NNUAL FINANCIAL STATEMENTS

See notes to financial statements THANTAWAN INDUSTRY PUBLIC COMPANY LIMITED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 NOTE 1 - ECONOMIC ENVIRONMENT AND BASIS OF PRESENTATION Certain Asia Pacific countries, including Thailand, have experienced economic difficulties since 1997. The accompanying financial statements reflect the assessment, as at December 31, 1998 and 1997 of the possible impact of this economic situation on the financial position of Thantawan Industry Public Company Limited (the Company). The ultimate effect of these uncertainties on the Company's financial position cannot presently be determined. The financial statements have been prepared in accordance with generally accepted accounting principles practiced in Thailand and in compliance with Commerce Ministerial Regulation No. 7 (B.E. 2539) dated October 25, 1996 issued under The Public Company Act B.E. 2535. NOTE 2 - TRANSACTIONS WITH RELATED PARTIES The Company has significant transactions with related parties. The financial statements reflect the effect of these transactions on the basis determined by the companies concerned. Significant transactions occurred between the Company and related parties during 1998 and 1997 as follows: 1998 1997 Baht Baht Advance payments for assets acquisition paid to related party (Note 9) 20,500,000.00 20,500,000.00 Purchase made by the Company to related parties 6,051,161.96 4,391,555.73 Rental and service expenses paid to related parties 3,462,465.19 3,478,439.09 At December 31, 1998 and 1997 the outstanding balances with related parties are as follows: 1998 1997 Baht Baht Account payable - related parties Flower International Company Limited 712,976.21 431,416.87 NOTE 3 - BASIS FOR PREPARATION OF THE STATEMENTS OF CASH FLOWS Cash and Cash Equivalents Cash and cash equivalents shown in the statements of cash flows as at December 31 consisted of the following: 1998 1997 Baht Baht Cash in hand and at banks 71,616,786.29 37,676,512.58 Add Deposits with financial institutions 87,437,115.32 8,151,178.42 Less Bank overdrafts (691,733.54) (4,818,146.13) Cash at banks pledged as collateral (1,000,000.00) (1,000,000.00) Cash and Cash Equivalents 157,362,168.07 40,009,544.87 NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Trade Accounts and Notes Receivable Trade accounts and notes receivable are shown net of allowance for doubtful accounts which is an estimate of those amounts which may prove to be uncollectible based on historical collection experience and a review of the current status of existing receivables. Inventories Inventories are stated at the lower of average cost or net realizable value. Investments Investments in listed securities are stated at the lower of aggregate cost or market. Allowance for reduction in market price due to temporary market fluctuations, if any, is treated as deduction from the shareholder's equity. Losses from permanent decline in value of investment are reflected in the statement of income. Investments in other securities and long-term note receivable-financial institution are stated at cost. Property, Plant and Equipment Property, plant and equipment are stated at cost net of accumulated depreciation. Depreciation and amortization are computed by the straight-line method at the rates of 5% for buildings and 10-20% for equipment. Deferred Charges Deferred charges represent development expenditures for new products in the amount of Baht 2.42 million and are amortized over a period of 5 years from the date revenues from sales of those products are first earned. In addition, deferred charges include expenditures incurred in obtaining a Stock Exchange of Thailand listing in the amount of Baht 6.42 million which will be amortized over a period of 5 years from the listing date. Revenues Recognition Revenues from sales of goods are recognized at the date of delivery to customers. Accounts in foreign Currencies Accounts in foreign currencies occurred during the year are translated into Baht at the rates of exchange prevailing on the date of the transactions. Assets and liabilities in foreign currencies at the end of the year are translated into Baht at the rates of exchange prevailing at that date. Gain or loss on translation is included in the statement of income. Earnings Per Share Earnings per share is computed by dividing net income for the year by the number of shares outstanding at the end of the year. NOTE 5 - TRADE ACCOUNTS AND NOTES RECEIVABLE Trade Accounts and Notes receivable at December 31 consisted of: 1998 1997 Baht Baht Domestic accounts receivable 8,964,973.46 4,353,368.16 Foreign accounts receivable 73,071,478.83 120,797,029.70 Post - dated cheques 1,356,743.55 143,043.29 83,393,195.84 125,293,441.15 Less Allowance for doubtful accounts (3,716,853.02) (3,068,214.59) Trade Accounts and