REVIEW REPORT OF THE INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS TO THE BOARD OF DIRECTORS PADAENG INDUSTRY PUBLIC COMPANY LIMITED We have reviewed the consolidated balance sheet of Padaeng Industry Public Company Limited and its subsidiaries and the balance sheet of Padaeng Industry Public Company Limited as at June 30, 1999 and the related consolidated and the Company's statements of income and retained earnings and cash flows for the quarter and six-month period then ended, in accordance with standards established by The Institute of Certified Accountants and Auditors of Thailand. The consolidated and the Company's interim financial statements for the quarter and six-month period ended June 30, 1998 were reviewed by another auditor of the same firm whose report thereon dated July 30, 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 related to uncertainty of the Company and subsidiary's 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 recoverability of mineral exploration expenditure of subsidiaries which have been deferred. In addition, the consolidated and the Company's financial statements 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 describing the 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 audit 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 the Company's interim financial statements described 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 country's unstable economy, caused by various factors in the Asia-Pacific region, has to a certain extent affected and may continue to affect the operations of the Company. As described in Note 11 to the interim financial statements, on June 25, 1999, the Company entered into the Override Amendment Agreement with its lenders to amend the Tranche A principal repayment. Under the Override Amendment Agreement, the Company will have to sell the remainder of the increased capital of 75.1 million shares to repay the Tranche A principal by September 15, 2000. As described in Note 18 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 subsidiary's assets as at June 30, 1999, which amounted to Baht 149 million or 2.99% of the total consolidated assets at June 30, 1999. As described in Notes 10 and 8.3 to the interim financial statements, the consolidated interim financial statements for the six-month period ended June 30, 1999 include deferred exploration expenditures and special project license fee of a subsidiary amounting to Baht 162 million. The recoverable value of this amount is still uncertain at this time. The Company's investment in such subsidiary by the equity method amounting to Baht 162 million has not included any adjustments which may arise from the resolution of such matter. Nachalee Boonyakarnkul Certified Public Accountant (Thailand) BANGKOK Registration No. 3126 August 2, 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 JUNE 30, "UNAUDITED" CONSOLIDATED THE COMPANY ONLY 1999 1998 1999 1998 Note Baht Baht Baht Baht ASSETS CURRENT ASSETS Cash in hand and at banks 298,901,465 190,804,249 235,998,711 164,355,692 Deposits at banks used as collateral 4 11,554,589 3,554,589 - - Short-term investments Deposits at financial institutions - 301,000,000 - 270,000,000 Marketable securities 5 99,332,309 - 99,332,309 - Trade accounts receivable (net) 7 195,993,373 276,314,559 189,548,706 284,244,742 Short-term loans and advances to related companies 13,836 77,541 959,995 657,180 Inventories 667,120,220 644,727,937 658,133,347 571,376,883 Withholding tax 19,166,190 23,007,166 1,577,909 5,218,178 Account receivable - Revenue Department 65,138,183 21,608,998 62,725,224 16,228,127 Other receivables 3,222,501 19,064,462 3,060,258 18,856,003 Other current assets 33,852,371 32,655,487 33,343,067 24,468,955 Total Current Assets 1,394,295,037 1,512,814,988 1,284,679,526 1,355,405,760 LONG-TERM DEPOSIT AT FINANCIAL INSTITUTION 30,054,136 30,054,136 - - INVESTMENTS AND LOANS Investments in related companies 8.1 1,491,468 6,471,557 532,558,328 606,376,674 Other securities 5,9 14,451,626 51,933,585 14,451,626 51,933,585 Loans and advances - - 8,000,000 471,821,403 Total Investments and Loans 15,943,094 58,405,142 555,009,954 1,130,131,662 PROPERTY, PLANT AND EQUIPMENT - NET 3,196,380,915 4,396,673,225 3,195,379,218 3,449,908,626 ASSETS FOR SALE 18 123,500,004 - - - OTHER ASSETS 10 218,931,053 394,501,568 52,178,553 108,747,587 TOTAL ASSETS 4,979,104,239 6,392,449,059 5,087,247,251 6,044,193,635 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 JUNE 30, "UNAUDITED" CONSOLIDATED THE COMPANY ONLY 1999 1998 1999 1998 Note Baht Baht Baht Baht LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Bank overdrafts and loans from financial institutions 389,049,979 2,300,590,325 353,709,186 2,210,887,838 Trade accounts and notes payable 78,628,585 142,886,113 164,664,716 228,078,839 