NUAL FINANCIAL STATEMENTS

SINO-THAI ENGINEERING AND CONSTRUCTION PUBLIC COMPANY LIMITED AND SUBSIDIARIES STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY DEFICIT FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 (Amounts in Baht) CONSOLIDATED THE COMPANY 1998 1997 1998 1997 Share capital Preference shares Beginning balance 70,000,000.00 70,000,000.00 70,000,000.00 70,000,000.00 Increase during year - - - - Decrease during year - - - - Ending balance 70,000,000.00 70,000,000.00 70,000,000.00 70,000,000.00 Ordinary shares Beginning balance 230,000,000.00 230,000,000.00 230,000,000.00 230,000,000.00 Increase during year - - - - Decrease during year - - - - Ending balance 230,000,000.00 230,000,000.00 230,000,000.00 230,000,000.00 Paid-in capital Premium on ordinary share Beginning balance 486,000,000.00 486,000,000.00 486,000,000.00 486,000,000.00 Increase during year - - - - Decrease during year - - - - Ending balance 486,000,000.00 486,000,000.00 486,000,000.00 486,000,000.00 Surplus on revaluation Beginning balance 929,173,784.53 929,173,784.53 834,565,471.57 834,565,471.57 Increase during year - - - - Decrease during year - - - - Ending balance 929,173,784.53 929,173,784.53 834,565,471.57 834,565,471.57 Retained earnings (Deficit) Appropriated - legal reserve Beginning balance 56,163,648.79 56,142,648.79 48,565,466.52 48,565,466.52 Increase during year - 21,000.00 - - Decrease during year - - - - Ending balance 56,163,648.79 56,163,648.79 48,565,466.52 48,565,466.52 Unappropriated Beginning balance (2,264,928,114.52) 498,818,884.43 (2,257,329,932.25) 506,396,066.70 Increase during year 374,029,119.22 - 374,029,119.22 - Decrease during year - (2,763,746,998.95) - (2,763,725,998.95) Ending balance (1,890,898,995.30) (2,264,928,114.52) (1,883,300,813.03) (2,257,329,932.25) Loss on non-current marketable securities (Note 4) Beginning balance (257,797,954.92) - (256,635,693.00) - Increase during year 2,043,843.70 - 2,043,843.70 - Decrease during year - (257,797,954.92) - (256,635,693.00) Ending balance (255,754,111.22) (257,797,954.92) (254,591,849.30) (256,635,693.00) Total Shareholders' Equity Deficit (375,315,673.20) (751,388,636.12) (468,761,724.24) (844,834,687.16) See notes to financial statements SINO-THAI ENGINEERING AND CONSTRUCTION PUBLIC COMPANY LIMITED AND SUBSIDIARIES STATEMENTS OF RETAINED EARNINGS (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 (Amounts in Baht) CONSOLIDATED THE COMPANY 1998 1997 1998 1997 Unappropriated retained earnings (deficit) Balance at the beginning of year (2,264,928,114.52) 498,818,884.43 (2,257,329,932.25) 506,396,066.70 Less legal reserve - (21,000.00) - - Net income (loss) 374,029,119.22 (2,763,725,998.95) 374,029,119.22 (2,763,725,998.95) Total Unappropriated Retained Earnings (Deficit) (1,890,898,995.30) (2,264,928,114.52) (1,883,300,813.03) (2,257,329,932.25) Appropriated retained earnings Legal reserve 56,163,648.79 56,163,648.79 48,565,466.52 48,565,466.52 Total Retained Earnings (Deficit) (1,834,735,346.51) (2,208,764,465.73) (1,834,735,346.51) (2,208,764,465.73) See notes to financial statements SINO-THAI ENGINEERING AND CONSTRUCTION PUBLIC COMPANY LIMITED AND SUBSIDIARIES STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 (Amounts in Baht) CONSOLIDATED THE COMPANY 1998 1997 1998 1997 CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES Net income (loss) 374,029,119.22 (2,763,725,998.95) 374,029,119.22 (2,763,725,998.95) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities Doubtful accounts 344,015,037.18 11,261,939.63 323,248,923.78 8,632,350.06 Depreciation and deferred charges written off 110,663,092.14 114,995,233.44 104,652,097.84 95,470,510.75 Gain of debts restructuring (48,246,683.33) - - - (Gain) loss on sales of fixed assets (7,653,921.06) 3,564,971.20 (173,470.55) 3,521,535.44 Excess of book value over cost of investment written