As filed with theSecurities and Exchange Commission on December 29, 2003

 

 

**UNITED STATES OF AMERICASECURITIES AND EXCHANGE COMMISSION**

 

**Washington, DC 20549**

 

**FORM 20-F**

 

| **(Mark One)**                                                                         |                                                                                                      |
|----------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------|
| **o**                                                                                  | **REGISTRATION  STATEMENT PURSUANT TO SECTION 12(b)  OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| **OR**                                                                                 |
|                                                                                   |                                                                                                      |
| **o**                                                                                  | **ANNUAL  REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934**           |
|                                                                                   | **For the fiscal year ended:  November 30th,  2002**                                                 |
| **OR**                                                                                 |
|                                                                                   |                                                                                                      |
| **ý**                                                                             | **TRANSITION  REPORT PURSUANT TO SECTION 13  OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**       |
| **For the transition period from  April 1st,  2002 to November 30th,  2002** |
| **Commission file number: 1-11808**                                                    |
|                                                                                   |

**CORIMON, C.A.**

(Exact name ofRegistrant as specified in its charter)

 

**Bolivarian Republic of Venezuela**

(Jurisdiction ofincorporation or organization)

 

**CalleHans Neumann, Edificio Corimon, PH**

**LosCortijos de Lourdes**

**Caracas,Venezuela**

(Address ofprincipal executive offices)

 

Securities registered or to beregistered pursuant to Section 12(b) of the Act:

 
| **Title of  each class**                                |   | **Name of  each exchange  On which registered** |
|---------------------------------------------------------|--------|-------------------------------------------------|
| American  Depositary Shares, representing Common Shares |   | New York Stock  Exchange*                       |
| Common Shares,  nominal value Bs 100.00 each            |   | New York Stock  Exchange*                       |

 

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* The American DepositaryShares have been suspended from trading on the New York Stock Exchange sinceMay 8, 2003.  The Common Shareswere not listed for trading, but only in connection with the registration ofAmerican Depositary Shares, pursuant to the requirements of the Securities andExchange Commission.

 

**Securitiesregistered or to be registered pursuant to Section 12(g) of the Act:**None

**Securities for which there is a reporting obligation pursuantto Section 15(d) of the Act:** None

Indicatethe number of outstanding shares of each of the issuer’s classes of capital orcommon stock as of the close of the period covered by the annual report:

 
| Common  Shares, nominal value Bs 100.00 each |   | 753,683,548 |   |
|----------------------------------------------|--------|-------------|--------|

 

Indicate by check mark whetherthe registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports) and (2) has been subject to such filingrequirements for the past 90 days.

 

Yes  o        No  ý

 

Indicate by check mark which financial statement itemthe registrant has elected to follow.

 

Item 17o     Item18  ý

 

 

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**CORIMON, C.A.**

 

TABLE OF CONTENTS

 

PRESENTATION OFFINANCIAL INFORMATION

 
| **PART 1**   |   |
|--------------|--------|
|         |   |   |   |
| Item 1       |   | Identity  of Directors. Senior Management and Advisers |   |
| Item 2       |   | Offer  Statistics and Expected Timetable |   |
| Item 3       |   | Key  Information |   |
| Item 4       |   | Information  on the Company |   |
| Item 5       |   | Operating  and Financial Review and Prospects |   |
| Item 6       |   | Directors,  Senior Management and Employees |   |
| Item 7       |   | Major  Shareholders and Related Party Transactions |   |
| Item 8       |   | Financial  Information |   |
| Item 9       |   | The  Offer and Listing |   |
| Item  10     |   | Additional  Information |   |
| Item  11     |   | Quantitative  and Qualitative Disclosure about Market Risk |   |
| Item  12     |   | Description  of Securities Other than Equity Securities |   |
|         |   |   |   |
| **PART  II** |   |
|         |   |   |   |
| Item  13     |   | Defaults  Dividend Arrearages and Delinquencies |   |
| Item  14     |   | Material  Modifications to the Rights of Security Holders and Use of Proceeds |   |
| Item  15     |   | Defaults  Upon Senior Securities |   |
| Item  16     |   | Changes  in Securities and Changes in Security for Registered Securities |   |
|         |   |   |   |
| **PART III** |   |
|         |   |
| Item  17     |   | Financial  Statements |   |
| Item  18     |   | Financial  Statements |   |
| Item  19     |   | Exhibits |   |

