REVIEW REPORT OF THE INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS TO THE BOARD OF DIRECTORS PADAENG INDUSTRY PUBLIC COMPANY LIMITED We have reviewed of the consolidated balance sheet of Padaeng Industry Public Company Limited and subsidiaries and the equity method balance sheet of Padaeng Industry Public Company Limited as at March 31, 1999, the related consolidated and equity method statements of income and retained earnings and cash flows for the quarter ended, in accordance with standards established by The Institute of Certified Accountants and Auditors of Thailand. The consolidated and equity method interim financial statements of the Company for the quarter ended March 31, 1998 were reviewed by another auditor of the same firm whose report thereon dated May 7, 1998 stated that he was not aware of any material modifications that should be made to such interim financial statements with the exception of the matters as related to uncertainty of the Company and subsidiarys ability to continue as a going concern if they had been unable to obtain an extension of debt repayments and change in loan conditions from the creditors and uncertainties related to realization of deposits and installment payments for condominium and mineral exploration expenditure of subsidiaries which have been deferred. In addition, the consolidated and equity method financial statements of the Company for the year ended December 31, 1998 (not presented herein) were audited by such auditor of the same firm, whose report thereon dated February 19, 1999 expressed an unqualified opinion with explanatory paragraph described uncertainty of the Company and subsidiary s ability to continue as a going concern and uncertainty related to recoverability of mineral exploration expenditure of a subsidiary which have been deferred. A review of interim financial statements consists principally of obtaining an understanding of the system for the preparation of the interim financial statements, applying analytical review procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an examination in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. - 2 - Based on our review, we are not aware of any material modifications that should be made to the consolidated and equity method interim financial statements referred to in the first paragraph in order for them to be in conformity with generally accepted accounting principles. We draw attention to Note 1 to the interim financial statements, the financial statements have been prepared on a going concern basis assuming that the Company will realize its assets and extinguish its liabilities in the normal course of business. The countrys unstable economy, caused by various factors in the Asia-Pacific region, has significantly affected and may continue to affect the operations of the Company. For the quarter ended March 31, 1999, there is uncertainty regarding the ability of the Company to continue as a going concern because the Company will have negative cash flows if it is unable to obtain an extension of short-term debt repayments and changes in certain conditions of the loans from its lenders and the lenders are to demand immediate repayment.On February 24, 1999, Western Metals Limited rescinded its share subscription agreement, resulting in Company having no cash received from such subscription to repay its lenders. This caused the Company to be in noncompliance with the Override and Supplementary Agreement. The Company is currently negotiating with its lenders to re-schedule repayment, the outcome of which has not been known at this time. If the Company is unable to continue as a going concern, it may be required to realize its assets and extinguish its liabilities other than in the normal course of business and at amounts different from those stated in the financial statements. As described in Note 17 to the interim financial statements, on February 19, 1999, the board meeting of a subsidiary company passed the resolution to approve discontinuation of its business. Certain assets were written down to realizable value in 1998. However, there is uncertainty related to recoverability of the amount of subsidiarys assets as at March 31, 1999, which amounted to Baht157 million or 3.30% of the Companys at March 31, 1999, total consolidated assets. - 3 - As described in Notes 9 and 7.1 to the interim financial statements, for the quarter ended March 31, 1999, a subsidiary has an uncertainty related to recoverability of deferred exploration expenditures and special project license