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 September 30, 1999 and the related consolidated and the Companys statements of income and retained earnings and cash flows for the quarter and nine-month period then ended, in accordance with standards established by The Institute of Certified Accountants and Auditors of Thailand. The consolidated and the Companys interim financial statements for the quarter and nine-month period ended September 30, 1998 were reviewed by another auditor of the same firm whose report thereon dated October 28, 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 subsidiarys ability to continue as a going concern because a subsidiary had capital deficiency, had been experiencing negative cash flows from operations and had not complied with certain conditions in its loan agreement and uncertainty of recoverability of mineral exploration expenditure of subsidiaries which have been deferred and recoverability of investment of such subsidiaries. In addition, the consolidated and the Companys 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. Based on our review, we are not aware of any material modifications that should be made to the consolidated and the Companys interim financial statements described in the first paragraph in order for them to be in conformity with generally accepted accounting principles. - 2 - We draw attention to Note 1 to the interim financial statements. The countrys 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 18.1 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 September 30, 1999, which amounted to Baht 148 million or 2.99% of the total consolidated assets at September 30, 1999. As described in Notes 10 and 8.3 to the interim financial statements, the consolidated interim financial statements for the nine-month period ended September 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 Companys 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. In addition, the Company has uncertainty related to recoverability of the compensation which was paid to a company because the Company is currently submitting its concession application for approval, and the outcome of which is not known at this time. Nachalee Boonyakarnkul Certified Public Accountant (Thailand) BANGKOK Registration No. 3126 October 28, 1999 and DELOITTE TOUCHE TOHMATSU JAIYOS November 1, 1999 for Note 20 to the interim financial statements. 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 SEPTEMBER 30, UNAUDITED CONSOLIDATED THE COMPANY ONLY 1999 1998 1999 1998 Note Baht Baht Baht Baht ASSETS CURRENT ASSETS Cash in hand and at banks 372,109,320 489,321,783 310,312,792 478,692,504 Deposits at banks used as collateral 4 11,554,589 11,554,589 - - Short-term investments Deposits at financial institutions - 98,000,000 - 50,000,000 Marketable securities 5 55,324,324 - 55,324,324 - Trade accounts receivable (net) 7 238,468,865 175,380,987 233,449,154 155,304,705 Short-term loans and advances to related companies 696,894 187,004 1,623,053 672,712 Inventories 699,869,764 870,482,877 692,456,360 763,354,419 Withholding tax 19,513,093 20,393,504 1,578,559 2,580,946 Account receivable - Revenue Department 60,509,141 55,559,212 58,255,387 49,466,696 Other receivables 4,293,281 20,001,354 4,037,985 19,140,219 Other current assets 11,495,250 31,362,934 9,086,098 25,671,009 Total Current Assets 1,473,834,521 1,772,244,244 1,366,123,712 1,544,883,210 LONG-TERM DEPOSIT AT FINANCIAL INSTITUTION 30,054,136 30,054,136 - - INVESTMENTS AND LOANS Investments in related companies 8.1 - 6,481,902 533,050,477 527,828,824 Other securities 9 14,451,626 53,190,956 14,451,626 53,190,956 Loans and advances - - 8,000,000 9,080,000 Total Investments and Loans 14,451,626 59,672,858 555,502,103 590,099,780 PROPERTY, PLANT AND EQUIPMENT NET 3,105,794,868 4,323,424,416 3,105,041,789 3,396,998,096 ASSETS FOR SALE 18.1 123,500,004 - - - OTHER ASSETS 10 247,220,128 335,760,565 80,853,121 103,825,359 TOTAL ASSETS 4,994,855,283 6,521,156,219 5,107,520,725 5,635,806,445 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 SEPTEMBER 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 553,709,140 264,410,610 517,869,831 172,139,522 Trade accounts and notes payable 141,482,142 312,555,018 227,461,934 