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(Translation) Auditor's Report To the Shareholders of Thanulux Public Company Limited and Subsidiaries I have audited the consolidated balance sheet as of December 31, 1999 and 1998, 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 Company's 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, Thanulux Public Company Limited and Subsidiaries as of December 31, 1999 and 1998 and the results of operations, changes in shareholders' equity and cash flows for the years then ended in accordance with generally accepted accounting principles. As mentioned in "Note to The Financial Statements No 21st", the company had changed the accounting principle for evaluation of long term investment for securities for trading from "The Lower of aggregate cost or market value." to "Fair value" in accordance with "Thai accounting standards" chapter 40th accounting for investment in debt and equity securities. The result of the new accounting principle, the company gained Baht 19.72 million from adjusting the asset value which showed in the shareholders' equity of the financial statement as of December 31, 1999. The company recorded the impairment of assets which followed "Thai accounting standards" chapter 36th "The impairment of assets" The consolidated and The company only got lost Baht 17.74 million and 17.73 million, respectively from the impairment of assets, as of December 31, 1999. (Mr. Natee Sangudomlert) Certified Public Accountant auditors No. 300 Bangkok February 26, 2000 Thanulux Public Company Limited and Subsidiaries Notes to The Consolidated Financial Statements December 31, 1999 and 1998 --------------------------------------------------------------------------------------- 1. Principles of Consolidated Financial Statements The company's financial statements include those of Thanulux Public Company Limited's ended December 31, 1999. 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 company's 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 deprecialion 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 are long term investment which classified as follows - Marketable securities are the securities for trading which show fair value. The company acknowledges the altered value to be the seperated item of shareholders' equity and will record in the financial statements, when the company sells the securities. - The investment of unlisted securities are general securities which show the cost value. - The cost of disposed investments are average cost. - Investments in subsidiaries and associated companies are booked under the equity 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 company's experience. 3.8 Deferred charges, consist of deferred computer programs, defer within 3 years. 3.9 Allowance for loss from impairment of assets, consider the identification which persuade to believe to be impairment of assets by the difference of the refolded estimated value which is lower than the book value of the assets. 4. Fixed Deposit The company had Baht 165.0 million in 2 commercial banks with interest rate of 4.25-4.75% per year. 5. Trade Accounts and Notes Receivable consist of Consolidated The company only 1999 1998 1999 1998 Accounts receivable 241,785 192,043 242,158 196,047 Less allowance for doubtful accounts 5,538 11,592 5,538 11,592 Total 236,247 180,451 236,602 184,455 The company has 62 domestic and export customers which are separated according to the age of accounts receivable. Consolidated The company only 1999 1999 Within credit term 212,997 213,370 Over due 1 - 3 months 20,142 20,142 Over due 3 - 6 months 1,538 1,538 Over due 6 12 months 2,686 2,686 Over due more than 12 months 4,422 4,422 Total 241,785 242,158 The company has made Baht 5.54 million of allowance for doubtful account. 6. Short-term Loans Consolidated Related parties Amount Amount Policy for setting the (This year) (Last year) cost of borrowing Loan receivable Related companies Ramasorn Thaveekarn Co., Ltd. 87,000,000.00 137,500,000.00 interest rate plus 1-2% Total 87,000,000.00 137,500,000.00 Cost of borrowing 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. 58,500,000.00 65,434,692.50 Cost of borrowing interest rate plus 1-2% Related companies Ramasorn Thaveekarn Co., Ltd. 87,000,000.00 137,500,000.00 " Total 145,500,000.00 202,934,692.50 The company has loaned a sum of Baht 145.5 million to 2 companies at the interest rate per year of 10.0%, without guarantee. 