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(Translation) Auditors Report To the Shareholders of Thanulux Public Company Limited and Subsidiaries I have audited the consolidated balance sheet as of December 31, 1998 and 1997, and the related consolidated statements of income, retained earnings,changes in shareholders equity and cash flows for the years then ended of Thanulux Public Company Limited and Subsidiaries, including the financial statements of Thanulux Public Company Limited. These financial statements are the responsibility of the Companys management. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with International Standards on Auditing. Those Standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for my opinion. In my opinion, the aforementioned financial statements present fairly, in all material respects, the financial position of Thanulux Public Company Limited and Subsidiaries and the financial position of Thanulux Public Company Limited as of December 31, 1998 and 1997 and the results of their operations, changes in shareholders' equity and their cash flows for the years then ended in accordance with generally accepted accounting principles. (Mr. Natee Sangudomlert) Certified Public Accountant auditors No. 300 Bangkok February 24, 1999 Thanulux Public Company Limited and Subsidiaries Notes to The Consolidated Financial Statements December 31, 1998 and 1997 ------------------------------------------------------------------------------------------------------------------ 1. Principles of Consolidated Financial Statements The companys financial statements include those of Thanulux Public Company Limiteds ended December 31, 1998. Related transactions have been eliminated from the consolidated financial statements. One subsidiary is Thanulux Kabinburi Company Limited of which the Company holds 99.99% of the paid-up capital. Minority shareholders equity in subsidiaries consists of the percentage of their ownership and corresponding operating income. 2. Basis of Consolidated Financial Statements Part of the companys assets, liabilities, income and expenses includes those of subsidiaries and associated companies. Therefore, these financial statements show the results of the mentioned balances in accordance with policy of setting the usual business price by all such companies. 3. Significant Accounting Policies 3.1 Recognition of revenues The company recognizes sales revenues when the products are delivered to the customers. 3.2 Fixed assets Fixed assets are stated at cost less depreciation. Depreciation is calculated by the straight-line method at the highest rate allowed by law (except for land which shows no depreciation) As for the subsidiaries assets obtained since October 1, 1996, depreciation is calculated at 10% per year. Buildings and construction have depreciation 5% per year. 3.3 Inventories Finished goods and raw materials are estimated at the lower average cost or net realized value. Work in process is stated at cost. 3.4 Other supplies Other supplies are stated at cost. 3.5 Investments in common shares of subsidiaries and other companies Investments in common shares of subsidiaries and other companies are stated as follows: - Marketable securities are stated at the lower of aggregate cost or market value. The market values are the latest closing prices on the Stock Exchange of Thailand for the year. - Unlisted securities are stated at cost. Investments in subsidiaries and associated companies are booked under the equity method. Gains and losses on sales of securities use the average method. 3.6 Accounts in foreign currencies Transactions in foreign currencies are translated into Baht at the exchange rate on the dates of the transactions. Assets and liabilities denominated in foreign currencies at the end of the year are translated into Baht at the average exchange rate on the last day of the accounting year. Exchange gains or losses arising from transactions are included in the income statements. 3.7 Provision for possible loan losses The provision for possible loan losses is based on the analysis of outstanding loans according to the companys experience. 3.8 Deferred charges Subsidiaries deferred charges which are in respect of computer programs and capital increase fees are amortised for a five-year period. The pre-operation deferred charge of subsidiaries will be amortised on the date when the company has revenue. 