off (53,495,381.37) (6,883,074.40) (53,495,381.37) (6,883,074.40) Companies' share of (profit) loss from its investment in subsidiaries and associated companies and joint ventures 106,770,878.99 124,350,976.54 5,453,430.78 345,631,777.75 Net unrealized (gain) loss from recovery in market for current - marketable securities (24,666,894.55) - (24,766,734.55) - Loss on sales of condominiums 13,340,648.93 - 13,340,648.93 - Loss on disposal of fixed assets 1,897,301.35 2,487,016.43 1,897,301.35 2,487,016.43 Unrealized gain on exchange (1,015,348,602.59) 1,910,489,552.77 (952,938,556.24) 1,912,371,052.82 Contingent cost 40,546,816.81 30,742,202.00 33,628,728.47 30,742,202.00 Loss on non-current marketable securities 13,000,442.43 - 10,000,442.43 - Loss on devaluation of market price of condominiums 11,428,483.86 - 11,428,483.86 - Allowance for decline in damaged goods 8,098,326.75 - - - Loss on taking possession 13,569,611.29 - - - Changes in operating assets and liabilities (Increase) decrease in operating assets Accounts receivable 674,969,347.33 (328,659,290.33) 757,333,329.18 (340,545,064.14) Due from related parties (21,341,065.57) (19,926,141.09) (30,668,499.55) 5,385,957.45 Retentions receivable (104,648,465.87) 171,263,213.51 (104,364,386.80) 171,863,297.28 Inventories 93,841,019.14 1,183,400.85 - - Construction contract in progress - 112,383,121.00 - 112,383,121.00 Other current assets (125,127,499.51) (141,494,850.83) (144,936,591.19) (127,569,170.13) Loans and advances to directors and employees 8,323,792.11 (774,762.96) 3,968,139.57 3,868,015.90 Increase (decrease) in operating liabilities Accounts payable (150,167,618.66) 435,140,535.84 (122,143,667.83) 372,666,797.45 Due to related parties (35,665,984.11) (22,466,196.96) (32,770,445.14) (7,347,035.70) Advance received on contracts (240,348,004.67) 298,493,096.62 (132,324,286.15) 224,343,633.65 Dividend received - (11,165,806.00) - (11,165,806.00) Allowance for consolidated financial statements (31,931,326.25) - - - Other current liabilities 155,744,834.49 (4,915,357.97) 130,426,689.53 39,870,672.40 Net Cash Provided by (used in) Operating Activities 111,597,304.48 (83,656,219.66) 170,825,315.57 72,001,791.06 See notes to financial statements (Amounts in Baht) CONSOLIDATED THE COMPANY 1998 1997 1998 1997 CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES Increase in short-term loans to related parties (9,528,523.70) - (198,534,192.69) - Decrease in short-term investment 9,252,924.74 555,120,742.75 9,279,024.74 555,031,642.75 (Increase) decrease in investments 246,881,671.08 (227,110,574.67) 234,351,221.40 (209,061,251.85) Cash payment on purchase of fixed assets (11,896,129.45) (227,848,361.63) (55,448,844.49) (163,234,226.76) Cash from sale of fixed assets 11,778,537.41 9,527,240.65 3,422,037.08 11,150,691.67 (Increase) decrease in condominiums (5,591,394.51) 33,016,244.54 (5,591,394.51) 33,016,244.54 Decrease in advance payments on condominium 24,765,419.38 5,117,106.62 24,765,419.38 5,117,106.62 Dividend received - 11,165,806.00 - 11,165,806.00 (Increase) decrease in other assets (3,184,590.88) 29,151,424.97 (13,199,368.78) 2,100,151.80 Net Cash Provided by (Used in) Investing Activities 262,477,914.07 188,139,629.23 (956,097.87) 245,286,164.77 CASH FLOW PROVIDED BY (USED IN) FINANCING ACTIVITIES (Increase) decrease in notes receivable - finance institutes (2,014,909.24) 1,135,938,247.97 - 1,042,000,000.00 Decrease in bank overdrafts and loans from bank (170,787,091.49) (717,662,722.27) (41,068,721.20) (836,764,224.76) Increase in long-term loans 20,250,000.00 91,176,935.00 - 29,176,935.00 (Increase) decrease in loans to related parties 649,127,269.52 (600,000,000.00) 684,127,269.52 (600,000,000.00) Increase (decrease) in other liabilities (189,388.00) 38,091,723.45 309,362.00 38,836,572.85 Decrease in minority interests (35,047,562.44) (64,959,893.89) - - Net