PADAENG INDUSTRY PUBLIC COMPANY LIMITED AND SUBSIDIARIES NOTES TO THE INTERIM FINANCIAL STATEMENTS FOR THE QUARTERS AND SIX-MONTH PERIODS ENDED JUNE 30, 2000 AND 1999 "Unaudited" 1. ECONOMIC TURMOIL IN THE ASIA- PACIFIC REGION AND OPERATIONS OF THE COMPANY Thailand and many Asia-Pacific countries have continued to experience economic difficulties since 1997. The accompanying financial statements reflect management's 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 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. On June 2, 2000 the Company entered into the Second Override Amendment Agreement with Chase Manhattan Bank who is the Facility Agent to amend some conditions of the long term loan agreements (see Note 10). 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 six-month period ended June 30, 2000 is approximately Baht 33 million. 2. BASIS FOR PRESENTATION OF THE INTERIM FINANCIAL STATEMENTS 2.1 The interim consolidated and the Company's 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. 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 - 2.2 In accordance with SET guidelines dated May 8,1998 regarding Financial Statement Preparation with the Generally Accepted Accounting Principle and the Equity method of the investment in subsidiaries that have accumulated losses exceeding the share capital, the consolidated interim financial statements recognize the full amount of the Company's equity in a subsidiary's losses (excluding the minority interest to the extent that they do not exceed the minority shareholders' equity), that exceeds the Company's investment in such subsidiary. However, for the Company's interim financial statements presentation, the Company used the Accounting Standard No. 45 "Accounting for Investments in associates" as a reference in recognizing the Company's share of losses in a subsidiary, only to the extent of the amount of the investment in the subsidiary except where the Company has a commitment and/or guarantee for the subsidiary. In addition, the Company's equity in profit can resume to be recognized when the profit of such subsidiary exceeds the Company's share of unrecognized losses. Accordingly, the consolidated and the Company's interim 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 elimination of 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 for copper and based metals Padaeng Poongsan Metals Co., Ltd. 61.98 61.98 Thailand Manufactures and distributes non ferrous metal and blank coins (Dormant) Padaeng International Mining Co., Ltd. 100.00 100.00 Thailand Minerals explores in Vietnam Sila Enterprise Co., Ltd. 55.00 55.00 Thailand Trading For the investment in Sila Enterprise Co., Ltd. equity in undistributed net income (loss) in the consolidated and the Company's interim financial statements was computed from the unreviewed interim financial statements which percentage of net income (loss) amounted to as follows; PERCENTAGE OF NET INCOME (LOSS) FOR THE QUARTERS ENDED JUNE 30, CONSOLIDATED THE COMPANY ONLY 2000 1999 2000 1999 Equity in the investment of Sila Enterprise Co., Ltd. 2.46 (0.08) 1.66 (0.07) /3 - 3 - PERCENTAGE OF NET INCOME (LOSS) FOR THE SIX-MONTH PERIODS ENDED JUNE 30, CONSOLIDATED THE COMPANY ONLY 2000 1999 2000 1999 Equity in the investment of Sila Enterprise Co., Ltd. 1.23 (0.88) 1.08 (0.58) The consolidated interim financial statements for the quarter and six-month period ended June 30, 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. 2.4 The Company's interim financial statements for the six-month period ended June 30, 1999 include a change in the accounting method of investment in Patong Exploration 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. In addition, the Company adopted IAS 37, Provision, Contingent Liabilities and Contingent Assets in respect of environmental restoration costs. Environmental restoration costs Current expenditures relating to ongoing environmental restoration programs are charged against earnings as incurred. Where the costs relating to environmental liabilities that have arisen as a result of past events are expected to be material, a provision is made for these costs as soon as estimate of the liability is determined. The estimated restoration costs that will arise on the closure of the residue ponds are accrued by a charge to earnings over the anticipated economic life of the pond. In accordance with IAS 37, Provision, Contingent Liabilities and Contingent Assets, and as a result of new information relating to the estimated cost of restoring the residue ponds an adjustment has been made to the opening balance of retained earnings (see Note 19). Except the aforementioned, the Company and subsidiaries use the same accounting policies and calculation methods in these interim financial statements as compared with the most recent annual financial statements. /4 - 4 - 4. CURRENT ASSETS - CASH 4.1 Deposit used as collateral CONSOLIDATED THE COMPANY ONLY June 30, December 31, June 30, December 31, 2000 1999 2000 1999 Baht Baht Baht Baht Deposit used as collateral 200,000 11,554,589 - - As at June 30, 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 and the six-month periods ended June 30, 2000 and 1999 FOR THE QUARTERS ENDED JUNE 30, CONSOLIDATED THE COMPANY ONLY 2000 1999 2000 1999 Baht Baht Baht Baht Cash paid for tax 25,982 73,559 14,371 29,908 Cash paid for interest 70,750,326 84,470,632 64,337,008 79,500,745 FOR THE SIX-MONTH PERIODS ENDED JUNE 30, CONSOLIDATED THE COMPANY ONLY 2000 1999 2000 1999 Baht Baht Baht Baht Cash paid for tax 42,659 101,051 14,874 41,940 Cash paid for interest 141,113,629 176,967,162 132,791,894 166,882,031 4.3 Non cash items are as follows: - For the six-month period ended June 30, 2000, the Company has written-off prepayment for financial advisory fee amounting to Baht 9.35 million. - For the six-month period ended June 30, 1999, unrealized loss on securities available for sale that had been presented as a deduction from shareholders' equity on the consolidated and the Company's interim financial statements decreased by Baht 59.10 million. /5 - 5 - - On January 25, 1999, the Company entered into hire-purchase agreement with a company resulting in assets increase by Baht 7.15 million and liabilities increase by the same amount. 