3.9 Goodwill from investments in associated companies Goodwill from investments in associated companies is amortised for a ten-year period. 4. Trade Accounts and Notes Receivable consist of (Unit : Baht 1,000) Consolidated The company only 1998 1997 1998 1997 Accounts receivable 192,043 166,518 196,047 165,723 Notes receivable __-___ 10,379 __-___ 10,379 Total 192,043 176,897 196,047 176,102 Less allowance for doubtful accounts 11,592 830 11,592 830 Total 180,451 176,067 184,455 175,272 5. Short-term Loans Consolidated Related parties Amount Amount Policy for setting the (This year) (Last year) cost of borrowing Loan receivable Related companies Thai Cest Bien Co. Ltd. - 29,903,400.00 Cost of borrowing Ramasorn Thaveekarn Co., Ltd. 137,500,000.00 166,663,880.00 interest rate plus 1-2% Total 137,500,000.00 196,567,280.00 The company has loaned a sum of Baht 137.5 million to 1 company at the interest rate per year of 13.50%, without guarantee. The company only Related parties Amount Amount Policy for setting the (This year) (Last year) cost of borrowing Loan receivable Subsidiaries Thanulux Kabinburi Co., Ltd. 65,434,692.50 60,611,933.60 Cost of borrowing interest rate plus 1-2% Related companies Thai Cest Bien Co., Ltd. - 29,903,400.00 " Ramasorn Thaveekarn Co., Ltd. 137,500,000.00 166,663,880.00 " Total 202,934,692.50 257,179,213.60 The company has loaned a sum of Baht 202.93 million to 2 companies at the interest rate per year of 13.50%, without guarantee. 6. Inventories consist of (Unit : Baht 1,000) Consolidated The company only 1998 1997 1998 1997 Raw materials 113,451 104,863 108,800 101,668 Work in process 54,032 38,325 49,594 35,474 Finished products 47,414 36,848 46,650 36,745 Goods in transit 59 __-___ 59 ___-__ Total 214,956 180,036 205,103 173,887 7. Investments Consolidated As of December 31, 1998 the company possessed 8 marketable securities worth Baht 25,448,526.90 (market value Baht 33,828,318.80) and 41 unlisted securities worth Baht 157,642,119.77 (this value has included allowance for loss on investment amounting Baht 1,050,000.00), loss on investment by equity method worth Baht 8,944,179.88. Of the latter, there are 3 companies that do not require fully pay for their sales share values amounting Baht 1,800,000.00. Investments-Related parties Consolidated 1998 (Unit : 1,000) Company Name Type of Business Relationship Paid-up % of Investment Dividend Market price Share capital Investment Cost method Equity method As of Dec. 31 Associated companies Puning Xie Zhong Garment Co.,Ltd. Garment Co-Director US$ 2,400 33.33 24,242 14,087 - - International Commercial Apparel Co-Director HK$ 1,000 20.00 663 1,874 147 - Coordination (Hong Kong) Ltd. Related companies P.T. Mesapro International Garment and Co-Director US$ 800 19.00 3,817 - - - Leatherware Thai Hamilton Co. Ltd. Garment Co-Director 20,000 19.00 12,104 - 250 - Thai Monster Co., Ltd. Garment Co-Director 20,000 19.00 5,566 - 420 - Total Way Image Co., Ltd. Leatherware Co-Director 20,000 19.00 7,132 - 1,050 - International Leather Fashion Leatherware Co-Director 50,000 15.00 7,500 - - - Corp., Ltd. Thai Mitsuboshi Co., Ltd. Garment Co-Director 20,000 15.00 3,000 - 945 - Champ Ace Co., Ltd. Garment Co-Director 40,000 15.00 6,000 - 900 - Peoples Garment Public Co., Ltd . Garment Co-Director 72,000 13.78 9,920 - - 9,526 Thai Takaya Co., Ltd. Jeans Co-Director 30,000 11.00 3,300 - 215 - Thai Poron Co., Ltd. Garment Co-Director 20,000 10.00 2,000 - - - Ascot International Co., Ltd. Knitwear Co-Shareholder 21,000 7.62 1,600 - - - Grand Star Industry Co., Ltd. Cloth Co-Shareholder 20,000 7.50 1,500 - 375 - Belle Maison (Thailand) Co., Ltd. Direct Sale Co-Shareholder 20,000 7.00 * 1,400 - - - SSDC (Tigertex) Co., Ltd. Dyeing Co-Shareholder 875,000 5.48 19,597 - - - Woven Fabric Sunrise Garment Co., Ltd. Garment Co-Shareholder 6,500 5.38 385 - - - Thai Le Jour Co., Ltd. Garment Co-Shareholder 20,000 5.00 1,000 - - - Saha Info Technology Co., Ltd. Information Co-Shareholder 10,000 5.00 * 250 - 50 - Technology Thai Staflex Co., Ltd. Powernet Co-Shareholder 60,000 4.00 2,400 - - - Thai Gunze Co., Ltd. Garment Co-Shareholder 180,000 4.00 7,200 - 1,080 - Thai Nakamura Label Co., Ltd. Label Co-Shareholder 30,000 4.00 1,200 - - - Treasure Hill Co., Ltd. Golf Course Co-Shareholder 200,000 