Cash Provided by (Used in) Financing Activities 461,338,318.35 (117,415,709.74) 643,367,910.32 (326,750,716.91) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 835,413,536.90 (12,932,300.17) 813,237,128.02 (9,462,761.08) CASH AND CASH EQUIVALENTS AS AT BEGINNING OF YEAR (Notes 4 and 6) 43,409,119.04 56,341,419.21 42,400,691.97 51,863,453.05 CASH AT BANK PLEDGED AS COLLATERALS AT BEGINNING OF YEAR (Note 6) - - - - CASH AT BANK PLEDGED AS COLLATERALS AT END OF YEAR (Note 6) (84,030,166.50) - (84,030,166.50) - CASH AND CASH EQUIVALENTS AS AT END OF YEAR (Notes 4 and 6) 794,792,489.44 43,409,119.04 771,607,653.49 42,400,691.97 SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION: Cash paid during the year Interest expense 240,806,767.84 376,387,002.89 224,474,821.62 343,997,082.76 Income tax 129,053,933.10 140,816,547.15 128,870,481.49 140,733,095.52 See notes to financial statements SINO-THAI ENGINEERING AND CONSTRUCTION PUBLIC COMPANY LIMITED AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 NOTE 1 - ECONOMIC ENVIRONMENT AND BASIS OF PRESENTATION Since July 1997, certain Asia Pacific countries, including Thailand, have experienced economic difficulties relating to currency devaluation and slowdown in growth. Accordingly, the Thai government sought assistance from the International Monetary Fund to alleviate the economic crisis and improve the economy over time. The financial statements of Sino-Thai Engineering and Construction Public Company Limited ("the Company") and subsidiaries for the years ended December 31, 1998 and 1997 and the separate financial statements for the same periods have been presented on a going concern basis and in conformity with generally accepted accounting principles practiced in Thailand applied on a basis consistent and reflect the management's current assessment of the possible impact of this economic situation on the financial position of the Company and its subsidiaries. The operations of the Company and subsidiaries since July 1997 have been affected and may continue to be influenced for the foreseeable future by the economic conditions in Thailand and the Asia Pacific Region in general. The ultimate effect that these uncertainties will have on stated values or classifications of assets and liabilities at the balance sheet date cannot presently be determined. The consolidated financial statements of the Company and subsidiaries for the years ended December 31, 1998 and 1997 and the separate financial statements for each of the years then ended, therefore, may not necessarily include all adjustments that might ultimately result from these economic conditions due to such adjustments being both uncertain and unquantifiable. The significant effect of currency devaluation, as mentioned above, has caused the Company's financial ratios to be not in accordance with conditions of a loan contract. Accordingly, the lender had a right to call in debts immediately as at August 20, 1998, and on September 4, 1998, the lender announced the call of such debt. The Company has appointed a financial consultant to produce a financial restructuring plan. Whilst the management and the financial consultant are producing a financial restructuring plan, there is no guarantee for a success. Such planning may include the extension to repay loan principle for several years and to pay interest at a lower rate. NOTE 2 - BASIS OF CONSOLIDATION 2.1 Basis of Consolidated Financial Statements The consolidated financial statements of Sino-Thai Engineering and Construction Public Company Limited and subsidiaries are prepared in accordance with generally accepted accounting principles practiced in Thailand, the regulations of the Office of the Securities and Exchange Commission and the Stock Exchange of Thailand. 