of time. Due to that, financial statements should give true and fair basis for bringing proper management decisions and prevent from brining wrong management decision, in order to provide existence of the company in unlimited time. Proper management decision can be brought if financial statements give insight in profitability, assets and financial position of the company. Wrong management decisions are prevented if company consistently applies imparity principle. 3.1.2. REALIZATION PRINCIPLE states that only realized gains can be included in income statement (i.e. gains confirmed on market). 3.1.3. IMPARITY PRINCIPLE (unequal values principle), requires measurement of assets at lower value and liabilities at higher value. Imparity principle means that measurement of property, plant, equipment and intangible assets is based on shorter useful life and by application of declining depreciation rate, measurement of inventory is based on lower of net sales value or production cost, measurement of securities is based on lower of acquisition cost or stock exchange price etc. These measurements are carried out irrespective of their influence of net income (loss). 3.1.5. MATCHING PRINCIPLE requires that all expenses and revenues that arose in the period should be taken into consideration, irrespective of the moment of revenue collection (accrued realization) and the moment of expenses payment. 3.1.6. INDIVIDUAL ASSETS AND LIABILITIES EVALUATION PRINCIPLE states that all possible group evaluations, undertaken in order to achieve a rationalization, are a result of individual evaluation. 3.1.7. BALANCE SHEET IDENTITY PRINCIPLE requires that all opening balance sheet balances at the beginning of year must be equal to the balances at the end of the previous year. 12

ACCOUNTING POLICIES 4. ASSETS EVALUATION 4.1. UNPAID SUBSCRIBED CAPITAL is measured at contracted unpaid amount. 4.2. INTANGIBLE ASSETS are recognized when inflow of economic benefits is probable and when acquisition cost can be reliably measured. Intangible assets include investment in development, concessions, patents, licenses, intangible investment in research and estimation of natural resources (IFRS 6 - Research and estimation of natural resources), other intangible assets, and goodwill. Intangible assets are measured at cost. Intangible assets, except for goodwill, are amortized according to straight-line depreciation method in estimated useful life. Goodwill is impaired according to the dynamic profitability method. Intangible assets are disclosed in balance sheet at present value. 4.3. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment include: land, buildings, plant and equipment, other assets (books in library, paintings, cultural and historic monuments), property, plant and equipment in progress and advance payments for acquisition of property, plant and equipment. These assets are recognized at cost. After initial recognition at cost, buildings, plant, equipment and biological assets, except woods, are valuated at present value (acquisition cost decreased for accumulated depreciation and impairment loss). Property, plant and equipment are disclosed in balance sheet at present value. 4.4. INVESTMENT PROPERTY These assets comprise land and constructions. They are recognized at cost. During useful life, investment property is measured at fair value or depreciated (paragraphs 38 and 53 of IAS 40 Investment property). Investment property is disclosed in balance sheet at present value. 4.5. BIOLOGICAL ASSETS Biological assets comprise: woods, perennial plants, basic herd and biological assets in progress. Woods are measured according to their natural increase. Effects of woods appraisal are accounted for as revenue from reconciliation in value. Perennial plants and basic herd are measured at their fair value. Positive effects are recorded as revenue from reconciliation in value and negative effect are recorded as expenses from reconciliation in value. Perennial plants and basic herd are recognized at fair value. As far as basic herd is concerned, its fair value is decrease for selling expenses (paragraph 12 IAS 41 Agriculture). Alternatively, Perennial plants and basic herd can be depreciated (paragraph 30 IAS 41 13

