* 1. As at June 30, 1999, the Company has trade accounts receivable from related companies that have difficulties in repayments amounting to Baht 46.81 million (see Note 7). * 2. Loans from a subsidiary company that are at call and term promissory notes. (Interest rate 5-6% per annum for 1999, 11.50% per annum for 1998 and no collateral) * 3. Sales to the subsidiary company are based on a negotiated price. The Company has no available market price for comparison. /18 - 18 - * 4. Sales commission paid to a subsidiary at 1.5% of sale amount in Baht. For the quarter and six-month period ended June 30, 1999, the Company did not renew the commission agreement with such subsidiary. The Company has no available information of commission paid in the market. * 5 On September 1, 1998, the Company entered into an amendment to the loan agreement with a subsidiary to convert the USD 14,614,412 loan into Baht 616,241,546 loan by using the reference rate quoted by the Bank of Thailand as at August 31, 1998 which was USD 1 = Baht 42.1667. The amendment agreement specified that interest would cease accruing from August 31, 1998. As at June 30, 1999, such loans and advances to subsidiary have the outstanding balances of Baht 1,230,209,170 (principal Baht 1,025,247,545 and interest and penalty fees Baht 204,961,625) and as at June 30, 1998, USD 14,614,412 and Baht 300,869,600. CONSOLIDATED THE COMPANY ONLY 1999 1998 1999 1998 Baht Baht Baht Baht Loans and advances - - 1,230,209,170 1,109,252,898 Less Allowance for doubtful debt (accumulated loss exceeding investment in a subsidiary) - - (1,222,209,170) (637,431,495) Loans and advances - net - - 8,000,000 471,821,403 The Company has recognized the full-undistributed loss of a subsidiary that incurred a capital deficiency, by reducing the investment in, receivables from and loans to the subsidiary. In 1998, the Company has provided for commitments in respect of loan guarantees of Padaeng Poongsan Metals Co., Ltd. (see Note 17). 16. JOINT COOPERATION AGREEMENT A subsidiary company which operates in real estate business entered into a Joint Cooperation Agreement with the Industrial Estate Authority of Thailand on September 7, 1992, in which the subsidiary company agreed to develop its land for The Industrial Park of Padaeng Industry Group and to transfer the ownership of properties relating to infrastructure, roads and facilities, including equipment to the Industrial Estate Authority of Thailand without any compensations, whereby the subsidiary company is allowed to transfer its right to use the wharf frontage and any building on such land to other companies, in which the subsidiary company or Padaeng Industry Public Company Limited has at least a holding of 30% of share capital of such companies. /19 - 19 - In 1995, the subsidiary company sold certain plots of land in The Industrial Park of Padaeng Industry Group to two companies, under the term which is not in accordance with the above condition. The subsidiary company has loss from such sale of land in the amount of Baht 73.3 million. The subsidiary company sent a letter dated February 27, 1995 to the Industrial Estate Authority of Thailand requested an amendment to the above joint cooperation agreement. The Industrial Estate Authority of Thailand sent a letter dated October 6, 1995 to the subsidiary company, stating that the Board of Directors of the Industrial Estate Authority of Thailand passed a resolution that the request for an amendment to the agreement could be approved if it was in accordance with the law governing amendments of the State agreement, in this respect the Industrial Estate Authority of Thailand has to request for compensation of 30% of profit from such sale of land in The Industrial Park of Padaeng Industry Group by the subsidiary company to other juristic entity. On February 27, 1996, the Industrial Estate Authority's of Thailand sent another letter to the subsidiary company, stating that the subsidiary company had to pay penalties as the subsidiary company did not comply with the joint cooperation agreement and the sale of land agreement at The Industrial park of Padaeng Industry Group, in the amount of Baht 5,308,500. The subsidiary company paid for such penalties in full on February 28, 1996. As at June 30, 1999, the compensation of 30% of profit from sale of land has not yet been finalized. However, the subsidiary company has loss from such sale of land as described in the second paragraph for this note, accordingly it believes no amounts will be due. 17. PROVISION FOR GUARANTEE OF A SUBSIDIARY Following continued and substantial losses arising from the economic downturn in Southeast Asia, the Board of Padaeng Poongsan Metals Co., Ltd. resolved to cease operations in January 1998 and lay off staff. Operations were temporarily resumed in August 1998 in order to complete outstanding contractual obligations. As the major shareholder and sole signatory to the Guarantee Agreement of 1993 with the Government Savings Bank, the Company is obliged to meet outstanding commitments incurred by Padaeng Poongsan Metals Co., Ltd. Padaeng Industry Public Co., Ltd. has recognized in the profit and loss for the financial statements