2.2 Principles for Preparation of Consolidated Financial Statements The consolidated financial statements for the year ended December, 1998 and 1997 consist of the financial statements of Sino-Thai Engineering and Construction Public Company Limited and the financial statements of subsidiaries and subsidiaries of subsidiaries as follows: Percentage of Consolidated Consolidated Percentage of shares holding total assets total revenue 1998 1997 1998 1997 1998 1997 Subsidiaries held by the Company Sino-Thai Construction Services Company Limited 99.99 99.99 7.15 8.18 7.60 10.30 Sino-Thai Resources Development Public Company Limited 51.16 51.16 6.10 5.96 1.43 0.48 Subsidiaries of subsidiaries held indirectly (held by Sino-Thai Resources Development Public Company Limited) Siam Dimension Stone Company Limited 35.81 35.81 The financial statements for the years ended December 31, 1998 and 1997 of Siam Dimension Stone Company Limited in which Sino-Thai Resources Development Public Company Limited holds 70% shares are included in consolidation as the parent company can exercise influence over such company's operating and financial policies. All significant intercompany transactions and accounts are eliminated in preparing the consolidated financial statements. 2.3 The Excess of Book Value Over Cost of Investment and the Excess of Cost Over Book Value of Investment The excess of book value over cost of investment at acquisition was fully amortized on that date and reflected in the consolidated retained earnings. The excess of cost over book value of investment at acquisition is amortized by the straight-line method over a period of 10 years. NOTE 3 - THE SUBSIDIARY'S OPERATION The subsidiary's Board of Directors resolved to cease the tin mining operation since August 19, 1993 due to the continuous world tin market recession and tin ore price was lower than the production cost. The Company's Executive Committee, held on February 23, 1998, resolved to cease its operations due to the economic's effect foreseeable future in Thailand and the Asia Pacific Region and accordingly, the Company realize loss from its operation. The subsidiary entered into lease agreement for 2 limestone mining rights No. 27951/14713 and 27952/14724 at Tambon Lamphayaklang, Amphur Mouklek, Saraburi Province with Siam Dimension Stone Company Limited in order to operate the planned construction stone mining project. The subsidiary will be responsible for all of mining expenses when mining operation starts. The subsidiary had entered into an agreement with Thai Mineral Industry Consultants Company Limited to do the feasibility study of the construction stone mining project by which the geological study was already done. The 2 mining rights were classified as the class 1A basin according to the resolution passed by the Cabinet on February 21, 1995 which prohibits the stone mining operation. However, Siam Dimension Stone Company Limited can operate limestone mining until the expiration of the mining rights due to such company was granted mining rights before the Cabinet passed the resolution. Siam Dimension Stone Company Limited asked the Department of Mineral Resources for the permission to mine other construction stones according to the present mining rights for which permission was granted by the letter dated November 26, 1996 and also asked for the separation of the mining rights area from the class 1A basin area which is still under the consideration. The subsidiary has been informed by a letter from the Stock Exchange of Thailand reference No. Bor Jor/Mor 1921/2540 dated December 17, 1997, of its suspension from trading because of the decline in value of its assets and because it has ceased its main operations. The Company is presently working on its rehabilitation plan. On April 8, 1998, the Company made a contract with one financial institute to be a financial consultant and work on the rehabilitation plan due to its suspension from trading. (More)