ACCOUNTING POLICIES Agriculture). In that case, perennial plants and basic herd are disclosed in balance sheet at their present value. 4.6. DEPRECIATION Basis for depreciation on property, plant and equipment is cost of acquisition, or revaluated cost of acquisition. Buildings are depreciated with straight-line depreciation method in estimated useful life, and plant and equipment are depreciated with accelerated depreciation method. Exceptionally, according to the decision of the Board of Directors, in year 2007 Company applied straight-line depreciation method for plant and equipment (paragraph 62 IAS 16 Property, plant and equipment). Company applies following depreciation rates: Group A s s e t s Useful life (years) Depreciation rate 1. 1.1.1. PROPERTY 1.1. Buildings 40 2.5% 2. 1.1.1.1. EQUIPMENT 2.1. Cars, air-conditions, inventory 10 10% 2.2. Tools, calculators, photocopy equipment 7 15% 2.3. Telecommunication equipment 5 20% 2.4. Calculating machines, software 3 30% 4.7. LONG-TERM INVESTMENTS 4.7.1. Investment in securities includes: investment in equity securities of subsidiaries, investment in equity securities of other entities and long-term securities held for sale. If investment in equity securities is given in national currency, it is measured at nominal value, and if it is given in foreign currency (investment in securities of foreign entities), it is measured at medium exchange rate at balance sheet date. Investment in equity securities is indirectly written off and expensed as impairment loss if entity which issued equity securities files for bankruptcy. If long-term securities held for sale are given in national currency, they are measured at nominal value, and if they are given in foreign currency, they are measured at medium exchange rate at balance sheet date. If long-term securities are traded at stock exchange, they are measured at stock exchange value. Positive effects of change in value of long-term securities are accounted for as revenue from reconciliation of value, and negative effects are expensed as impairment loss and credited to indirect correction of securities value. 4.7.2. Other long-term investments include: long-term loans to subsidiaries and other related entities, long-term domestic loans, long-term foreign loans, securities held to maturity and other long-term investments. If other long-term investments are given in national currency, they are measured at nominal value, and if they are given in foreign currency, they are measured at medium exchange rate at balance sheet date. If other long-term loans cannot 14

ACCOUNTING POLICIES be collected or if there is a serious risk that they will not be collected, company will make an indirect correction of their values and expense it as impairment loss. 4.8. INVENTORY Inventory of materials, spare parts, inventory with one-time write off, and merchandise, is measured at acquisition cost, which includes invoiced amounts and direct acquisition costs. Transfer of material, spare parts, small inventory, and merchandise out of stock is measured according to average purchase price method. If prevailing acquisition cost of material, spare parts, small inventory, and merchandise is higher than book value, inventory is measured at fair acquisition cost and difference is expensed as impairment loss. Inventory which has no useful value is written off and expensed as impairment loss. 4.9. FIXED ASSETS FOR SALE AND ASSETS OF DISCONTINUING OPERATIONS Fixed assets for sale include property, plant and equipment intended for sale within one year. These assets are measured at acquisition cost. Assets of discontinuing operations include intangibles, property, plant and equipment of party of company which operations are to be terminated. These assets are measured at present value. If initial value does not correspond to market value decreased for sales costs, assets are measured at fair value. Positive effect are accounted for as revenue from reconciliation of value, and negative effect are expensed as impairment loss (as set out under paragraphs 18, 19 and 23 of IFRS 5 Fixed assets for sale and discontinuing operations). 4.10. RECEIVABLES include: receivables from sales (customers - parent and subsidiary companies, customers - other related parties, domestic customers and foreign customers), receivables from specific arrangements and other receivables (for interest and dividends, from employees, from state bodies and organizations, from excessive payments of taxes and social contributions, except for income tax). Receivables in foreign currency are measured at medium exchange rate at balance sheet date. When doubtful accounts receivable are documented, they are directly written off. Receivables from entities which filed for bankruptcy and receivables which were not collected within period set out under book of rules on accounting and accounting policies are reduced indirectly as allowance for doubtful accounts. 4.11. RECEIVABLES FROM EXCESSIVE PAYMENT OF INCOME TAX include excessive payment of income tax in previous period. 4.12. SHORT-TERM INVESTMENTS include short-term loans (short-term loans to parent, subsidiary and other related entities, short-term domestic loans, short-term foreign loans, and portion of long-term loan which is to be colleted within one year), securities which become due within one year, securities held for trading and other short-term loans. Short-term loans 15