7. Inventories consist of Consolidated The company only 1999 1998 1999 1998 Raw materials 89,819 113,451 83,906 108,800 Work in process 67,768 54,032 62,109 49,594 Finished products 34,321 47,414 34,307 46,650 Goods in transit 466 59 466 59 Total 192,374 214,956 180,788 205,103 8. Investments in Securities Consolidated As of December 31, 1999 consists of 9 marketable securities which were securities for trading = Baht 59,736,826.00 (The cost was Baht 40,021,660.77) and another 43 unlisted securities investment, were general investment, amount Baht 146,948,292.91 (this amount had deducted allowance for loss from investment amount Baht 1,950,000.00), got loss from impairment of assets = Baht 17,743,162.85 There were 3 companies which had not fully paid capital as the amoun t of Baht 1,100,000.00. Investments-Related parties Consolidated 1999 (Unit : 1,000) Company Name Type of Relationship Paid-up % of Investment Dividend Market Business Share capital Investment Cost method Equity method price As of Dec.31 - Securities for trading Related companies People's Garment Public Co., Ltd. Garment Co-Director 72,000 13.78 9,920 - 1,191 18,853 I.C.C. International Public Co., Ltd.Cosmetics and Co-Director 290,634 0.99 13,214 - 1,003 20,196 Apparel Thai Wacoal Public Co., Ltd. Ladies's Lingerie Co-Director 120,000 0.93 8,461 - - 9,324 Far East Advertising Public Co. Ltd. Advertising Co-Shareholder 25,000 0.35 505 - 78 819 Textile Prestige Public Co., Ltd. Embroidery Lace Co-Shareholder 108,000 0.35 285 - 57 856 Saha Pathana Inter-Holding Public Investment Co-Director 494,034 0.33 6,836 - 40 8,150 Co., Ltd. Sahapathanapibul Public Co., Ltd. Consumer Products Co-Shareholder 275,875 0.07 495 - 40 865 Total 39,757 - 2,409 59,167 Add Unrealized gain for marketable securities 19,410 - - - Total securities for trading 59,167 - 2,409 59,167 - General investments P.T. Mesapro International Garment and Co-Director US$ 800 19 3,817 - - - Leatherware Thai Hamilton Co. Ltd. Garment Co-Director 20,000 19 12,236 - 760 - Thai Monster Co., Ltd. Garment Co-Director 20,000 19 5,549 - 570 - Total Way Image Co., Ltd. Leatherware Co-Director 20,000 19 7,132 - 950 - Thai Nakamura Label Co., Ltd. Label Co-Shareholder 20,000 19 3,800 - - - Puning Xie Zhong Garment Co. Ltd. Garment Co-Director US$ 2,400 18 6,311 - - - International Commercial Apparel Co-Director HK$ 1,000 18 1,302 - - - Coordination (Hong Kong) Ltd. International Leather Fashion Leatherware Co-Director 50,000 18 8,810 - - - Corp., Ltd. Champ Ace Co., Ltd. Garment Co-Director 40,000 15 6,000 - 2,400 - SSDC (Tigertex) Co., Ltd. Dyeing Co-Director 270,000 14.28 42,809 - - - Woven Fabric S.T. G.C. Co., Ltd. Reserch and Co-Director 2,500 13 325 - - - Development Thai Takaya Co., Ltd. Jeans Co-Director 30,000 11 3,300 - 495 - Thai Poron Co., Ltd. Garment Co-Director 20,000 10 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 7.5 1,500 - 375 - Belle Maison (Thailand) Co., Ltd. Direct Sale Co-Shareholder 30,000 7 * 2,100 - - - Thai Le Jour Co., Ltd. Garment Co-Shareholder 20,000 5 1,000 - - - Saha Info Technology Co., Ltd. Information Co-Shareholder 5,000 5 * 250 - - - Technology Thai Shikibo Co., Ltd. Cotton Yarn Co-Shareholder 237,500 4.81 11,425 - - - Thai Staflex Co., Ltd. Powernet Co-Shareholder 60,000 4 2,400 - 60 - Thai Gunze Co., Ltd. Garment Co-Shareholder 180,000 4 7,200 - 810 - Treasure Hill Co., Ltd. Golf Course Co-Shareholder 200,000 4 6,300 - - - Value Added Textile Co., Ltd. Embroidery Co-Shareholder 50,000 3 67 - - - Sunrise Garment Co., Ltd. Garment Co-Shareholder 10,000 3.5 385 - - - Thai Janome Co., Ltd. Sewing Machine Co-Shareholder 88,000 2 1,760 - 405 - Sahapat Properties Co., Ltd. Land Development Co-Shareholder 20,000 1 200 - - - Thai Itokin Co., Ltd. Garment Co-Director 100,000 1 1,411 - - - Racha Uchino Co., Ltd. Cotton Towels Co-Director 81,000 0.49 163 - - - Total general investments 141,152 - 6,285 - Less Loss from impairment of investments 15,435 - - - Total general investments 125,717 - 6,825 - Total investments 184,884 - 9,234 59,167 Consolidated 1998 (Unit : 1,000) Company Name Type of Relationship Paid-up % of Investment Dividend Market Business Share capital Investment Cost method Equity method price As of Dec.31 - Securities for trading Related companies People's Garment Public Co., Ltd. Garment Co-Director 72,000 13.78 9,920 - - 9,526 I.C.C. International Public Co., Ltd. Cosmetics and Co-Director 290,634 0.99 13,214 - 263 20,626 Apparel 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 Public Investment Co-Director 494,034 0.08 724 - - 760 Co., Ltd. Sahapathanapibul