PADAENG INDUSTRY PUBLIC COMPANY LIMITED AND SUBSIDIARIES NOTES TO THE INTERIM FINANCIAL STATEMENTS FOR THE QUARTERS ENDED MARCH 31, 2000 AND 1999 Unaudited 1. ECONOMIC TURMOIL IN THE ASIA- PACIFIC REGION AND OPERATIONS OF THE COMPANY AND SUBSIDIARIES Thailand and many Asia-Pacific countries continue to experience economic difficulties since 1997. The accompanying financial statements reflect managements current assessment of the possible impact of the economic conditions on the financial position of the Company. On June 25, 1999 the Company entered into the Override Amendment Agreement requiring the Company to sell the remainder of the increased capital of 75.1 million shares to repay the Tranche A principal by September 15, 2000. On March 20, 2000 the Board of Directors announced to the Stock Exchange of Thailand that they had awarded one potential investor the exclusive right to negotiate for a period of 30 days. These negotiations were still proceeding. Therefore, as at March 31, 2000, there is an uncertainty regarding the ability of the Company to continue as a going concern. If the Company is unable to sell the remainder of the increased capital of 75.1 million shares by September 15, 2000 and the lenders are to demand immediate repayment. 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 the normal course of business and at amounts different from those stated in the financial statements. However, the Company repaid the Tranche B principal and its interest in compliance with the conditions. The latest repayment was on March 15, 2000. On January 19, 2000, the Company commenced a mutual separation plan for staff. At the date of this report 64 staff elected to participate in this program. The cost of this program included in the financial statements for the quarter ended March 31, 2000 is approximately Baht 33 million. 2. BASIS FOR PRESENTATION OF THE FINANCIAL STATEMENTS 2.1 The interim consolidated and the Companys financial statements have been prepared in accordance with the Regulation of The Stock Exchange of Thailand (SET) dated November 22, 1999, regarding the preparation and submission of financial statements and reports for the financial position and result of operations of the listed companies B.E. 2542 and in accordance with generally accepted accounting principles in Thailand. The balance sheets as at December 31,1999, presented herein, have been derived from the financial statements for the year then ended which have been audited. /2 - 2 - Certain financial information which is normally included in financial statements prepared in accordance with generally accepted accounting principles, which is not required for interim reporting purposes, has been omitted. In addition, the consolidated and equity method interim financial statements should be read in conjunction with the consolidated and equity method financial statements and notes thereto included in the audited financial statements for the year ended December 31, 1999. 2.2 In accordance with SET guidelines, the consolidated interim financial statements recognized the full amount of the Companys equity in a subsidiarys losses (excluding the minority interest to the extent that they do not exceed the minority shareholders equity), that exceeds the Companys investment in such subsidiary. Under the Companys interim financial statements presentation, the Companys equity in the undistributed losses of a subsidiary that incurs a capital deficiency, is generally recognized only to the extent of the amount of the investment in such subsidiary. In the case where the Company has receivables from and/or loans to and/or guarantee commitment for such subsidiary, such share in the loss that exceeds the Companys investment and the loss that exceeds minority shareholders equity are shown as a reduction to the receivables from and/or loans to subsidiary. In the consolidated financial statements, the Company records 100% of its share of losses of subsidiaries plus the minority shareholders share of losses to the extent that they exceed the minority shareholders equity. Accordingly, the consolidated and the Companys financial statements do not present the same net income (loss) and shareholders equity. 