ACCOUNTING POLICIES and securities in foreign currency are measured at medium exchange rate at balance sheet date. Securities which are traded at stock exchange are measured at stock exchange value. Short-term investments in entities which filed for bankruptcy and investments which were not collected within period set out under book of rules on accounting and accounting policies are reduced indirectly as allowance for doubtful accounts. 4.13. CASH AND CASH EQUIVALENTS include: securities directly convertible to cash (e.g. checks), cash held in bank in national and foreign currency, petty cash in national and foreign currency, and time deposits in domestic and foreign currency. Cash and cash equivalents in foreign currency are measured at medium exchange rate at balance sheet date. 4.14. VALUE ADDED TAX AND PREPAID EXPENSES include: excessive payment of VAT which was not compensated with collected VAT, expenses paid in advance (expenses of the following period), current revenues which could not be invoiced and for whom the expenses occurred in current period, expenses from liabilities (e.g. interest calculated in advance), and other prepaid expenses. 4.15. DEFERRED TAX ASSETS include temporary decrease in fiscal expenses calculated under IAS 12 Income tax. 4.16. LOSS ABOVE EQUITY is a difference between total loss and equity. 5. EQUITY AND LIABILITIES EVALUATION 5.1. EQUITY encompasses: capital, share premium, earnings reserves (legal and statutory), revaluation reserves, and retained earnings from previous and current year. Loss from previous years and current year loss are a correction of equity value. Equity and loss are presented in balance sheet in its nominal book value, and redeemed stock at redeemed value. When an asset is completely depreciated or sold, revaluation reserve of the asset is transferred to retained earnings. 5.2. LONG TERM PROVISIONS represent liabilities for covering costs and risks of previous activities which will arise in following years, and they relate to: - Provisions for expenses in warranty period, - Provisions for retained guarantees and deposits, - Provision for compensation and other employees benefits, - Other provisions for possible expenses. Company measures these provisions according to expected expenses, and cancels them as revenues of the period in a moment when expenses for which provision is done occur. Unused long-term provisions for cost covering are recorded as revenues of the period. 16

ACCOUNTING POLICIES 5.3. LONG-TERM LIABILITIES encompass: long-term loans, and other long-term liabilities including liabilities from lease agreements. Long-term liabilities in national currency are measured at unsettled nominal value, and liabilities denominated in foreign currency are measured at medium exchange rate or rate contracted with creditor. 5.4. SHORT-TERM FINANCIAL LIABILITIES include: financial liabilities which become due within one year and portion of long-term liability which is to be settled in the next year. Short-term liabilities in national currency are measured at unsettled nominal value, and liabilities denominated in foreign currency are measured at medium exchange rate or rate contracted with creditor. 5.5. LIABILITIES FROM FIXED ASSETS HELD FOR SALE AND ASSETS OF DISCONTINUING OPERATIONS include liabilities which were incurred in accordance with IFRS 5 - Fixed assets for sale and discontinuing operations. 5.6. ACCOUNTS PAYABLE include: received advance payments, accounts payable to suppliers and accounts payable from specific arrangements. Accounts payable in national currency are measured at unsettled value, and liabilities denominated in foreign currency are measured at medium exchange rate. 5.7. OTHER SHORT-TERM LIABILITIES AND ACCRUED EXPENSES include: payroll liabilities, interest liabilities, liabilities to employees, liabilities to members of board of directors and oversight bodies, liabilities to natural persons from service contract, and other liabilities. Accrued expenses include: expenses accrued in advance, accrued revenues of future period, calculated acquisition costs, and received donations. 5.8. VAT AND OTHER PUBLIC REVENUES LIABILITIES include: VAT liabilities, and liabilities for tariffs, taxes, custom duties, social contributions charged to expenses, and other public revenues. 5.9. INCOME TAXES PAYABLE refer to unsettled income tax. 5.10. DEFERRED TAX LIABILITY includes temporary income tax liability calculated under IAS 12 Income tax. 6. MEDIUM EXCHANGE RATE AND RETAIL PRICE INDEX Medium exchange rates of leading foreign currencies are: Dec 31, 2006 Dec 31, 2007 Index 1 EUR 79.0000 79.2362 100.30 1 USD 59.9757 53.7267 89.58 1 CHF 49.1569 47.8422 97.33 17