Public Co., Ltd. Consumer Products Co-Shareholder 275,875 0.07 495 - - 740 Total securities for trading 25,184 - 267 32,929 - General investments 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 20 663 1,874 147 - Coordination (Hong Kong) Ltd. Related companies P.T. Mesapro International Garment and Co-Director US$ 800 19 3,817 - - - Leatherware Thai Hamilton Co. Ltd. Garment Co-Director 20,000 19 12,104 - 250 - Thai Monster Co., Ltd. Garment Co-Director 20,000 19 5,566 - 420 - Total Way Image Co., Ltd. Leatherware Co-Director 20,000 19 7,132 - 1,050 - International Leather Fashion Leatherware Co-Director 50,000 15 7,500 - - - Corp., Ltd. Thai Mitsuboshi Co., Ltd. Garment Co-Director 20,000 15 3,000 - 945 - Champ Ace Co., Ltd. Garment Co-Director 40,000 15 6,000 - 900 - Thai Takaya Co., Ltd. Jeans Co-Director 30,000 11 3,300 - 215 - Thai Poron Co., Ltd. Garment Co-Director 20,000 10 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 7.5 1,500 - 375 - Belle Maison (Thailand) Co., Ltd. Direct Sale Co-Shareholder 20,000 7 * 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 1,000 - - - Saha Info Technology Co., Ltd. Information Co-Shareholder 5,000 5 * 250 - 50 - Technology Thai Staflex Co., Ltd. Powernet Co-Shareholder 60,000 4 2,400 - - - Thai Gunze Co., Ltd. Garment Co-Shareholder 180,000 4 7,200 - 1,080 - Thai Nakamura Label Co., Ltd. Label Co-Shareholder 30,000 4 1,200 - - - Treasure Hill Co., Ltd. Golf Course Co-Shareholder 200,000 4 6,300 - - - Value Added Textile Co., Ltd. Embroidery Co-Shareholder 50,000 3 1,500 - - - Thai Shikibo Co., Ltd. Cotton Yarn Co-Shareholder 187,500 3 5,625 - - - Sahapat Realestate Co., Ltd. Land Development Co-Shareholder 500,000 2.5 12,500 - - - Thai Janome Co., Ltd. Sewing Machine Co-Shareholder 88,000 2 1,760 - 238 - Sahapat Properties Co., Ltd. Land Development Co-Shareholder 20,000 1 200 - - - Thai Itokin Co., Ltd. Garment Co-Director 100,000 1 1,411 - - - Racha Uchino Co., Ltd. Cotton Towels Co-Director 81,000 0.49 163 - - - Total general investments 141,315 15,961 5,670 - Total investments 166,499 15,961 5,937 32,929 The companies do not require fully pay for their sales share values. Investments-Others - General investments comprise : Limited Companies 1999 1998 % of Investment % of Investment Investment Investment 1. Thai Pleats 12.50 1,000,000.00 12.50 1,000,000.00 2. Make Up Technique Institute 12.00 60.00 - - 3. Builton (Thailand) 10.00 * 250,000.00 10.00 * 250,000.00 4. Miwaki SDN. BHD. 10.00 368,900.00 10.00 368,900.00 5. Pan Asia Leather 10.00 10,000.00 5.00 5,000,000.00 6. Osoth Inter Laboratories 3.13 88,125.00 - - 7. H & B Intertex 5.00 2,000.00 - - 8. The International Knitting Mills 3.75 1,500,000.00 3.75 1,500,000.00 9. Eastern Rubber 2.50 450,300.00 1.50 450,000.00 10. Sunlots Enterprise 2.19 3,500.00 3.50 3,500,000.00 11. Khonkaen Vithes Suksa 1.67 1,000,000.00 1.67 1, 000,000.00 12. Thanara 1.25 750.00 1.25 750,000.00 13. Adventage Footwear 0.63 2,312.50 0.75 1,387,500.00 14. Sigma Holding 0.46 120,000.00 0.46 120,000.00 15. Praram 9 Hospital 0.25 1,000,000.00 0.25 1,000,000.00 Total investments 5,795,947.50 16,326,400.00 Less loss from impairment of investments 2,308,085.00 - . Total general investments 3,487,862.50 16,326,400.00 Total investments-Others 4,057,862.50 16,591,720.00 Investment in debt securities The company invests Baht 20.0 million in five year period debenture with gradually matured condition which redeem on November 15, 2004. The interest rate will be, fix at 9.5% per year for the first through third year, and "MLR" of Siam Commercial Bank Public Company Limited. The company only As of December 31, 1999 consists of 9 marketable securities which were securities for trading = Baht 59,736,826.00 (The cost was Baht 40,021,660.77) and another 39 unlisted securities investment, were general investment, amount Baht 181,863,830.41 (this amount had deducted allowance for loss from investment amount Baht 1,950,000.00), got loss from impairment of assets = Baht 17,726,600.35 and loss sharing from the subsidiaries and the associated amounting Baht 23,221,679.23. There were 3 companies which had not fully paid capital as the amount of Baht 1,100,000.00. Investments-Related parties The company only 1999 (Unit : 1,000) Company Name Type of Relationship Paid-up % of Investment Dividend Market Business Share capital Investment Cost method Equity method price As of Dec.31 - Securities for trading Related companies People's Garment Public Co., Ltd. Garment Co-Director 72,000 13.78 9,920 - 1,191 18,853 (more)