2.3 The consolidated interim financial statements are the consolidation of the accounts of the Company and the following subsidiary companies after eliminated intercompany transactions. % of Incorporated in Type of Business Shareholding 2000 1999 Padaeng Properties Co., Ltd. 100.00 100.00 Thailand Real Estate Puthep Co., Ltd. 100.00 100.00 Thailand Explores and produces copper and based metals Padaeng Poongsan Metals Co., Ltd. 61.98 61.98 Thailand Manufactures and distributes - non ferrous metal and blank coins Padaeng International Mining Co., Ltd. 100.00 100.00 Thailand Explores minerals in Vietnam Sila Enterprise Co., Ltd. 55.00 55.00 Thailand Aggregate production For the quarters ended March 31, 2000 and 1999, equity in distributed net income (loss) in the Companys interim financial statements was computed from the interim financial statements of Sila Enterprise Co., Ltd. which has not been reviewed and which amounted to 1.37% and (4.77) % of net income (loss) respectively. /3 - 3 - The consolidated interim financial statements for the quarter ended March 31, 2000 and for the year ended December 31, 1999 also include accounting transactions of South East Asia Metals Co., Ltd. of which Padaeng Properties Co., Ltd. has a holding of 100% in this company. The Companys interim financial statement for the quarter ended March 31, 1999 do not include accounting transactions of Pakham Exploration and Mining Limited as Puthep Co., Ltd. transferred all its shares in Pakham Exploration and Mining Limited to a joint venture company in accordance with an agreement dated November 20, 1998. Such financial statements do not include accounting transactions of Patong Exploration and Mining Limited because such subsidiary registered to wind up on March 16, 1999. 2.4 The Companys interim financial statements ended March 31, 1999, do not include the Companys equity in the undistributed gain (loss) of Padaeng Siam Industry Co., Ltd. because such associated company has registered to wind up on January 8, 1999 and liquidated on July 1,1999. The Company has not changed the accounting method of investment in such associated company because the related amount is not material. 2.5 The Companys interim financial statements for the quarter ended March 31, 1999 include a change in the accounting method of investment in Patong Explorating and Mining Limited from the equity method to the cost method from March 16, 1999 because the subsidiary registered to wind up on that date. 3. SIGNIFICANT ACCOUNTING POLICIES A number of new accounting standards were issued and became effective from January 1, 2000, the significant changes arising therefrom affecting the Company and its subsidiaries are in respect to the presentation of the interim financial reports. Except the aforementioned, the Company and subsidiaries use the same account ing policies and calculation methods in these interim financial statements as compared with the most recent annual financial statements. 4. CURRENT ASSETS - CASH 4.1 Deposit used as collateral CONSOLIDATED THE COMPANY ONLY March 31, December 31, March 31, December 31, 2000 1999 2000 1999 Baht Baht Baht Baht Deposit used as collateral 200,000 11,554,589 - - /4 - 4 - As at March 31, 2000, deposit at bank of a subsidiary was used as collateral against electricity usage . As at December 31, 1999, deposit at bank of a subsidiary was used as collateral against sales of blank coins with a Government Agency and used as collateral against other debt repayments. 