391,099,128 Current portion of long-term loans 11 1,861,992,455 2,049,398,242 1,668,242,455 1,778,148,242 Short-term loans and advances from directors and employees 1,000,000 10,036,808 - 36,808 Short-term loans and advances from related companies 117,605,801 186,500,387 - - Other current liabilities Accrued interest expenses 46,205,520 20,418,209 13,911,182 12,657,852 Accrued electricity expenses 109,797,903 168,324,879 109,752,315 166,977,492 Provision for guarantee expenses of a subsidiary 17 10,076,000 - 199,501,848 - Others 54,828,191 45,843,551 52,984,004 53,696,352 Total Current Liabilities 2,896,697,152 3,057,487,704 2,789,723,569 2,574,755,396 LOANS FROM RELATED COMPANIES - - 168,900,000 153,000,000 LONG TERM LOANS 11 1,000,668,944 1,559,752,530 1,000,668,944 1,559,752,530 OTHER LIABILITIES 3,671,604 - 3,671,604 - TOTAL LIABILITIES 3,901,037,700 4,617,240,234 3,962,964,117 4,287,507,926 MINORITY INTEREST 1,987,655 5,567,899 - - PADAENG INDUSTRY PUBLIC COMPANY LIMITED AND SUBSIDIARIES BALANCE SHEETS AS AT SEPTEMBER 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) (3,280,078,966) (2,364,531,524) (3,227,352,286) (2,914,581,091) Less Unrealized loss on security available for sale (70,412,776) (88,015,970) (70,412,776) (88,015,970) TOTAL SHAREHOLDERS EQUITY 1,091,829,928 1,898,348,086 1,144,556,608 1,348,298,519 TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 4,994,855,283 6,521,156,219 5,107,520,725 5,635,806,445 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 SEPTEMBER 30, UNAUDITED CONSOLIDATED THE COMPANY ONLY 1999 1998 1999 1998 Note Baht Baht Baht Baht REVENUES Sales 1,081,308,222 1,018,385,856 1,078,785,305 1,007,410,321 Other income Interest income 1,493,863 17,272,858 966,096 31,056,831 Gain on exchange rate - 100,459,370 - 100,459,370 Equity in undistributed net income of subsidiary and associated companies - 10,344 1,983,618 - Others 4,351,245 1,428,123 4,352,324 926,180 Total Revenues 1,087,153,330 1,137,556,551 1,086,087,343 1,139,852,702 EXPENSES Cost of sales 834,832,074 795,022,336 833,814,045 793,870,969 Selling and administrative expenses 53,203,193 135,366,064 71,713,931 597,438,651 Loss on exchange rate 203,755,802 - 203,414,268 - Depreciation residue pond 21,021,393 - 21,021,393 - Interest expenses 80,674,489 110,748,771 82,624,318 114,283,676 Directors remuneration 370,979 451,040 370,979 451,040 Equity in undistributed net loss of subsidiaries and associated companies - - - 104,836,688 Other expenses 1,100,977 1,147,704 1,100,977 1,147,704 Total Expenses 1,194,958,907 1,042,735,915 1,214,059,911 1,612,028,728 Net income (loss) before minority interest and the result of operations of a subsidiary which ceased its operations (107,805,577) 94,820,636 (127,972,568) (472,176,026) Minority interest in net (income) loss of a subsidiary company (214,991) 787,958 - - Net income (loss) before the result of operations of a subsidiary which ceased its operations (108,020,568) 95,608,594 (127,972,568) (472,176,026) Net income (loss) of a subsidiary which ceased its operations 18.1 (25,068,647) (17,735,053) - - NET INCOME (LOSS) (133,089,215) 77,873,541 (127,972,568) (472,176,026) PADAENG INDUSTRY PUBLIC COMPANY LIMITED AND SUBSIDIARIES STATEMENTS OF INCOME AND RETAINED EARNINGS (CONTINUED) FOR THE QUARTER ENDED SEPTEMBER 30, UNAUDITED CONSOLIDATED THE COMPANY ONLY Note 1999 1998 1999 1998 Baht Baht Baht Baht NET INCOME (LOSS) (133,089,215) 77,873,541 (127,972,568) (472,176,026) RETAINED EARNINGS (DEFICIT) BROUGHT FORWARD (3,146,989,751) (2,442,405,065) (3,099,379,718) (2,442,405,065) RETAINED EARNINGS (DEFICIT) CARRIED FORWARD (3,280,078,966) (2,364,531,524) (3,227,352,286) (2,914,581,091) NET INCOME (LOSS) FOR THE QUARTER PER SHARE (0.88) 0.54 (0.85) (3.27) 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 NINE-MONTH PERIOD ENDED SEPTEMBER 30, UNAUDITED CONSOLIDATED THE COMPANY ONLY 1999 1998 1999 1998 Note Baht Baht Baht Baht REVENUES Sales 3,156,538,971 3,823,096,619 3,150,384,560 3,813,085,755 Other income Interest income 6,327,218 39,352,260 3,692,466 96,223,538 Gain on exchange rate - 248,628,665 - 248,628,665 Adjustment to the provision for guarantee of a subsidiary 1,151,000 - 22,315,677 - Equity in undistributed net income of subsidiary and associated companies - 