Notes Receivable - net 79,676,342.82 122,225,226.56 At December 31, 1998, the Company has overdued accounts receivable as follows: Baht Over 3 months to 6 months 1,378,725.46 Over 6 months to 12 months 1,703,928.88 Over 12 months 2,979,709.25 Total 6,062,363.59 NOTE 6 - INVENTORIES Inventories at December 31 consisted of: 1998 1997 Baht Baht Finished goods 15,963,305.02 19,678,753.62 Work in process 14,460,732.23 21,195,769.67 Raw materials 23,773,526.13 29,117,432.41 Supplies 5,317,871.25 6,932,806.91 Goods in transit - 7,515,709.23 59,515,434.63 84,440,471.84 Less Allowance for devalue of inventories (5,799,725.42) (2,217,471.89) Inventories ' net 53,715,709.21 82,222,999.95 NOTE 7 - INVESTMENTS Investments at December 31 consisted of : 1998 1997 Type of Business Baht Baht Thantawan Marketing Co.,Ltd. Holding Company 150,000.00 150,000.00 First Bangkok City Bank Public Company Limited Banking 96,512.50 96,512.50 246,512.50 246,512.50 Less Allowance for diminution in value of investment (96,444.25) (31,675.00) 150,068.25 214,837.50 Note receivable 'financial institution - 8,090,592.64 Negotiable certificate of deposit 8,090,592.64 - Investments ' net 8,240,660.89 8,305,430.14 At December 31, 1998 the Company had investments in equity security at cost of Baht 96,512.50 issued by the ailing financial institutions that have been supervisory controlled by the Bank of Thailand and ordered to write down capital and recapitalize which the Company has provided an allowance for diminution in value of Baht 96,444.25 which reflected in the income statement. At December 31, 1997 investment in note receivable 'financial institution in the amount of Baht 8,090,592.64 represent note receivable issued by the financial institution which has closed its business as its rehabilitation plan was not approved by the Financial Sector Restructuring Authority on December 8, 1997. In 1998 the Company exchanged the note to be the negotiable certificate of deposit (NCD) issued by Krung Thai Bank according to Project of Krung Thai Bank in Accepting Exchange of Notes Issued by the 42 Finance Companies. The maturity date is on December 12, 2000. Interest is receivable annually at the floating rate as announced by Krung Thai Bank. NOTE 8 - PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment at December 31 consisted of: 1998 1997 Baht Baht Land and improvements 16,198,309.50 16,177,999.50 Buildings and improvements 46,714,512.53 46,518,772.53 Machinery and equipment 177,231,476.13 171,028,461.28 Tools and equipment 16,618,579.03 14,655,827.76 Office furniture, fixtures and equipment 6,032,051.80 5,833,220.85 Vehicles 14,264,659.20 11,383,145.10 Construction in progress 3,456,220.61 3,291,344.36 280,515,808.80 268,888,771.38 Less Accumulated depreciation and amortization (151,150,012.66) (131,753,183.67) Property, plant and equipment-net 129,365,796.14 137,135,587.71 Depreciation and amortization in the amounts of Baht 22,183,215.15 in 1998 and Baht 25,672,237.50 in 1997 were included under cost of sales and selling and administrative expenses. At December 31, 1998 the Company had buildings and improvements at cost of Baht 8,474,659.75 (book value of Baht 7,694,504.34) which are located on a related companys land without a lease agreement. In 1998, the related company charged the Company Baht 24.1 million for rental fees for the preceding five years from 1994 to 1998. The Company has not recorded this liability in the financial statements because there is no agreement or other supporting evidence. NOTE 9 - ADVANCE PAYMENTS FOR ASSETS ACQUISITION The Company was attempting to purchase the land and building from the related company. At December 31, 1998 and 1997 advance payments for assets acquisition represent advance payments according to an agreement to purchase the land and building with the related company on December 29, 1997 at a price of Baht 41 million. The Company paid 50% of the price in the amount of Baht 20.5 million on date of signing of the agreement by issuing note receivable in the amount of Baht 20,232,717.81 issued by a financial institution which has closed its business as its rehabilitation plan was not approved by the Financial Sector Restructuring Authority on December 8, 1997. On January 22, 1998 and June 30, 1998 the Extraordinary Meetings of Shareholders did not approve to purchase the said land and building. Therefore, the Company has notified for cancellation of the agreement and refund the advance payments of Baht 20.5 million as its letter dated February 12, 1998. At present, the advance payment has not been refunded and the Company is in the process of negotiation with the related company. However there is no evidence to specify the timing for reaching an agreement or receiving a refund of the advance payment. NOTE 10 - APPROPRIATIONS OF EARNINGS On March 19, 1998 the