ACCOUNTING POLICIES Retail prices indexes from the beginning to the end of year are: Month Year 2006 Year 2007 January 100,4 100,4 February 101,9 100,5 March 102,2 101,2 April 104,1 102,1 May 105,7 103,6 June 105,7 104,2 July 106,6 104,8 August 106,3 106,1 September 106,1 106,9 October 105,6 107,5 November 106,6 108,7 December 106,6 110,1 7. REVENUES AND EXPENSES 7.1. OPERATING REVENUE AND EXPENSES 7.1.1. Operating revenues encompass: - merchandise, goods, and services sales revenue, reduced for taxes and discounts, irrespective of a moment of collection, - revenues from internal use of products, recognized at production costs, - revenues from internal purchases of merchandise, recognized at acquisition costs, and revenues from increase in basic herd, recognized at market price, - revenues from subsidies, regresses, compensations, and return of duties for sold merchandise and goods, revenues from donations, rents, membership fees, and royalties. Operating revenues are adjusted upwards, for the increase in value of goods and services inventories, and downwards, for the decrease in value of goods and services inventories. 7.1.2. Operating expenses include: costs of merchandise sold, cost of raw materials, cost of other materials, fuel and energy costs, payroll expenses, production services expenses, depreciation and provision expenses, and immaterial expenses. All expenses are recorded irrespective of the moment of collection. 7.2. FINANCIAL REVENUES AND EXPENSES 7.2.1. Financial revenues encompass: interest revenues, revenues from participation in earnings of related parties, revenues from positive foreign currency exchange difference, revenues from positive effects of foreign currency risk protection clause, and other financial revenues. 18

ACCOUNTING POLICIES 7.2.2. Financial expenses encompass: interest expenses, negative foreign currency exchange difference, expenses from investments in related parties, expensive from negative effects of foreign currency risk protection clause, and other financial revenues. 7.3. OTHER REVENUES AND EXPENSES 7.3.1. Other revenues include: gains on sale of intangible assets, property, plant, equipment, and biological assets, gains on sale of investments in equity and other securities, gains on sale of material, surpluses, except for output surpluses, collected receivables that were previously written off, revenues from effects of contracted risk protection, revenues from cancellation of liabilities, and revenues from cancellation of long-term provisions. 7.3.2. Other expenses include: loss from retirement and sale of intangible assets, property, plant, equipment, and biological assets, loss on sale of investments and other securities, loss on sale of material, shortages, except for shortages of output, expenses from effects of contracted risk protection, expenses from write off receivables, and other miscellaneous expenses. 7.4. REVENUES AND EXPENSES FROM RECONCILIATION OF ASSETS VALUE 7.4.1. Revenues from reconciliation of assets value include: revenues from reconciliation of value of biological assets, intangibles, property, plant, equipment, long-term investments, inventory except output inventory, short-term receivables, short-term investments and other assets. 7.4.2. Expenses from impairment of assets include: impairment of biological assets, intangibles, property, plant, equipment, long-term investments, material and merchandise inventory, short-term receivables, and short-term investments. 7.5. INCOME TAX Income tax calculation is based on Income Tax Law (''Sluzbeni glasnik RS'', 25/01, 80/02, 43/03 and 84/04). Income tax is calculated by applying tax rate of 10% to tax base determined in Tax Return Application. 19

NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 8. PROPERTY, PLANT AND EQUIPMENT Buildings Plant and equipment Investment property Property, plant and equipment in progress Cost: Balance, beginning of year 74,712 27,977 1,401 51,169 155,259 Increase: 36,788 430 37,218 Acquisition in period 4,912 430 5,342 Revaluation or appraisal 31,876 31,876 during the year Decrease: 963 963 Retirement, sale etc. 963 963 Balance, the end of year 74,712 63,802 1,401 51,599 191,514 Total Accumulated depreciation: Balance, beginning of year 5,603 157 5,760 Increase: 1,868 41,923 35 43,826 Current year depreciation 1,868 9,085 35 10,988 Impairment 32,838 32,838 Decrease: 963 963 Accumulated depreciation 963 963 from retirement and sale Balance, the end of year 7,471 40,960 192 48,623 Net present value: December 31, 2007 67,241 22,842 1,209 51,599 142,891 Net present value: December 31, 2006 69,109 27,977 1,244 51,169 149,499 Company s management considers that tangible assets are presented at their fair value, in accordance with IAS 16 Property, plant and equipment, especially because building is activated as of January 1, 2004 at acquisition cost. Buildings and investment property are depreciated with straight-line depreciation method in estimated useful life, and plant and equipment are depreciated with accelerated depreciation method. Exceptionally, according to the decision of the Board of Directors, in year 2007 Company applied straight-line depreciation method for plant and equipment (paragraph 62 IAS 16 Property, plant and equipment). Depreciation is correctly calculated and expensed. 20

