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SANSIRI PUBLIC COMPANY LIMITED AND SUBSIDIARIES STATEMENTS OF CHANGE IN SHAREHOLDERS' EQUITY FOR THE NINE - MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED) (Amounts in Thousand Baht) Consolidated The Company 1998 1997 1998 1997 Share capital Ordinary share capital Beginning balance 645,500 645,500 645,500 645,500 Addition (deduction) during the periods 51,875 - 51,875 - Ending balance 697,375 645,500 697,375 645,500 Premium on share capital Premium on share capital Beginning balance 987,863 987,863 987,863 987,863 Addition (deduction) during the periods - - - - Ending balance 987,863 987,863 987,863 987,863 Surplus on land revaluation Beginning balance 641,220 - - - Addition (Deduction) during the periods - - - - Ending balance 641,220 - - - Retained earnings (Deficit) Appropriated - legal reserve Beginning balance 11,280 11,280 11,280 11,280 Addition (deduction) during the periods - - - - Ending balance 11,280 11,280 11,280 11,280 Unappropriated Beginning balance (85,679) 99,968 (85,679) 99,968 Addition (Deduction) during the periods - net profit (loss) (1,443,814) 1,297 (1,443,814) 1,297 Ending balance (1,529,493) 101,265 (1,529,493) 101,265 Equity in parent company held by subsidiaries Beginning balance (3,076) (4,406) - - Addition during the periods (1,262) (203) - - Ending balance (4,338) (4,609) - - Total shareholders' equity 803,907 1,741,299 167,025 1,745,908 See notes to fisnancial statements SANSIRI PUBLIC COMPANY LIMITED AND SUBSIDIARIES STATEMENTS OF CASH FLOWS FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED SEPTEMBER 30,1998 (UNAUDITED) (Amounts in Thousand Baht) Consolidated The Company For the periods For the periods three-month nine-month three-month nine-month CASH FLOWS FROM OPERATING ACTIVITIES Net loss (610,468) (1,443,814) (610,468) (1,443,814) Adjustments to reconcile net loss to net cash provided by (used in) operating activities : Depreciation and amortization 23,504 181,551 9,949 135,234 Allowance for doubtful account 2,235 5,767 - - Allowance for devaluation of investments 2,539 4,979 - - Allowance for devaluation of property development 31,360 66,315 (13,156) 8,697 Leasehold revenue amortization (7,980) (23,939) - - Loss (gain) on exchange rate 86 (2,491) 86 (2,491) Gain on disposal of assets (2,856) (2,872) (599) (608) Loss on asset transfer in settlement of debts 340,548 502,871 244,516 406,839 Share of net loss in subsidiaries - - 328,056 419,615 DECREASE (INCREASE) IN OPERATING ASSETS : Account, note receivables and unbilled completed work 246,001 206,983 36,087 122,822 Property development for sales 209,078 1,511,486 82,903 1,182,862 Advance payment for construction 6,979 (2,067) 5,082 7,376 Other current assets (23,845) (30,261) (68,867) (75,750) Other assets 10,310 (91,368) (1,048) (79,557) INCREASE (DECREASE) IN OPERATING LIABILITIES : Account payables - construction (16,458) 28,498 (6,229) (6,746) Construction retention (5,993) (2,554) (2,035) (2,375) Advance received from customers and unearned income (4,559) (86,895) (2,201) (63,503) Other current liabilities (55,423) 106,275 (63,065) 23,215 Other liabilities (490) 4,156 (891) 31,022 Net cash provided by operating activities 144,568 932,620 (61,880) 662,838 See notes to financial statements (Amounts in Thousand Baht) Consolidated The Company For the periods For the periods three-month nine-month three-month nine-month CASH FLOWS FROM INVESTING ACTIVITIES : Decrease ( increase) in short term investments - others (1,017) (1,004) 2,605 2,605 Decrease in loans to related parties - - 48,122 31,722 Increase in investments in related parties - - (1,000) (1,000) Decrease (Increase) in property development for rent 3,971 (37,040) - (288) Decrease in equipment 4,400 4,213 2,712 2,628 Net cash from investing activities 7,354 (33,831) 52,439 35,667 CASH FLOWS FROM FINANCING ACTIVITIES : Decrease in loans from finance institutions (60,615) (74,513) (102,000) (115,899) Cash received from increased share capital 22,595 51,875 22,595 51,875 Increase (Decrease) in long - term debts (203,201) (963,271) 49,326 (713,327) Decrease in minority interest (1) (11) - - - Decrease in equity in parent company held by subsidiaries (951) (1,262) - - Net cash used in financing activities (242,173) (987,182) (30,079) (777,351) Net decrease in cash and cash equivalent (90,251) (88,393) (39,520) (78,846) Cash and cash equivalent at beginning of periods 33,175 31,317 (4,000) 35,326 Cash and cash equivalent as at September 30, 1998 (57,076) (57,076) (43,520) (43,520) Less cash and cash equivalent with commitment (3,482) (3,482) (1,970) (1,970) Cash and cash equivalent as at September 30, 1998 (60,558) (60,558) (45,490) (45,490) SUPPLEMENTARY CASH FLOWS INFORMATION : Cash paid during the periods: Interest expenses 23,522 168,988 6,661 103,385 Income taxes - - - - See notes to financial statements SANSIRI PUBLIC COMPANY LIMITED AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1998 AND 1997 (UNAUDITED) NOTE 1 - ECONOMIC ENVIRONMENT AND BASIS OF PRESENTATION As from the second half of 1997, certain Asia Pacific countries, including Thailand, have been experiencing 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 Sansiri Public Company Limited and subsidiaries reflect the assessment of the possible impact of this economic situation on the financial positions of the companies. In addition, the ultimate effect on the Company's financial position of these uncertainties can not presently be determined. The financial statements of Sansiri Public Company Limited and subsidiaries for the nine-month period ended September 30,1998 have been presented on a going concern basis. The companies' ability to continue business as going concerns depends on the success of improvement plans being implemented to increase revenues, to reduce costs and to negotiate the extension for repayment of debts and restructuring debts, etc. