Tranche A principal repayment as per such agreement. 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. Certain conditions in this agreement are amended as follows: 1. Maintaining the debt to equity ratio, on a consolidated basis, at all times prior to the Equity Injection, at not exceeding 3.25 : 1 and at all times after the Equity Injection, at not exceeding 2 :1. 2. Maintaining the interest coverage ratio on a consolidated basis, at the end of each Financial Quarter at not less than 1.75:1 prior to an Equity Injection and at not less than 3:1 after the Equity Injection. 3. The Company shall pay a fee amounting to USD 1 million. If the Company does not have an equity injection of at least USD 12.5 million by September 15, 2000. /12 - 12 - In addition, the Company entered into a Termination Agreement with Western Metals Limited dated June 25, 1999 to terminate the sales of the increased capital to Western Metals Limited, also other trading commitments. The Company is currently in process of offering the shares for the capital increase to new investors. On July 19, 1999, the Company entered into an agreement to appoint a financial institution as financial adviser in relation to seeking potential investors. Under such agreement, the Company shall pay the financial institution fees specified in the agreement. 12. DISCLOSURE OF FINANCIAL INSTRUMENTS According to a letter received from The Stock Exchange of Thailand dated October 21, 1998, the Company is required to use the International Accounting Standard (IAS) No. 32- Presentations and Disclosure of Financial Instruments as a guideline for disclosure of the Companys financial instruments both on- balance sheet and off-balance sheet. 12.1 Significant Assets and Liabilities in Foreign Currencies Assets and liabilities of the Company and subsidiaries in foreign currencies. As at September 30, 1999 : Term of CONSOLIDATED THE COMPANY ONLY receipt/ payment AMOUNT AMOUNT days USD Baht USD Baht Cash at banks - 761,797 31,172,996 756,407 30,952,420 Accounts receivable-foreign 15 1,556,266 63,682,862 1,556,266 63,682,862 Trust receipt 90-150 12,589,855 517,869,831 12,589,855 517,869,831 Accounts payable 30-60 2,527,930 103,983,602 2,527,930 103,983,602 Accrued interest expense 90 916,500 37,699,224 170,072 6,995,711 Long-term loans 40,115,000 1,650,086,399 40,115,000 1,650,086,399 Short-term loans and advances from related companies 2,859,097 117,605,801 - - As at September 30, 1998: Term of CONSOLIDATED THE COMPANY ONLY receipt/ payment AMOUNT AMOUNT days USD Baht USD Baht Cash at banks - 2,114,685 82,667,503 2,109,451 82,462,885 Accounts receivable-foreign 30 1,566,953 61,255,483 1,566,953 61,255,483 Accounts payable 30-60 6,915,091 273,364,446 6,761,239 266,891,105 Loans from banks 120-360 50,335,866 1,986,942,880 50,335,866 1,986,942,880 Accrued interest expense 180 635,102 25,069,859 91,728 3,620,863 Long-term loans 180 7,359,097 290,490,779 4,500,000 177,631,650 Foreign currency amounts are translated at the exchange rate as at September 30, 1999. /13 - 13 - 12.2 Risk Management The Companys policy on risk management of loan liabilities in foreign currencies is to use financial instruments purchased in the financial markets for hedging purposes. The Company has both local and foreign sales in USD currency, which result in revenues and accounts receivable in USD currency. In addition, the Company has accounts payable, loans and interest expense in the same currency. Thus, the Company believes it is able to manage currency exchange risk by matching cash receipt with the debts and interest in foreign currencies. 12.3 Fair values of financial assets and liabilities The net fair value of cash and cash equivalents and non-interest bearing monetary financial assets and financial liabilities of the economic entity approximates their carrying value. The net fair value of other monetary financial assets and liabilities is based upon market values. Equity investments traded on organized markets have been valued by reference to market prices prevailing at balance date. For non-traded equity investments, the net fair value is an assessment by the directors based on the underlying net assets, future maintainable earnings and special circumstances pertaining to a particular investment. 