NOTES TO THE FINANCIAL STATEMENTS In order to guarantee for execution of obligations contracted with Telecom Serbia, Company registered I level mortgage on property premises in Kraljevo (164 m2) in favor of Vojvodjanska banka. Tangible assets in progress refer to building C in amount of 50,123 thousands of dinars, and corridor-staircase (building communication) between objects B and C in amount of 1,476 thousands of dinars which will be activated at the beginning of 2008. During year 2007, company sold one retired van which was previously completely written off and realized gain on sale in amount of 11 thousands of dinars, which was accounted for as other revenue. 9. INVESTMENTS Investment in equity securities of other related parties Investment in equity securities of other companies and longterm securities available for sale Long-term securities held to maturity Other investments 1. Gross value, beginning 389 113 94 7,120 7,716 of year 2. Increase in gross value 1 1,648 1,649 in period: a) Acquisition 1,641 1,641 b) Foreign currency translation Total 7 7 c) Reconciliation in value 1 1 3. Correction of beginning 203 203 value 4. Decrease in gross value 45 5 1,363 1,413 in period: a) From collection 1,363 1,363 b) Write-off 45 5 50 5. Gross value, end of year (1+2-4) 344 114 89 7,405 7,952 6. Correction of closing value 203 203 21

NOTES TO THE FINANCIAL STATEMENTS Net value as of December 31, 2007 (5-6) Net value as of December 31, 2006 (1-3) 141 114 89 7,405 7,749 186 113 94 7,120 7,513 Company has invested in equity securities of DIGIT MONTENEGRO, Podgorica EUR 697. This investment was valuated according to medium exchange rate at balance date. Company invested in KOMPAS INTERNATIONAL, Ljubljana, Slovenia amount of EUR 1,436. The investment was measured at medium exchange rate at balance sheet date. Long-term time deposit refers to deposit in foreign currency held in Vojvodjanska banka, Novi Sad in amount of EUR 45,000, measured at medium exchange rate of National bank of Serbia as of balance sheet date, with no interest, and maturity date at March 31, 2010. The deposit is connected with the guarantee for executing obligations by the Company. 1) Investment in equity securities Bit-Informacioni sistemi RSD 14 14 Bits-Net RSD 83 83 Digit Code RSD 105 105 Digit Montenegro EUR 697 55 55 Infosoft doo RSD 86 86 a) Investment in equity securities of other related parties 141 Kompas International dd EUR 1.436 114 114 b) Investment in equity securities of other companies 114 Total investment in equity securities (a + b) 255 2) Long-term securities Debtor Type of Maturity Currenc Gross Correction Net amount security y amount in value Komercijalna banka 8 shares RSD 89 89 Long-term securities held to maturity 89 According to closing trade (continual offer method) at Beogradska berza (Belgrade Stock Exchange), the market value of a share of Komercijalna banka as of December 31, was 97,899.00 dinars. Company did not measure shares of Komercijalna banka at market value as required under IAS 39 Financial instruments: recognition and measurement. As a result, investments and revaluation reserves are underestimated in amount of 694 thousands of dinars. 22

NOTES TO THE FINANCIAL STATEMENTS 3) Other investments Debtor Type of investment 4 employees apartment loan Vojvođanska banka deposit 31.03. In thousands of dinars Maturity Protection Currency Gross amount Correction in value Net amount from 10 draft RSD 5,028 5,028 to 40 years guarantee EUR 2,377 2,377 2010 30.000 Other investments - total 7,405 Apparatment loans are free of interest. 10. INVENTORY December 31, 2007 December 31, 2006 1. Material in stock - net 15,052 21,925 1.1. Acquisition cost 15,052 21,925 1.2. Correction in value (write-off) 2. Petty inventory in use - net (2.1. 2.2.) 2.1. Acquisition cost 3,357 2,347 2.2. Correction in value (write-off) 3,357 2,347 3. Merchandise (3.1-3.2) 358 4,549 3.1. Gross value 358 7,230 3.2. Calculated price difference 2,681 I Total inventory (1-3) 15,410 26,474 1. Advance payment, gross value 2,588 454 2. VAT in advance payments 275 3. Allowance for doubtful advance payments 286 II Total advance payments (1-2-3) 2,027 454 Total I + II 17,437 29,928 For year 2007: Aging of advance Over one payments - 60 days 61-365 days year Total Advance payments, 1,802 225 286 2,313 gross Allowance 286 286 23