fee in the consolidated interim financial statements amounting to Baht 162 million. Because the subsidiary is currently searching for joint venture partners to provide funding for continuation of exploration and the result of exploration is not available at this time. The Companys investment in such subsidiary by the equity method amounting to Baht 162 million has not included any adjustments which may arise from such matter at this time. Dr. Suphamit Techamontrikul Certified Public Accountant (Thailand) BANGKOK Registration No. 3356 May 7, 1999 DELOITTE TOUCHE TOHMATSU JAIYOS The above review report of independent certified public accountants and accompanying interim financial statements are English translations of such report and interim financial statements prepared for and used in Thailand. The accompanying interim financial statements were prepared using accounting principles, procedures and reporting practices generally accepted in Thailand and are not intended to present the financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in countries and jurisdictions other than those in Thailand. The standards, procedures and practices utilized to review such interim financial statements are those generally accepted and applied in Thailand. PADAENG INDUSTRY PUBLIC COMPANY LIMITED AND SUBSIDIARIES BALANCE SHEETS AS AT MARCH 31, UNAUDITED CONSOLIDATED THE COMPANY ON EQUITY METHOD 1999 1998 1999 1998 Note Baht Baht Baht Baht ASSETS CURRENT ASSETS Cash in hand and at banks 65,494,169 104,311,943 20,155,763 91,155,369 Deposits at banks used as collateral 4 11,554,589 3,554,589 - - Short-term investments Deposits at financial institutions 17,000,000 257,000,000 - 210,000,000 Trade accounts and notes receivable (net) 6 239,283,735 347,211,557 232,906,206 276,978,960 Short-term loans and advances to related companies 252,436 96,775 1,038,595 582,484 Inventories 628,231,089 815,483,938 612,347,634 677,598,621 Withholding tax 19,421,770 22,960,736 1,548,001 5,115,106 Account receivable - Revenue Department 59,487,471 23,511,783 57,120,246 19,430,239 Other receivables 5,415,403 19,710,145 4,696,990 10,973,457 Deposits for purchase of goods - 80,936,350 - 80,936,350 Other current assets 20,718,763 27,766,783 18,866,668 23,828,225 Total Current Assets 1,066,859,425 1,702,544,599 948,680,103 1,396,598,811 LONG-TERM DEPOSIT AT FINANCIAL INSTITUTION 30,054,136 30,054,136 - - INVESTMENTS AND LOANS Investments in related companies 7.1 1,491,468 6,465,720 530,433,878 623,266,706 Security available for sale 8 32,691,646 - 32,691,646 - Other securities 8 15,469,826 113,544,764 15,469,826 113,544,764 Loans and advances - - 8,000,000 476,235,630 Total Investments and Loans 49,652,940 120,010,484 586,595,350 1,213,047,100 PROPERTY, PLANT AND EQUIPMENT NET 3,279,164,485 4,481,233,953 3,278,123,946 3,514,947,535 ASSETS HELD FOR RESALE 17 123,500,004 - - - OTHER ASSETS 9 207,017,070 434,190,042 40,012,288 114,894,766 TOTAL ASSETS 4,756,248,060 6,768,033,214 4,853,411,687 6,239,488,212 See notes to the interim financial statements The interim financial statements have been subjected to a review PADAENG INDUSTRY PUBLIC COMPANY LIMITED AND SUBSIDIARIES BALANCE SHEETS AS AT MARCH 31, UNAUDITED CONSOLIDATED THE COMPANY ON EQUITY METHOD 1999 1998 1999 1998 Note Baht Baht Baht Baht LIABILITIES AND SHAREHOLDERS EQUITY CURRENT LIABILITIES Bank overdrafts and loans from financial institutions 240,698,031 2,404,292,438 205,875,246 2,176,682,720 Trade accounts and notes payable 65,695,831 177,263,825 151,148,918 243,880,901 Current portion of long-term loans 10 - 680,305,125 - 680,305,125 Long term loans liabilities subject to restructuring 10 2,906,495,114 311,250,000 2,673,995,114 - Short-term loans and advances from directors and employees 6,000,000 10,000,000 - - Short-term loans and advances from related companies 108,151,268 132,208,204 - - Other current liabilities Accrued interest 43,451,842 27,065,233 18,795,933 22,058,634 Accrued electricity expenses 114,359,152 164,317,611 114,359,152 164,317,611 Provision for guarantee expenses of a subsidiary 16 30,028,000 - 263,034,848 - Forward contract payable 42,893,311 - 42,893,311 - Others 67,772,297 98,396,576 56,447,819 49,507,355 Total Current Liabilities 3,625,544,846 4,005,099,012 3,526,550,341 3,336,752,346 LOANS FROM RELATED COMPANIES - - 161,800,000 146,400,000 LONG TERM LOANS 10 - 697,748,025 - 697,748,025 OTHER LIABILITIES 5,140,246 - 5,140,246 - TOTAL LIABILITIES 3,630,685,092 4,702,847,037 3,693,490,587 4,180,900,371 MINORITY INTEREST 1,823,787 6,598,336 - - (More)