Ordinary General Meeting of shareholders approved the proposed dividend, payable from the net income of the year 1997 of Baht 1.25 per share on 8 million shares totaling Baht 10 million and the appropriation of 5% net income for the year 1997 to legal reserve in the amount of Baht 1,631,520.32 On April 24, 1997 the Ordinary General Meeting of Shareholders approved the proposed dividend, payable from the net income of the year 1996 of Baht 1.00 per share on 8 million shares totaling Baht 8.0 million and the appropriation of 5% net income for the year 1996 to legal reserve in the amount of Baht 373,598.29. NOTE 11 - SEGMENT INFORMATION Thantawan Industry Public Company Limited manufactures plastic products which divided into three main products: straw products, HD.PE bag products and LD.PE bag products. Products purchased for sales are groups as others. The results of its operations for the years ended December 31, 1998 and 1997 are summarized as follows: Baht (Thousand) HD. PE bag LD. PE bag 1998 1997 Straw products products products Others Total Total Sales-export : 1998 168,915 226,846 390,709 11,855 798,325 : 1997 109,234 191,799 256,319 10,494 567,846 Sales-local : 1998 20,491 4,559 1,889 321 27,260 : 1997 17,469 2,562 2,611 121 22,763 Total : 1998 189,406 231,405 392,598 12,176 825,585 : 1997 126,703 194,361 258,930 10,615 590,609 Operating profit : 1998 56,980 32,434 116,894 2,665 208,973 : 1997 32,128 19,394 57,270 854 109,646 Other income 8,667 4,953 General corporate expense (79,560) (64,325) Interest expense (1,107) (3,506) Income tax (42,924) (14,138) Net income 94,049 32,630 As at December 31, 1998 and 1997 property, plant, and equipment net of accumulated depreciation and amortization are summarized as follows: Baht (Thousand) 1998 1997 Straw products HD.PE LD Products Total Total Assets used by products : 1998 17,560 44,434 52,897 114,891 : 1997 20,702 44,864 57,268 122,834 General assets used 14,475 14,301 Total property, plant and equipment ' net 129,366 137,135 NOTE 12 - ASSETS PLEDGED AS COLLATERAL Fixed deposit in the amount of Baht 1 million and part of land and constructions were pledged as collateral for liabilities and commitments with commercial banks. NCD of financial institution in the amount of Baht 8.1 million was pledged as collateral for loan with Export Import Bank of Thailand. NOTE 13 - COMMITMENTS The Company has entered into land lease agreement with a related company for a period of 3 years. The monthly rental fee is Baht 273,250. At December 31, 1998 , the Company is committed to pay future rentals amounting to approximately Baht 3.3 million. NOTE 14 - CONTINGENCIES The Company had building and improvements which are located at the related companys land without a lease agreement. The Company was charged in the amount of Baht 24.1 million for the preceding five year rental fee since 1994 to 1998. The Company has not recorded liability in the financial statements, because there is no agreement or other supporting evidence for this transaction. Therefore , the Company may have the contingencies for the above rental charges. NOTE 15 - YEAR 2000 PROBLEM AND COMPUTER REMEDY PLAN (BEING UNAUDITED AND NOT FORMING PART OF AUDITORS REPORT) The Year 2000 problem arises because many computerized systems use two digits rather than four to identify the year. Date-sensitive system may recognize the year 2000 as some other dates, resulting in errors when information using year 2000 dates is processed. Entities may experience the effects of Year 2000 problem before, on, or after January 1, 2000, and the effects on operations and financial reporting, if not addressed and repaired properly and timely, may range from minor errors to significant system failure which could affect an entitys ability to conduct normal business operations. In addition, It is not possible to be certain that all aspects of the Year 2000 problem affecting the entity, including those related to the efforts of customers, suppliers, or other third parties, will be fully resolved. In August 1998, the Company commenced its plan to improve its computerized system (hardware and software) in respect of resolving the Year 2000 compliance problem. The plan is expected to be completed by October 1999. The expected costs of remedying the problem is approximately Baht 400,000 and these costs will be recognized in the period in which they occur. However no expenditure in relation to remedy project incurred during the year ended December 31, 1998. Although the Company expects to remedy its Year 2000 compliance problems, by the time Year 2000 occurs, it still remains at risk from other entities with which the Company undertakes business if they are unable to remedy their own problems in time. It may impact on the Companys operations and the Company cannot expect that the exposure on its operations.