NOTES TO THE FINANCIAL STATEMENTS 11. ACCOUNTS RECEIVABLE Accounts receivable, domestic Accounts receivable, foreign Other receivables Total Balance, beginning of year 35,117 5,257 768 41,142 Balance, the end of year 33,192 2,817 2,560 38,569 Allowance for doubtful receivables, beginning of year Allowance for doubtful receivables, end of year 2,747 1,588 4,335 3,068 1,387 1,902 6,357 NET BALANCE December 31, 2007 30,124 1,430 658 32,212 December 31, 2006 32,370 3,669 768 36,807 Company reconciled receivables with customers and made allowance for receivables for which more than 365 days passed after due date. Total allowance for doubtful receivables amounts to 4,455 thousands of dinars (3,068 thousands of dinars accounts receivable from domestic customers; and 1,387 thousands of dinars, that is EUR 17,498 measured at medium exchange rate at balance sheet date accounts receivable from foreign customers). Total accounts receivable from foreign customers amounts to EUR 35,552. Accounts receivable from foreign buyers are measured at medium exchange rate at balance sheet date. Company accounts for receivables from employees which refer to advance payments for official travels in amount of 295 thousands of dinars, and loans to 3 employees in amount of 363 thousands of dinars (regularly collected from salaries). As of December 29, 2006 (last working day in 2006), Company handed merchandise to its freighter in value of EUR 91,645 (final destination - France). The freighter placed the merchandise under the custody of custom duty. At the first working day in 2007, that is January 5, the merchandise was registered and Unique tax certificate was issued. Company correctly recorded the shipment as merchandise in transfer as of balance sheet date since merchandise left the Company's warehouse, and no revenue was recorded. Meanwhile, in process of fieldwork control due to tax credit presented in VAT application for December 2006, tax inspector assessed this action as a tax evasion and ordered the Company to pay VAT and pertaining expenses in amount of 1,902 thousands of dinars. At the moment, the second degree proceeding is in process, and Company expects the positive outcome of the appeal, but, as a due care, it made allowance for this receivables in amount of 1,902 thousands of dinars. 24

NOTES TO THE FINANCIAL STATEMENTS Aging of accounts receivable Receivables from domestic customers (gross) Allowance for doubtful accounts Receivables from domestic customers (net) Receivables from foreign customers (gross) Allowance for doubtful accounts Receivables from foreign customers (net) - 60 days 61-365 days Over one year Total 27,893 2,231 3,068 33,192 3,068 3,068 27,893 2,231 30,124 1,430 1,387 2,817 1,387 1,387 1,430 1,430 Other receivables (gross) 658 1,902 2,560 Allowance for doubtful 1,902 1,902 accounts Other receivables (net) 658 658 12. RECEIVABLES FROM EXCESSIVE PAYMENT OF INCOME TAX December 31, 2007 December 31, 2006 Receivables from excessive income tax payment 1,213 13. SHORT-TERM INVESTMENTS Total Other shortterm investments Balance, beginning of year Balance, the end of year 456 456 Allowance for doubtful accounts, beginning of year Allowance for doubtful accounts, end of year NET BALANCE December 31, 2007 456 456 December 31, 2006 25