12.4 Credit risk Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in a financial loss to the Company. The Company has the credit risk management policy to obtain collateral from the customers before commencing the trade. The collateral may include bank guarantee or cash guarantee. In the case of recognized financial assets, the carrying amount of the assets recorded in the consolidated balance sheet, net of a portion of allowance for doubtful debts, represents the Company maximum exposure to credit risk. 12.5 Interest rate risk Interest rate risk in the balance sheet arises from the potential for a change in interest rates to have an adverse effect on the net interest earnings of the Company in the current reporting period and in future years. /14 - 14 - 13. COMMITMENTS AND CONTINGENCIES 13.1 As at September 30, 1999 and 1998, a subsidiary which operates in real estate business has commitments under a Joint Cooperation Agreement for the Padaeng Industry Park project as follows: - Baht 567,252 per annum payable for service and operation support and a 5% increase every 5 years commencing from September 7, 1992, and the annual compensation on wharf usage as specified in the agreement. 13.2 As at September 30, 1999 and 1998, the Company and a subsidiary have contingent liabilities for letters of guarantee issued by banks of approximately Baht 96.34 million and Baht 114.11 million respectively. 13.3 As at September 30, 1999 and 1998, the Company have unused letters of credit amounting to approximately Baht 34.93 million and Baht 194.08 million respectively. 13.4 In December 1995, the Company received the notice of income tax assessment from the Revenue Department in respect of income tax, penalties and surcharge totalling Baht 31.72 million. In February 1996, the Company has submitted an appeal to cancel such income tax assessment, waive and reduce such penalties and surcharge. As at September 30, 1999, result of such appeal has not yet been finalized. 13.5 Purchase commitments: Commitments for the purchase of raw materials contracted for at the reporting date but not recognized as liabilities on September 30, 1999 are as follows: CONSOLIDATED THE COMPANY ONLY Baht Baht Not later than 1 year 110,842,164 110,842,164 Later than 1 year but no later than 2 years - - Later than 2 years but no later than 5 years 30,547,946 30,547,946 141,390,110 141,390,110 For the interim financial statements as at September 30, 1998, the Company could not conveniently obtain the information for comparison. 14. COMMITMENTS WITH A GOVERNMENT AGENCY The Company has commitments under a contract with a Government Agency in respect of zinc mining and construction of zinc refinery plant, including certain conditions for sales of zinc metal and zinc remelt and payments of special benefits and special bonus. /15 - 15 - 15. TRANSACTIONS BETWEEN RELATED COMPANIES Transactions between related companies which have to be disclosed in accordance with the regulation of The Stock Exchange of Thailand regarding the basis, conditions and procedure for preparation and submission of financial statements and reports on financial position and result of operations of the listed companies are as follows: Major transactions and balances with related companies as at September 30, consist of the following: CONSOLIDATED THE COMPANY ONLY 1999 1998 1999 1998 Baht Baht Baht Baht Trade accounts receivable (See*1) - - 48,656,763 57,267,619 Current loans to subsidiaries 696,894 25,290 1,623,053 510,998 and associated companies - 161,714 - 161,714 696,894 187,004 1,623,053 672,712 CONSOLIDATED THE COMPANY ONLY 1999 1998 1999 1998 Baht Baht Baht Baht Current loans and advances from related companies 117,707,513 134,717,823 - - Non current loans and advances to a subsidiary (See *5) - - 8,000,000 9,080,000 Non current loans from a subsidiary (See * 2) - - 168,900,000 153,000,000 Investments - 6,481,902 533,050,477 527,828,824 Trade accounts payable - (See*4) - - 86,085,051 86,228,917 Accrued interest (See *2) - - 1,639,911 8,020,069 FOR THE QUARTERS ENDED SEPTEMBER 30, CONSOLIDATED THE COMPANY ONLY 1999 1998 1999 1998 Baht Baht Baht Baht Sales (See *3) - - 2,615,192 - Commission paid (See *4) - - - - Interest received (See *5) - - - 16,635,262 Interest paid (See *2) - - 2,019,829 4,434,904 /16 - 16 - FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, CONSOLIDATED THE COMPANY ONLY 1999 1998 1999 1998 Baht Baht Baht Baht Sales (See *3) - - 3,492,348 7,866,866 Commission paid (See *4) - - - 40,950,897 Interest received (See *5) - - - 65,206,207 Interest paid (See *2) - - 7,567,659 12,929,926 * 1. As at September 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 