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or classification of liabilities that might be necessary if the companies were not successful in implementing the improvement plans. NOTE 2 - RELATED PARTIES TRANSACTIONS The Company has significant transactions with its related parties. The financial statements reflect the effects of these transactions on the basis determined by the companies concerned. The following significant transactions occurred between the Company and related parties for the nine-month periods ended September 30, 1998 and 1997: (Amounts : Thousand Baht) 1998 1997 Subsidiaries Related companies Subsidiaries Related companies Receivable from service and commission 15,045 3,859 1,465 5,210 Advances 2,508 - 540 - Other receivables 198 - - - Loans to subsidiaries 559,298 - 413,751 - Interest receivable 10,482 - 43,445 - Interest income 64,313 - 14,690 - Revenue from business management 14,435 280 4,599 7,260 Rental income 1,231 - 1,193 - Service expense 660 - - - Cost of projects for sales 455 - - - The Company charges interest to subsidiaries at the rate of 9 - 16% per annum. As at September 30, 1998 loans to subsidiaries resulting from converting interest payable into promissory notes amount to Baht 96.07 million and are without interest. In the third quarter of 1998, Chanachai Co., Ltd, as guarantor, transferred certain rights of condominium and land under development stated at Baht 190.96 million in settlement of the Company's and related parties+ debts amounting to Baht 94.93 million, causing the subsidiary to recognize a loss of Baht 96.03 million. As at September 30, 1998, there are accounts receivable of Baht 3.86 million in the consolidated financial statements and receivables, loans to related parties and interest receivables of Baht 591.39 million in the Company's financial statements, the repayment of which is uncertain. The Company has not set up an allowance for doubtful debt against these amounts as the management believe that the Company will not sustain any loss from these debts. However, the result is still not known. NOTE 3 - BASIS FOR CONSOLIDATION The consolidated financial statements of Sansiri Public Company Limited and subsidiaries are prepared in accordance with generally accepted accounting principles, on a going concern basis and Ministerial Regulation No.7 (B.E. 2539) dated October 25, 1996. The consolidated financial statements for the nine-month period ended September 30, 1998 consisted of the financial statements of the parent company, Sansiri Public Company Limited, and the 99% subsidiary companies held by the parent company which are Chanachai Limited, Sanpinyo Limited, Prakarn Limited, Jainad Limited and Plus Property Management Limited which was acquired in July 1998. The consolidated financial statements for the nine-month period ended September 30, 1997 consisted of the financial statements of the parent company, Sansiri Public Company Limited, and the 99% subsidiary companies held by the parent company which are Chanachai Limited, Sanpinyo Limited, Prakarn Limited and Jainad Limited. The consolidated financial statements for the nine-month period ended September 30, 1998 include the financial statements of Chanachai Limited, which were reviewed by an auditor whose accountants+ review report was subject to the effects on the 1998 financial statements of such adjustments, if any, as might have been required had the outcome of the uncertainty as a going concern of subsidiary, devaluation of property development, land under development and the ability to repay receivables, loan and interest receivables from related parties in the amount of Baht 76.82 million been known, and the financial statements of Jainad Limited which were reviewed by an auditor whose accountants' review report was subject to the effects on the 1998 financial statements of such adjustments, if any, as might have been required had the outcome of the uncertainty as a going concern of subsidiary been known. The financial statements for the nine-month period ended September 30, 1997 of two subsidiary companies, which are Sanpinyo Limited and Prakarn Limited have been prepared on going concern basis which assumes that they will continue in existence. The validity of this assumption is dependent upon the companies+ ability to maintain present financing and the success of future operations. If the companies were unable to continue to existence, adjustments would have to be made to reduce the value of assets to their recoverable amount and to provide for any further liabilities that might arise. The consolidated financial statements for the three-month period ended March 31, 1998 are for the first period that the Company prepared for statement of cash flow then there is no statement of cash flow for the three-month and nine-month periods ended September 30, 1997 are available for comparative purposes. All significant inter company transactions are eliminated in preparing the consolidated financial statements. NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Revenues and Expenses Recognition Revenues and expenses are recognized on an accrual basis. Revenue and cost of construction in progress are recognized on the percentage of completion method which is based on the actual development cost compared to the total estimated development costs, not including cost of land. Deferred leasehold rights is recognized as revenue over the period of lease agreement. Leasehold and development cost is recognized as expenses over the period of lease agreement. Interest income is recognized on the accrual basis, with exception for overdue interest income which is expected to be uncollectable, which is recognized as it is received. Gain (loss) on sale of securities is recognized on the date of sale. Investments in Securities Investments in securities consisted of investments in listed securities, which are current assets, stated at the lower of aggregate cost or market value. Loss on valuation of securities (if any) is included in the statement of income. Investments in other securities are stated at cost. Cost of sales of securities is determined by the moving average method. Allowance for Doubtful Accounts Allowance for doubtful accounts is an estimate of those accounts receivable which are expected to be uncollectable. Cost of Property Development Cost of property development is stated at the lower of cost or net realizable value, and consists of acquisition cost of land and leasehold rights, development expenses and direct expenses of projects including interest expenses during the construction period which arise from loans for land, leasehold rights and development project. Cost of property development is net from cost of sales and expenses. Investments in Related Parties Investments in subsidiaries are accounted for by the equity method. Deficit on investments is presented as other liability. Investment in related company is stated at cost, net of allowance for devaluation. (More)