NOTES TO THE FINANCIAL STATEMENTS Company accounts for EUR 5,760 (that is 456 thousands of dinars measured at medium exchange rate at balance sheet date). This amount refers to protection for taken 60-months rent of car. The rent will expire in the first half of year 2008. 14. CASH EQUIVALENTS AND CASH December 31, 2007 December 31, 2006 1. Cash in bank (dinars) 16,393 32,945 2. Cash in bank (foreign currency) 3,392 12,764 3. Petty cash (dinars) 114 4. Petty cash (foreign currency) 2 5. Other cash 63,279 50,456 Total cash and cash equivalents (1-5) 83,064 96,281 Company accounts for amount of 114 thousands of dinars in the transitional cash account by mistake. This amount refers to gas coupons which should be accounted for as receivables from employees. As a result, cash is overestimated and receivables from employees are underestimated in amount of 114 thousands of dinars. Company has recorded USD 2,652 and EUR 41,014 as foreign currency in bank. These accounts were measured according to medium exchange rate at balance date. Company accounts for designed time deposit of 30,000 thousands of dinars, deposited for period of one month, with annual interest rate of 8%, and EUR 420,000 measured at medium exchange rate at balance sheet date and annual interest rate of 3.87% as other cash by mistake. As a result, cash is overestimated, and other short-term investments are underestimated in amount of 63,279 thousands of dinars. 15. VALUE ADDED TAX AND PREPAID EXPENSES December 31, 2007 December 31, 2006 1. VAT 6,606 2. Prepaid expenses 547 729 3. Other prepaid expenses 105 Total (1-3) 652 7,335 Prepaid expenses in amount of 547 thousands of dinars refer to insurance expenses, and other prepaid expenses in amount of 105 thousands of dinars to VAT paid in January 2008 which refers to import realized in December 2007. 26

NOTES TO THE FINANCIAL STATEMENTS 16. DIFFERED TAX ASSETS December 31, 2007 December 31, 2006 Differed tax assets 565 176 In order to provide homogeneity of balance sheet, in situation when there are different rules of calculation accounting and taxable income, Company recorded 565 thousands of dinars as differed tax assets (refundable tax - decrease in tax expenses). Amount of recognized differed tax assets is a difference between income tax calculated from taxable income (to be paid) and income tax which would be paid if basis for its calculation was income calculated in Income statement. Temporary differences in accounting and tax depreciation are recorded as differed tax assets in order to provide even allocation of income tax in different periods (accounting depreciation amounts to 10,988 thousands of dinars, and tax depreciation amounts to 7,097 thousands of dinars). 17. EQUITY December 31, 2007 December 31, 2006 1. Shares of limited liabilities company 3,772 3,772 2. Other capital 729 I. Total owners and other capital (1-2) 3,772 4,501 1. Statutory reserves 337 337 II. Total reserves (1) 337 337 1. Retained earnings from previous years 223,401 192,882 2. Current year retained earnings 20,801 38,296 III. Total retained earnings (1+2) 244,202 231,178 TOTAL EQUITY (I - III) 248,311 236,016 27

NOTES TO THE FINANCIAL STATEMENTS 18. ACCOUNTS PAYABLE December 31, December 31, 2007 2006 1. Received advance payments 11,491 13,768 2. Accounts payable (domestic) 6,815 60,035 3. Accounts payable (foreign) 9,127 8,779 Total accounts payable (1-3) 27,433 82,582 Company reconciled advance payments with its customers and accounts payable (domestic and foreign). Liabilities to foreign suppliers in amount of EUR 81,542 and USD 49,611 were measured at medium exchange rate at balance sheet date. Company by mistake accounted for positive foreign currency translation difference in amount of one thousand of dinars as increase in accounts payable to foreign suppliers. As a result, accounts payable to foreign suppliers are overestimated, and income is underestimated in amount of one thousand of dinars. 19. OTHER SHORT-TERM LIABILITIES December 31, December 31, 2007 2006 1. Net payroll payable 3,688 1,942 2. Liabilities for taxes and social contributions for 635 383 salaries and compensation of salaries charged to the employees 3. Liabilities for taxes and social contributions for 185 132 salaries and compensation of salaries charged to the employer Total other short-term liabilities (1-3) 4,508 2,457 Payroll liabilities refer to salaries for December 2007, which have been settled in January 2008. 20. VAT AND OTHER PUBLIC REVENUE LIABILITIES December 31, December 31, 2007 2006 1. Value added tax payable 3,870 2.1. Taxes, customs and other duties from 4 acquisition or charged to expenses 2. Other public revenue liabilities (2.1) 4 Total VAT and other public revenue liabilities (1+2) 3,870 4 28