4.50-4.75% 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. * 4. Sales commission paid to a subsidiary at 1.5% of sale amount in Baht. For the quarter and nine-month period ended September 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 September 30, 1999 and 1998, such loans and advances to subsidiary have the outstanding balances of Baht 1,266,099,170 (principal Baht 1,061,137,545 and interest and penalty fees Baht 204,961,625) and Baht 1,160,513,170 (principal Baht 955,551,545 and interest and penalty fees Baht 204,961,625) respectively. CONSOLIDATED THE COMPANY ONLY 1999 1998 1999 1998 Baht Baht Baht Baht Loans and advances - - 1,266,099,170 1,160,513,170 Less Allowance for doubtful debt (accumulated loss exceeding investment in a subsidiary) - - (1,258,099,170) (1,151,433,170) Loans and advances - net - - 8,000,000 9,080,000 /17 - 17 - 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. 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 Authoritys 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 September 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. /18 - 18 - 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: For the nine-month period as at September 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 adjustment to the provision for guarantee of a subsidiary which is shown under other income. As at September 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. 10,076,000 13,515,000 Loan guarantee repayments net of estimated recoveries on disposal of assets - 177,764,848 Other contractual obligations - 8,222,000 10,076,000 199,501,848 18. OPERATION OF A SUBSIDIARY COMPANY 18.1 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 subsidiarys 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. /19 - 19 - 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. The following property, plant and equipment for sale of Padaeng Poongsan Metals Co., Ltd. have been included in the consolidated balance sheet: AS AT SEPTEMBER 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 nine-month periods ended September 30, 1999 and 1998, operation of such subsidiary is as follows: For the quarters For the nine-month periods ended September 30, ended September 30, 1999 1998 1999 1998 Baht Baht Baht Baht Revenues Sales 751,440 6,966,471 30,902,934 234,749,690 Other income Gain (loss) on exchange rate - 15,074,638 - 93,539,550 Other 80,500 96,363 1,051,339 453,554 Total revenues 831,940 22,137,472 31,954,273 328,742,794 Expenses Cost of sales 1,387,959 5,950,428 26,232,059 161,523,150 Selling and administrative expenses 24,512,628 33,922,097 52,621,785 140,399,231 Total expenses 25,900,587 39,872,525 78,853,844 301,922,381 Net income (loss) (25,068,647) (17,735,053) (46,899,571) 26,820,413 18.2 On August 31, 1999, the extraordinary shareholders meeting of Padaeng Properties Co., Ltd. passed a resolution to register a capital decrease from Baht 320 million to Baht 80 million. The resolution has been registered with the Registrar of Partnerships and Companies on September 8, 1999. /20 - 20 - 18.3 On March 4, 1999, Padaeng Properties Co., Ltd. issued the letter to the Board of Investment to request a cancellation of privileges. Subsequently the companys rights and privileges were revorked by the Board of Investment under order No. Po 69/2542 (1999) on July 22, 1999. 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 those impact which will be accomplished within October 1999. 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. Since October 1997, the Company has upgraded and modified computer system for the year 2000. Until September 30, 1999 about 90 percent of modification has been finished of 90% and the task will be accomplished within October 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 18-21 this year. The said applications are functioned in order to avoid impacts to plants 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 was 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 will be unable to solve such problem in time. However, the Company expects that the impact on business is not significant. 20. EVENTS OCCURRED AFTER THE BALANCE SHEET DATE On November 1, 1999, the Company sold the securities available for sale which is investment in ordinary shares of National Fertilizer Public Co., Ltd of 11,377,300 shares, amounting to Baht 50.30 million. The Company incurred realized loss on disposal of these securities available for sale of Baht 63.47 million