year ended December 31, 1998, the following provision for current and future commitments for Padaeng Poongsan Metals Co., Ltd. for which Padaeng Industry Public Co., Ltd. is obliged to guarantee payment amounting to Baht 292 million: /20 - 20 - For the six-month period as at June 30, 1999, Padaeng Poongsan Metals Co., Ltd. has paid part of the principals and interest to a bank. This repayment decreased the provision for guarantee of a subsidiary of Padaeng Industry Public Co., Ltd. The Company has recognized such amount as amount to be adjusted for provision for guarantee of a subsidiary, previously estimated, which is shown under other income. As at June 30, 1999, the balances of provision for guarantee of a subsidiary are as follows: CONSOLIDATED THE COMPANY ONLY Baht Baht Provision for interest expenses, lease fees, insurances and other commitments prior to the disposal of the assets of Padaeng Poongsan Metals Co., Ltd. 30,028,000 29,405,000 Loan guarantee repayments net of estimated recoveries on disposal of assets - 197,764,848 Other contractual obligations - 8,222,000 30,028,000 235,391,848 18. OPERATION OF A SUBSIDIARY COMPANY On February 19, 1999, the Board meeting of Padaeng Poongsan Metals Co., Ltd. passed the resolution to approve such subsidiary to discontinue its business and to write down certain assets to be realizable value in the financial statements for the year ended December 31, 1998. The valuation of subsidiary's assets was determined by an independent appraisal. The valuation included an appraisal of the buildings, land improvements, machinery and equipment of the subsidiary at Lamchabang Industrial Estate. The valuation excluded land and building at Moo-Ban Panya at Chonburi Province, furniture and fitting, office equipment, inventories of consumables and spares and other stocks of scrap and work in progress. In the opinion of the valuer, the most reasonable basis for determining the fair market value of the subsidiary was to assess the estimated gross amount that the property would realize if sold on a negotiated individual basis in an "as- is, where is" condition and location, either as a complete unit or on piece-meal basis. In June 1999, new brokers were appointed to dispose of the assets of Padaeng Poongsan Metals Co., Ltd. /21 - 21 - The following property, plant and equipment for sale of Padaeng Poongsan Metals Co., Ltd. have been included in the consolidated balance sheet: AS AT JUNE 30, 1999 BOOK VALUE Land improvement, buildings plant, machinery and equipment 111,000,004 Other land and buildings 12,500,000 Baht 123,500,004 For the quarters and six-month periods ended June 30, 1999 and 1998, operation of such subsidiary is as follows: For the quarters For the six-month periods ended June 30, ended June 30, 1999 1998 1999 1998 Baht Baht Baht Baht Revenues Sales 4,990,438 92,254,909 30,151,495 224,145,529 Other income Gain (loss) on exchange rate - (59,579,982) - 78,464,912 Other 849,629 18,944 970,839 3,994,880 Total revenues 5,840,067 32,693,871 31,122,334 306,605,321 Expenses Cost of sales 6,792,235 64,494,984 24,844,099 155,572,723 Selling and administrative expenses 10,475,944 52,165,448 28,109,157 106,477,134 Total expenses 17,268,179 116,660,432 52,953,256 262,049,857 Net income (loss) Baht (11,428,112) (83,966,561) (21,830,922) 44,555,464 19. PLAN FOR RESOLVING THE MILLENNIUM BUG (Y2K) PROBLEM (Unreviewed - Not Covered by the Review Report of Independent Certified Public Accountants) The Company has analyzed and evaluated the effect of problems for the year 2000 that impact on operations, both production and applications is not significant. There will be minor impact on computer system, which control production in plants, some application software in back office computer, database and report. A competent responsible team is solving major impact. Subsidiary companies have also been analyzed and evaluated and no impact of problems on the year 2000 is found because business do not depend on any computer while accounting application package has already been prepared for the year 2000. /22 - 22 - Since October 1997, the Company has upgraded and modified computer system for the year 2000. Until June 30, 1999 about 90 percent of modification has been finished and the task will be accomplished within June 1999. This project expense cost about Baht 1,050,000. (Incomplete task is production-controlled computer system in zinc refinery plant, which will be upgraded whereas plant shutdowns for annual maintenance in October this year. The said applications are functioned in order to avoid impacts to plant's production.) Although the impact is not significant to the Company and it was expected that the year 2000 solving will be finished on time, the Company still provide contingency plan for office if the problem incurs on January 1, 2000. This will be subcontracted to Y2K between July - August this year. And although the Company expects that the year 2000 solving will be finished before the year 2000 starting but there seems to be some risk from other corresponding business lines which still unable to solve such problem in time. However, the Company expects that the impact on business is not significant.