NOTES TO THE FINANCIAL STATEMENTS VAT payable in amount of 3,870 thousands of dinars refers to tax application for December 2007 and it was settled till January 10, 2008. 21. INCOME TAX LIABILITY December 31, December 31, 2007 2006 Income tax liability 904 4,693 22. OPERATING REVENUE 01.01-31.12. 01.01-31.12. 2007 2006 1. Sales revenue 280,173 410,058 2. Other operating revenue 16 70 OPERATING REVENUE (1+2) 280,189 410,128 1. Revenue from sale of merchandise in domestic 12,941 market 2. Revenue from sale of merchandise in foreign 37,456 market I Total revenue from merchandise sale (1+2) 12,941 37,456 1. Revenue from sale of goods and services in 241,640 370,153 domestic market 2. Revenue from sale of goods and services in foreign market 25,592 2,449 II Total revenue from goods and service sale (1+2) 267,232 372,602 III. Total sales revenue (I+II) 280,173 410,058 1. Rent revenue 16 70 IV. Other operating revenue (1) 16 70 OPERATING REVENUE (III+IV) 280,189 410,128 29

NOTES TO THE FINANCIAL STATEMENTS 23. OPERATING EXPENSES 01.01-31.12. 2007 01.01-31.12. 2006 1. Cost of merchandise sold 12,325 50,349 2. Cost of material 100,288 166,340 3. Payroll expense 85,580 77,536 4. Depreciation and provision expense 10,988 11,220 5. Other operating expenses 57,675 56,166 Total operating expenses (1-5) 266,856 361,611 1. Cost of raw materials 94,664 161,121 2. Cost of other materials 1,057 933 3. Fuel and energy costs 4,567 4,286 Total cost of material (1-3) 100,288 166,340 1. Depreciation expense 10,988 11,220 Total depreciation expense (1) 10,988 11,220 1. Subcontracting services expense 25,370 29,613 2. Transport expenses 2,784 2,647 3. Maintenance expenses 5,151 6,143 4. Rental expenses 1,831 1,963 5. Advertising expenses 459 643 6. Other services expenses 2,039 1,767 I. Total production services expenses (1-6) 37,634 42,776 1. Non-production services expenses 11,077 7,376 2. Guest entertainment expenses 3,535 2,668 3. Insurance expenses 1,073 591 4. Money transfer expenses 1,562 1,752 5. Membership fees expenses 133 245 6. Tax expenses 2,418 514 7. Other immaterial expenses 243 244 II. Total immaterial expenses (1-7) 20,041 13,390 Total other operating expenses (I+II) 57,675 56,166 30

NOTES TO THE FINANCIAL STATEMENTS Other services expenses refer to: expenses for tender participations in amount of 283 thousands of dinars, car registration in amount of 695 thousands of dinars, official journals and professional literature in amount of 603 thousands of dinars, communal services in amount of 243 thousands of dinars and compensation for use of highway in amount of 215 thousands of dinars. Other immaterial expenses refer to: administrative, court, registration, local and other duties in amount of 243 thousands of dinars. 24. FINANCIAL REVENUE 01.01-31.12. 01.01-31.12. 2007 2006 1. Interest revenue 5,070 424 2. Positive foreign currency exchange difference 1,943 1,916 3. Revenue from participation in income of 1,650 1,045 subsidiary companies and joint ventures Total financial revenue (1 3) 8,663 3,385 25. FINANCIAL EXPENSES 01.01-31.12. 01.01-31.12. 2007 2006 1. Interest expenses 7 1,581 2. Negative foreign currency exchange difference 2,266 3,781 3. Expenses from participation in loss of subsidiary 1,013 companies and joint ventures calculated by Share method Total financial expenses (1-3) 2,273 6,375 26. OTHER REVENUE 01.01-31.12. 01.01-31.12. 2007 2006 1. Gains on sale of intangibles, property, plant and 11 equipment 2. Gains on sale of investments 9 3. Surpluses 3 1 4. Revenue from cancellation of liabilities 46 5. Other miscellaneous revenue 3,505 2,941 6. Revenue from reconciliation of receivables and 1,749 short-term investments Total other revenue (1-6) 5,277 2,988 31