5. TRADE ACCOUNTS RECEIVABLE CONSOLIDATED THE COMPANY ONLY June 30, December 31, June 30, December 31, 2000 1999 2000 1999 Baht Baht Baht Baht Trade accounts receivable 211,265,669 267,135,305 248,630,162 305,276,024 Less: Allowance for doubtful accounts (9,037,297) (16,722,609) (51,654,675) (59,049,987) 202,228,372 250,412,696 196,975,487 246,226,037 As at June 30, 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 June 30, December 31, June 30, 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 7 738,355 14 4,624,837 1 411,167 2 2,785,408 6 to 12 months 9 3,750,714 7 2,991,431 1 3,186,882 1 2,379,549 More than 12 months 23 8,595,610 16 12,857,627 1 1,247,150 1 7,375,555 13,084,679 20,473,895 4,845,199 12,540,512 Allowance for doubtful accounts 9,037,297 16,722,609 51,654,675 59,049,987 /6 - 6 - 6. LONG -TERM DEPOSIT AT A FINANCIAL INSTITUTION CONSOLIDATED THE COMPANY ONLY June 30, December 31, June 30, 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 from December 2, 1997 to December 2, 2002, interest rate is fixed for 3 months. As at June 30, 2000, interest rate was 3.6875% p.a. (As at June 30, 1999, interest rate was 4.125% p.a.). /7 - 7 - 7. INVESTMENTS IN RELATED COMPANIES 7.1 Investments in subsidiaries COMPANY'S NAME TYPE OF PAID-UP OWNERSHIP INVESTMENT INVESTMENT BUSINESS CAPITAL (%) CONSOLIDATED EQUITY METHOD DIVIDEND BAHT June 30, December 31, June 30, December 31, June 30, December 31, 2000 1999 2000 1999 2000 1999 Baht Baht Baht Baht Baht Baht Padaeng Poongsan Metals Manufactures and Co., Ltd. distribute non- ferrous metal and blank coins (Dormant) 250,000,000 61.98 - - - - - - Padaeng Properties Co., Ltd. Real Estate 80,000,000 100 - - 46,463,482 50,110,948 - - Puthep Co., Ltd. Copper and other base metal Exploration 234,814,100 100 - - 162,124,581 162,338,035 - - Padaeng Industry (Laos) Base metal Co., Ltd. exploration 5,000,000 100 - - - - - - Padaeng International Mining Explores minerals Co., Ltd. in Vietnam 100,000 100 - - - - - - Sila Enterprise Co., Ltd. Trading 15,000,000 55 - - 6,207,044 5,387,030 - - South East Asia Metals Co., Ltd. Distributes various base metals and other by products 200,000,000 100 - - 154,489,073 154,199,784 - - Total investments in subsidiary companies - - 369,284,180 372,035,797 - - 7.2 As at June 30, 2000 and December 31, 1999, the Company's 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 in 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 COMPANY'S NAME TYPE OF PAID-UP OWNERSHIP INVESTMENT INVESTMENT BUSINESS CAPITAL (%) CONSOLIDATED EQUITY METHOD DIVIDEND BAHT June 30, December 31, June 30, December 31, June 30, 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 distributes potash mineral 10,010,000 10,010,000 10,010,000 10,010,000 - - Millennium Gold Corporation Explores for CAN $ 9,917,857 7.56 Co., Ltd. gold in Canada 4,441,626 4,441,626 4,441,626 4,441,626 - - Total other securities 14,451,626 14,451,626 14,451,626 14,451,626 - - /9 - 9 - 9. OTHER ASSETS Other assets as at June 30, 2000 and December 31, 1999 consist of the following: CONSOLIDATED THE COMPANY ONLY June 30, December 31, June 30, 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 6,819,401 6,513,439 3,937,065 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 37,863,238 39,427,401 37,061,528 38,524,532 248,108,129 249,366,330 81,898,593 83,055,635 A subsidiary has provided an allowance of Baht 75 million 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 June 30, 2000, the outcome was not known. In 1999, Padaeng Industry Public Co., Ltd. entered into a Memorandum of Understanding with a foreign company that indicated its wish to enter into a joint-venture to undertake exploration and mining of Puthep Copper Project. As at June 30, 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 June 30, 2000 and December 31, 1999 consist of the followings: CONSOLIDATED THE COMPANY ONLY June 30, December 31, June 30, December 31, 2000 1999 2000 1999 Baht Baht Baht Baht Long-term loans - The Company 2,303,237,178 2,531,553,627 2,303,237,178 2,531,553,627 - A subsidiary 136,250,000 175,000,000 - - 2,439,487,178 2,706,553,627 2,303,237,178 2,531,553,627 Less Current portion of long-term loans (1,602,751,549) (1,757,400,278) (1,466,501,549) (1,582,400,278) 836,735,629 949,153,349 836,735,629 949,153,349 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 Company's operating income. However, on February 24, 1999, Western Metals Limited terminated its subscription agreement causing the Company to be in noncompliance 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 increased capital of 75.1 million shares to repay the Tranche A principal by September 15, 2000. On May 12, 2000 the Company entered into the Subscription Agreement with Union Miniere S.A. in order to sell the increase capital 75.1 million shares at Baht 13.50 per share amounting to Baht 1,013.85 million. As at July 20, 2000, the Company received the subscription monies under the Subscription Agreement amounting to Baht 1,013.85 million. As at June 2, 2000, the Company entered into the Second Override Amendment Agreement in order to repay the Tranche A principal on December 15, 2000 and postpone some principal to repay on March 15, 2002. According to the Second Override Amendment Agreement, the payment schedule in Thai Baht and USD consists of the following: Tranche A Repayment Date Amount (Baht) Amount (USD) December 15, 2000 328,217,690* 12,918,820* (more)