4.2 Cash paid for the quarters ended March 31, 2000 and 1999 : CONSOLIDATED THE COMPANY ONLY 2000 1999 2000 1999 Baht Baht Baht Baht Cash paid for tax 16,677 27,452 503 12,032 Cash paid for interest 70,363,303 92,496,530 68,454,886 87,381,287 4.3 Non cash items are as follows: - As at March 31, 1999, the provision for the decline in the value of a security available for sale is shown as a deduction from shareholders equity as per consolidated and the Companys interim financial statements. For the quarter ended March 31, 1999 the provision was increased by Baht 7,544,226. - For the quarter ended March 31, 1999, an account receivable has made a payment to settle the balance of Baht 7.88 million by transferring inventories of Baht 7.17 million and incurring value added tax of Baht 0.71 milion. - For the quarter ended March 31, 1999, the Company has entered into hire-purchase agreement with a company resulting in an increase in assets by Baht 7.15 million and deferred interest from hire purchase of Baht 1.66 million. Liabilities increased by Baht 3.67 million for the current portion and Baht 5.14 million for the non-current portion. - A subsidiary company has reclassified total fixed assets to be assets held for sale as per the consolidated interim financial statements for the quarter ended March 31, 1999, amounting to Baht 123.50 million (see Note 17). 5. TRADE ACCOUNTS RECEIVABLE CONSOLIDATED THE COMPANY ONLY March 31, December 31, March 31, December 31, 2000 1999 2000 1999 Baht Baht Baht Baht Trade accounts receivable 229,134,908 267,135,305 217,950,505 258,466,548 Less: Allowance for doubtful accounts (16,552,609) (16,722,609) (12,240,511) (12,240,511) 212,582,299 250,412,696 205,709,994 246,226,037 /5 - 5 - As at March 31, 2000 and December 31, 1999, the following accounts receivable are past due more than three months and are having difficulties in repayment: CONSOLIDATED THE COMPANY ONLY March 31, December 31, March 31, December 31, 2000 1999 2000 1999 No. Baht No. Baht No. Baht No. Baht Trade accounts receivable - related companies: 3 to 6 months - - - - 6 to 12 months - - - - More than 12 months - - 1 46,809,476 1 46,809,476 - - 46,809,476 46,809,476 Less Accumulated loss exceeding investment in a subsidiary - - (46,809,476) (46,809,476) - - - - Trade accounts receivable - other companies: 3 to 6 months 10 3,127,017 14 4,624,837 2 2,238,959 2 2,785,408 6 to 12 months 13 3,686,614 7 2,991,431 1 2,758,998 1 2,379,549 More than 12 months 22 16,715,646 16 12,857,627 1 9,478,997 1 7,375,555 23,529,277 20,473,895 14,476,954 12,540,512 Allowance for doubtful accounts Trade accounts receivable 16,552,609 16,722,609 12,240,511 12,240,511 6. LONG -TERM DEPOSIT AT A FINANCIAL INSTITUTION CONSOLIDATED THE COMPANY ONLY March 31, December 31, March 31, December 31, 2000 1999 2000 1999 Baht Baht Baht Baht Long-term deposit at a financial institution 30,054,136 30,054,136 - - 30,054,136 30,054,136 - - Long-term deposit at a financial institution is a negotiable certificate of deposit of a subsidiary with a maturity of 5 years, interest rate is fixed for 3 months. As at March 31, 2000, interest rate was 3.6875% p.a. (In 1999, interest rate was 4.125% p.a.). /6 - 6 - 7. INVESTMENTS IN RELATED COMPANIES 7.1 Investments in subsidiary companies COMPANYS NAME TYPE OF PAID-UP OWNERSHIP INVESTMENT INVESTMENT BUSINESS CAPITAL (%) CONSOLIDATED EQUITY METHOD DIVIDEND BAHT March 31, December 31, March 31, December 31, March 31, December 31, 2000 1999 2000 1999 2000 1999 Baht Baht Baht Baht Baht Baht SUBSIDIARY COMPANIES Padaeng Poongsan Metals Manufactures and Co., Ltd. distribute non- ferrous metal and blank coins 250,000,000 61.98 - - - - - - Padaeng Properties Co., Ltd. Real Estate 80,000,000 100 - - 48,963,861 50,110,948 - - Puthep Co., Ltd. Explores and produces copper mineral. 234,814,100 100 - - 162,230,228 162,338,035 - - Padaeng Industry (Laos) Explores various Co., Ltd. prime mineral 5,000,000 100 - - - - - - Padaeng International Mining Explores minerals Co., Ltd. in Vietnam 100,000 100 - - - - - - Sila Enterprise Co., Ltd. Produces aggregate 15,000,000 55 - - 5,760,074 5,387,030 - - South East Asia Metals Co., Ltd. Distributes various basic metal and other by products 200,000,000 100 - - 154,382,889 154,199,784 - - Total investments in subsidiary companies - - 371,337,052 372,035,797 - - /7 - 7 - 7.2 As at March 31, 2000 and December 31, 1999, the Companys investment in Puthep Company Limited amounting to Baht 162 million which is presented as part of the investment in subsidiary companies by the equity method as referred to Note 7.1 does not include any adjustments which may arise due to uncertainty related to recoverability of deferred exploration and special prospect license fee of Baht 162 million (see Note 9). /8 - 8 - 8. OTHER SECURITIES COMPANYS NAME TYPE OF PAID-UP OWNERSHIP INVESTMENT INVESTMENT BUSINESS CAPITAL (%) CONSOLIDATED EQUITY METHOD DIVIDEND BAHT March 31, December 31, March 31, December 31, March 31, December 31, 2000 1999 2000 1999 2000 1999 Baht Baht Baht Baht Baht Baht Asean Potash Holding Co., Ltd. Produces and 395,967,000 2.52 10,010,000 10,010,000 10,010,000 10,010,000 - - distributes potash mineral Millennium Gold Corporation Explores CAN $ 9,917,857 7.56 4,441,626 4,441,626 4,441,626 4,441,626 - - Co., Ltd. Gold mineral Canal Total other securities 14,451,626 14,451,626 14,451,626 14,451,626 - - / - 9 - 9. OTHER ASSETS Other assets as at March 31, 2000 and December 31, 1999 consist of the following: CONSOLIDATED THE COMPANY ONLY March 31, December 31, March 31, December 31, 2000 1999 2000 1999 Baht Baht Baht Baht Deposits and installment payments for condominium units 74,932,723 74,932,723 - - Less Allowance for doubtful accounts of deposits and installment payments for condominium units (74,932,723) (74,932,723) - - - - - - Deposits 6,115,753 6,513,439 3,233,416 3,631,103 Special prospect license fee 16,986,510 16,986,510 - - Exploration expenditures 145,538,980 145,538,980 - - Compensation for concession application withdrawal of a company 40,900,000 40,900,000 40,900,000 40,900,000 Other 35,829,467 39,427,401 34,971,136 38,524,532 245,370,710 249,366,330 79,104,552 83,055,635 An allowance of a subsidiary of Baht 75 million has been provided in respect of deposit and installment payments for condominium units whose construction was suspended due to unfavorable economic conditions. In 1999, the Company paid Baht 40.9 million as compensation to another company for the access rights to land adjacent to the Mae Sod mining lease. The Company had submitted its concession application to the Department of Mineral Resources for approval. As at March 31, 2000, the outcome was not known. In 1999, Padaeng Industry Public Co., Ltd. entered into a Memorandum of Understanding with a foreign company which indicated its wish to enter into a joint-venture to undertake exploration and mining of Puthep Copper Project. As at March 31, 2000, the negotiation over the terms and conditions is still continuing and the Participation Agreement has not been signed. Therefore, there is uncertainty related to the recoverability of deferred exploration and special prospect license fee of Puthep Co., Ltd. amounting to Baht 162 million because the outcome of such joint venture project is not known at this time. /10 - 10 - 10. LONG-TERM LOANS Long-term loans as at March 31, 2000 and December 31, 1999 consist of the following: CONSOLIDATED THE COMPANY ONLY March 31, December 31, March 31, December 31, 2000 1999 2000 1999 Baht Baht Baht Baht Long-term loans - The Company 2,256,471,122 2,531,553,627 2,256,471,122 2,531,553,627 - A subsidiary 155,000,000 175,000,000 - - 2,411,471,122 2,706,553,627 2,256,471,122 2,531,553,627 Less Current portion of long-term loans (1,791,360,013) (1,757,400,278) (1,636,360,013) (1,582,400,278) 620,111,109 949,153,349 620,111,109 949,153,349 On October 7, 1998 the Company entered into the Override and Supplementary Agreement with its lenders to repay the debt which has been separated into two Tranches: Tranche A and Tranche B. The funding for the repayment of Tranche A was to come from the sales of new shares to Western Metals Limited while the source of funds for the repayment of Tranche B was from the Companys operating income. However, on February 24, 1999, Western Metals Limited terminated its subscription agreement causing the Company to be in non compliance with the Override and Supplementary Agreement for Tranche A repayment. On June 25, 1999 the Company entered into the Override Amendment Agreement with its lenders to amend the Tranche A principal repayment.Under the terms of the Override Amendment Agreement, the Company will have to sell the remaining of the increased capital of 75.1 million shares to repay the Tranche A principal by September 15, 2000. 10.1 Financing Arrangements Available CONSOLIDATED THE COMPANY ONLY March 31, December 31, March 31, December 31, 2000 1999 2000 1999 (more)