TWENTY YEARS TWENTY YEARS - Equal Exchange

Audited Financial StatementsThese financial statements are extracts from the Audited Financial Statements of EqualExchange, Inc. for the years ending December 31, 2005 and 2006. This independent auditwas conducted in accordance with auditing standards generally accepted in the United Statesof America by the firm of Morris and Morris P.C., Certified Public Accountants of NeedhamHeights, Massachusetts.BALANCE SHEETSASSETSDec. 31, 2006 Dec. 31, 2005CURRENT ASSETS:Cash and Equivalents $480,150 $239,854Accounts Receivable - Trade, Net of Reserve for PossibleUncollectible Accounts of $50,000 in 2006 and $100,000 in 2005 1,569,117 1,443,128Note Receivable - Other 10,500 20,500Inventories 6,983,311 5,578,710Prepaid Expenses and Other Current Assets 282,652 84,283Prepaid Income Taxes 98,886 -Deposits - -Deferred Income Tax Asset 75,000 96,000TOTAL CURRENT ASSETS 9,499,616 7,462,475PROPERTY AND EQUIPMENT, at Cost 7,803,903 6,982,421Less: Accumulated Depreciation and Amortization (1,306,619) (901,824)6,497,284 6,080,597DEFERRED FINANCING COSTS 64,154 81,119NOTE RECEIVABLE - OTHER 100,000 -OTHER ASSETS 128,233 22,774TOTAL ASSETS $16,289,287 $13,646,965BALANCE SHEETS ContinuedLIABILITIES ANDSTOCKHOLDERS’ EQUITYCURRENT LIABILITIES:Notes Payable - Lines-of-CreditMortgages and Notes Payable, Current PortionCapital Lease Obligations, Current PortionAccounts Payable - TradeAccrued Expenses andOther Current LiabilitiesPatronage Rebates PayableTOTAL CURRENT LIABILITIESMORTGAGES AND NOTES PAYABLE,Non-Current PortionCAPITAL LEASE OBLIGATIONS,Non-Current PortionDEFERRED INCOME TAXESCOMMITMENTS AND CONTINGENCIESTOTAL LIABILITIESSTOCKHOLDERS’ EQUITY:Preferred Stock; Authorized 299,800 Shares;Issued and Outstanding, 163,985 Shares in 2006and 139,791 Shares in 2005Common Stock; Authorized 200 Shares;Issued and Outstanding, 81 Shares in2006 and 70 Shares in 2005Less: Common Stock Subscriptions ReceivableRetained EarningsTOTAL STOCKHOLDERS’ EQUITYTOTAL LIABILITIES ANDSTOCKHOLDERS’ EQUITYSTATEMENTS OF OPERATIONSAND RETAINED EARNINGSSALESCOST OF SALESGROSS PROFITOPERATING EXPENSESINCOME FROM OPERATIONSOTHER (EXPENSE) INCOME:Interest ExpenseCharitable Contributions ExpenseInterest IncomeLoss on Disposal of EquipmentINCOME BEFORE INCOME TAXESPROVISIONS FOR INCOME TAXES:CurrentDeferred17Weighing coffee at the Tierra Nueva Coffee Cooperative, Nicaragua.NET INCOMERETAINED EARNINGS, Beginning of YearLess: Preferred Stock DividendsRETAINED EARNINGS, End of Year