31,035 8,472,913 - Others 5,010,855 12,024,079 5,021,447 11,522,135 Total Revenues 3,169,028,044 4,123,132,658 3,189,887,063 4,169,460,093 EXPENSES Cost of sales 2,514,183,114 2,936,399,700 2,511,099,081 2,929,360,622 Selling and administrative expenses 185,785,283 338,809,220 207,891,160 807,614,893 Loss on exchange rate 197,689,997 - 197,689,997 - Residue pond written off 10,510,423 - 10,510,423 - Depreciation residue pond 28,028,524 - 28,028,524 - Interest expenses 239,647,169 327,187,422 246,764,828 339,217,348 Directors remuneration 1,207,774 1,127,040 1,207,774 1,127,040 Equity in undistributed net loss of subsidiaries and associated companies - - - 94,395,469 Other expenses 3,249,394 4,627,479 3,249,394 4,627,479 Total Expenses 3,180,301,678 3,608,150,861 3,206,441,181 4,176,342,851 Net income (loss) before minority interest and the result of operations of a subsidiary which ceased its operations (11,273,634) 514,981,797 (16,554,118) (6,882,758) Minority interest in net (income) loss of a subsidiary company 296,840 1,364,599 - - Net income (loss) before the result of operations of a subsidiary which ceased its operations (10,976,794) 516,346,396 (16,554,118) (6,882,758) Net income (loss) of a subsidiary which ceased its operations 18.1 (46,899,571) 26,820,413 - - NET INCOME (LOSS) (57,876,365) 543,166,809 (16,554,118) (6,882,758) PADAENG INDUSTRY PUBLIC COMPANY LIMITED AND SUBSIDIARIES STATEMENTS OF INCOME AND RETAINED EARNINGS (CONTINUED) FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, UNAUDITED CONSOLIDATED THE COMPANY ONLY Note 1999 1998 1999 1998 Baht Baht Baht Baht NET INCOME (LOSS) (57,876,365) 543,166,809 (16,554,118) (6,882,758) RETAINED EARNINGS (DEFICIT) BROUGHT FORWARD (3,222,202,601) (2,907,698,333) (3,210,798,168) (2,907,698,333) RETAINED EARNINGS (DEFICIT) CARRIED FORWARD (3,280,078,966) (2,364,531,524) (3,227,352,286) (2,914,581,091) NET INCOME (LOSS) FOR THE NINE-MONTH PERIOD PER SHARE (0.38) 3.76 (0.11) (0.05) 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 CASH FLOWS FOR THE QUARTER ENDED SEPTEMBER 30, UNAUDITED CONSOLIDATED THE COMPANY ONLY 1999 1998 1999 1998 Baht Baht Baht Baht CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) (133,089,215) 77,873,541 (127,972,568) (472,176,026) Items to reconcile net income (loss) to net cash: Equity in undistributed net income of associated companies - (10,344) - - Equity in undistributed net loss (income) of subsidiary and associated companies - - (1,983,617) 104,836,688 Provision for obsolete inventories (Reversal) (385,624) (162,396) (385,624) (162,396) Obsolete inventories written off 69,356 - 69,356 - Depreciation 104,708,755 106,401,389 104,557,983 83,430,758 Withholding tax written off - 2,755,394 - 2,755,394 Deferred charges written off 3,709,004 83,389,988 3,709,004 19,128,707 Other assets written off 372,989 - - - Deferred interest on hire purchase written off 223,758 - 223,758 - Allowance for doubtful debts-trade accounts receivable 153,595 33,037,579 273,591 46,809,476 Allowance for loan and advance to a related company - - - 479,631,361 Loss (gain) on disposal of property, plant and equipment (80,500) (647,544) - (858,272) Loss (gain) on exchange rate 218,120,047 (107,605,932) 203,414,268 (107,605,932) Loss from diminution in value of asset - 12,934,223 - - Minority interest in net (loss) 214,991 (787,958) - - Income (loss) from operations before changes in operating assets and liabilities 194,017,156 207,177,940 181,906,151 155,789,758 Operating assets (increase) decrease Deposit at financial institutions used as collateral - (8,000,000) - - Trade accounts receivable (36,974,361) 67,895,993 (38,519,313) 82,130,561 Short-term loans and advances to related companies (683,058) (109,463) (663,058) (15,532) Inventories (32,433,276) (225,592,544) (34,006,745) (191,815,140) Withholding tax (17,724) (470,910) (650) (257,661) Accounts receivable-Revenue Department 4,629,042 (33,950,214) 4,469,837 (33,238,569) Other receivables (1,070,780) (936,892) (977,727) (284,216) Other current assets 22,357,121 15,997,948 24,256,969 13,313,662 PADAENG INDUSTRY PUBLIC COMPANY LIMITED AND SUBSIDIARIES STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE QUARTER ENDED SEPTEMBER 30, UNAUDITED CONSOLIDATED THE COMPANY ONLY (more)