4.00 6,300 - - - Value Added Textile Co., Ltd. Embroidery Co-Shareholder 50,000 3.00 1,500 - - - Thai Shikibo Co., Ltd. Cotton Yarn Co-Shareholder 187,500 3.00 5,625 - - - Sahapat Realestate Co., Ltd. Land Development Co-Shareholder 500,000 2.50 12,500 - - - Thai Janome Co., Ltd. Sewing Machine Co-Shareholder 88,000 2.00 1,760 - 238 - Sahapat Properties Co., Ltd. Land Development Co-Shareholder 20,000 1.00 200 - - - Thai Itokin Co., Ltd. Garment Co-Director 100,000 1.00 1,411 - - - I.C.C. International Public Co., Ltd Cosmetics and Co-Director 290,634 0.99 13,214 - 263 20,626 Apparel Racha Uchino Co., Ltd. Cotton Towels Co-Director 81,000 0.49 163 - - - Far East Advertising Public Co., Ltd. Advertising Co-Shareholder 25,000 0.35 505 - 4 690 Textile Prestige Public Co., Ltd. Embroidery Lace Co-Shareholder 108,000 0.35 285 - - 513 O.C.C. Public Co., Ltd. Consumer Products Co-Shareholder 60,000 0.13 41 - - 74 Saha Pathana Inter-Holding Investment Co-Director 494,034 0.08 724 - - 760 Public Co., Ltd. Sahapathanapibul Public Co., Ltd. Consumer Products Co-Shareholder275,875 0.07 495 - - 740 Total 116,499 15,961 5,937 32,929 During 1998, the company get revenue from investment by equity method amounting Baht 1,755,588.63. Consolidated 1997 (Unit : 1,000) Company Name Type of Business Relationship Paid-up % of Investment Dividend Market price Share capital Investment Cost method Equity method As of Dec. 31 Subsidiary company Kunming Shenjian Fashion Garment and Co-Director US$ 500 90.00 ** 11,445 - - - Dress Co., Ltd. Leatherware Associated companies Puning Xie Zhong Garment Co., Ltd. Garment Co-Director US$ 2,400 33.33 24,242 18,340 - - Thai Hamilton Co. Ltd. Garment Co-Director 20,000 25.00 7,424 10,940 250 - Thai Monster Co., Ltd. Garment Co-Director 20,000 21.00 4,677 6,116 840 - Total Way Image Co., Ltd. Leatherware Co-Director 20,000 21.00 4,344 7,935 1,470 - International Commercial Apparel Co-Director HK$ 1,000 20.00 663 2,702 - - Coordination (Hong Kong) Ltd. Related companies P.T. Mesapro International Garment and Co-Director US$ 800 19.00 3,817 - - - Leatherware Thai Cest Bien Co., Ltd. Fashion Accessory Co-Director 35,000 18.00 * 6,300 - - - International Leather Fashion Leatherware Co-Director 50,000 15.00 7,500 - 1,125 - Corp., Ltd. Thai Mitsuboshi Co., Ltd. Garment Co-Director 20,000 15.00 3,000 - - - Champ Ace Co., Ltd. Garment Co-Director 40,000 15.00 6,000 - - - Thai Hishiya Co., Ltd. Necktie Co-Director 6,000 15.00 * 630 - - - Peoples Garment Public Co., Ltd. Garment Co-Director 72,000 13.75 9,900 - 1,386 5,544 Thai Takaya Co., Ltd. Jeans Co-Director 30,000 11.00 3,300 - 330 - Thai Poron Co., Ltd. Garment Co-Director 20,000 10.00 2,000 - - - Ascot International Co., Ltd. Knitwear Co-Shareholder 21,000 7.62 1,600 - - - Grand Star Industry Co., Ltd. Cloth Co-Shareholder 20,000 7.50 1,500 - 180 - Belle Maison (Thailand) Co., Ltd. Direct Sale Co-Shareholder 20,000 7.00 * 1,400 - - - Sunrise Garment Co., Ltd. Garment Co-Shareholder 20,000 7.00 1,435 - - - Thai Le Jour Co., Ltd. Garment Co-Shareholder 20,000 5.00 1,000 - - - Saha Info Technology Co., Ltd. Information Co-Shareholder 10,000 5.00 * 250 - - - Technology Thai Staflex Co., Ltd. Powernet Co-Shareholder 60,000 4.00 2,400 - - - Thai Gunze Co., Ltd. Garment Co-Shareholder 180,000 4.00 7,200 - - - Thai Nakamura Label Co., Ltd. Label Co-Shareholder 30,000 4.00 1,200 - - - Value Added Textile Co., Ltd. Embroidery Co-Shareholder 50,000 3.00 1,500 - - - Thai Shikibo Co., Ltd. Cotton Yarn Co-Shareholder 187,500 3.00 5,625 - - - Sahapat Realestate Co., Ltd. Land DevelopmentCo-Shareholder2,000,000 2.50 * 12,500 - 375 - Treasure Hill Co., Ltd. Golf Course Co-Shareholder 200,000 2.00 4,000 - - - Thai Janome Co., Ltd. Sewing Machine Co-Shareholder 88,000 2.00 1,760 - 211 - Siam Shikibo Dyeing Co., Ltd. Dyeing Co-Shareholder 375,000 2.00 7,500 - - - Woven Fabric Sahapat Properties Co., Ltd. Land Development Co-Shareholder 20,000 1.00 200 - - - I.C.C. International Public Co., Ltd. Cosmetics and Co-Director 147,076 0.89 7,793 - 658 5,264 Apparel Saha Pathana Inter-Holding Investment Co-Director 494,034 0.09 2,090 - 87 1,311 Public Co., Ltd. Far East Advertising Public Co., Ltd. Advertising Co-Shareholder 25,000 0.04 202 - 12 66 Boutique Newcity Public Co., Ltd. Apparel Co-Shareholder 120,000 0.02 124 - 2 7 Total 156,519 46,033 6,926 12,192 (more)