Current portion of long-term loans 11 632,077,031 1,685,093,650 418,327,031 1,393,843,650 Short-term loans and advances from directors and employees 3,000,000 10,000,000 - - Short-term loans and advances from related companies 105,890,865 142,804,889 - - Other current liabilities Accrued interest 43,093,939 21,426,656 17,028,422 18,773,297 Accrued electricity expenses 103,845,115 171,645,593 103,845,115 171,131,002 Provision for guarantee of a subsidiary 17 30,028,000 - 235,391,848 - Forward contract payable 38,889,628 - 38,889,628 - Others 57,282,326 92,428,802 45,635,165 49,261,835 Total Current Liabilities 1,481,785,468 4,566,876,028 1,377,491,111 4,071,976,461 LOANS FROM RELATED COMPANIES - - 166,600,000 153,000,000 LONG - TERM LOANS 11 2,222,213,054 - 2,222,213,054 - OTHER LIABILITIES 4,405,925 - 4,405,925 - TOTAL LIABILITIES 3,708,404,447 4,566,876,028 3,770,710,090 4,224,976,461 MINORITY INTEREST 1,772,664 6,355,857 - - PADAENG INDUSTRY PUBLIC COMPANY LIMITED AND SUBSIDIARIES BALANCE SHEETS AS AT JUNE 30, "UNAUDITED" CONSOLIDATED THE COMPANY ONLY 1999 1998 1999 1998 Note Baht Baht Baht Baht LIABILITIES AND SHAREHOLDERS' EQUITY (CONTINUED) SHAREHOLDERS' EQUITY SHARE CAPITAL Authorized share capital 226,000,000 ordinary shares of Baht 10.00 each 2,260,000,000 2,260,000,000 2,260,000,000 2,260,000,000 Issued and paid-up share capital 150,899,993 ordinary shares of Baht 10.00 each, fully paid 1,508,999,930 1,508,999,930 144,369,558 ordinary shares of Baht 10.00 each, fully paid 1,443,695,580 1,443,695,580 PREMIUM ON SHARE CAPITAL 866,121,740 840,000,000 866,121,740 840,000,000 RETAINED EARNINGS (DEFICIT) Appropriated Legal reserve 98,200,000 98,200,000 98,200,000 98,200,000 Reserve for business expansion 1,969,000,000 1,969,000,000 1,969,000,000 1,969,000,000 Unappropriated (deficit) (3,146,989,751) (2,442,405,065) (3,099,379,718) (2,442,405,065) Less Unrealized loss on securities available for sale (26,404,791) (26,404,791) Unrealized loss on non-current marketable securities (89,273,341) (89,273,341) TOTAL SHAREHOLDERS' EQUITY 1,268,927,128 1,819,217,174 1,316,537,161 1,819,217,174 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 4,979,104,239 6,392,449,059 5,087,247,251 6,044,193,635 See notes to the interim financial statements The interim financial statements have been subjected to a review PADAENG INDUSTRY PUBLIC COMPANY LIMITED AND SUBSIDIARIES STATEMENTS OF INCOME AND RETAINED EARNINGS FOR THE QUARTER ENDED JUNE 30, "UNAUDITED" CONSOLIDATED THE COMPANY ONLY 1999 1998 1999 1998 Notes Baht Baht Baht Baht REVENUES Sales 1,034,750,534 1,126,263,713 1,032,729,609 1,127,003,241 Other income Interest income 1,724,432 12,380,237 1,004,306 33,297,422 Gain on exchange rate 34,737,733 - 34,396,200 - Equity in undistributed net income of subsidiary and associated companies - 5,838 2,124,451 - Other 526,371 2,681,046 535,941 2,681,045 Total Revenues 1,071,739,070 1,141,330,834 1,070,790,507 1,162,981,708 EXPENSES Cost of sales 819,272,158 863,970,134 818,233,397 861,433,266 Selling and administrative expenses 67,860,749 127,241,397 65,609,887 98,259,409 Loss on exchange rate - 134,970,341 - 134,970,341 Residue pond written off 3.2 10,510,423 - 10,510,423 - Depreciation of residue ponds 3.2 7,007,131 - 7,007,131 - Interest expense 75,443,298 107,480,823 77,733,233 111,828,201 Directors' remuneration 652,796 369,000 652,796 369,000 Equity in undistributed net loss of subsidiaries and associated companies - - - 132,546,434 Other expenses 1,068,242 1,334,545 1,068,242 1,334,545 Total Expenses 981,814,797 1,235,366,240 980,815,109 1,340,741,196 Net income (loss) before minority interest and the result of operations of a subsidiary which ceased its operations 89,924,273 (94,035,406) 89,975,398 (177,759,488) Minority interest in net income of a subsidiary company 51,123 242,479 - - Net income (loss) before the result of operations of a subsidiary which ceased its operations 89,975,396 (93,792,927) 89,975,398 (177,759,488) Net loss of a subsidiary which ceased its operations 18 (11,428,112) (83,966,561) - - NET INCOME (LOSS) 78,547,284 (177,759,488) 89,975,398 (177,759,488) PADAENG INDUSTRY PUBLIC COMPANY LIMITED AND SUBSIDIARIES STATEMENTS OF INCOME AND RETAINED EARNINGS (CONTINUED) FOR THE QUARTER ENDED JUNE 30, "UNAUDITED" CONSOLIDATED THE COMPANY ONLY 1999 1998 1999 1998 Notes Baht Baht Baht Baht NET INCOME (LOSS) 78,547,284 (177,759,488) 89,975,398 (177,759,488) RETAINED EARNINGS (DEFICIT) BROUGHT FORWARD (3,225,537,035) (2,264,645,577) (3,189,355,116) (2,264,645,577) RETAINED EARNINGS (DEFICIT) CARRIED FORWARD (3,146,989,751) (2,442,405,065) (3,099,379,718) (2,442,405,065) EARNINGS (LOSS) FOR THE QUARTER PER SHARE 0.52 (1.23) 0.60 (1.23) See notes to the interim financial statements The interim financial statements have been subjected to a review (more)