 

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### **INTRODUCTION**

 

As used in this Form20-F, unless the content otherwise requires, the “Company” or “Corimon” meansCorimon, C.A. along with its consolidated subsidiaries. References in this Form20-F to “U.S. dollars”, “dollars”, “USD”, “US$” or “$” relate to the lawfulcurrency of the United States of America; references to “Venezuelan bolivars,”“bolivars” or “Bs” are to the lawful currency of the Bolivarian Republic ofVenezuela. Financial data included herein have been derived, unless otherwiseindicated, from and should be read in conjunction with, the consolidatedfinancial statements of Corimon (the “consolidated financial statements”),which have been prepared in accordance with accounting principles generallyaccepted in Venezuela (“Venezuelan GAAP”). Significant differences foundbetween Venezuelan GAAP, as applied to the Company, and U.S. GAAP whenreconciling net loss and shareholders’ equity under Venezuelan GAAP to U.S.GAAP, relate to accounting treatment given to accounting for investments inaffiliates, amortization of goodwill and deferred taxes (see Note 19 to theconsolidated financial statements).

 

InAugust 1991, the Venezuelan Federation of Public Accountants issued theStatement of Accounting Principles No. 10 “Rules for the Preparation of FinancialStatements Adjusted for the Effects of Inflation” (“DPC 10”), along with itsamendment bulletins and technical publications (revised in 2001), which requirethe preparation of inflation-adjusted financial statements. The Statementallows for two adjustment methods: the Mixed Method and the General Price LevelMethod (“GPL”). Inflation-adjusted information is mandatory for all fiscalyears as from 1996, with early adoption permitted.

 

TheCompany adopted the mixed method for the valuation of its fixed assets toprepare its inflation-adjusted consolidated financial statements. Under themixed method, the consolidated financial statements are first restated based onchanges in the GPL. Nonmonetary assets are subsequently restated based oncurrent market values determined by independent appraisers for fixed assets.Current market values may differ from historical costs adjusted by the GPL asthe former are specific prices and the latter are calculated based on averageindices of general prices that measure the loss of the purchasing power of thebolivar. The “Result from holding nonmonetary assets” in equity includes thedifference between current market values and the application of the GPL method.

 

Thereare significant differences between the rules of the “Comisión Nacional deValores” (CNV) and DPC 10 as to the treatment of the effects of applying themixed method. As required by DPC 10, the results from operations under themixed and GPL methods should  be thesame, whereas in accordance with CNV rules, depreciation of the fair marketvalue of fixed assets is recorded directly in the results of operations.

 

As from 2002, RevisedDPC10 sets out that the mixed method will only apply to inventories over sixmonths old. At November 30th, 2002, Company average inventoryaging does not exceed six months. For purposes of comparison only, inMarch 2002 the Company restated the financial statements for 2001 and 2000to recognize the effects of applying the mixed method to inventories based onthis new principle, with a resulting increase in the cost of sales and net lossfor 2001 of approximately Bs 3,230 million and Bs 2,903 million, respectively(Bs 1,212 million and Bs 178 million, respectively for 2000) (see Note 2-r tothe consolidated financial statements).

 

As ofNovember 30th, 2002, the Company had a debit balance ofapproximately Bs 33,041 million (Bs 44,683 million and Bs 44,582 million atMarch 31st, 2002 and 2001, respectively). This amount includesapproximately Bs 6,608 million (a debit balance of Bs 3,216 million and Bs4,143 million, net of Bs 85,346 million offset -see Note 9 to the consolidatedfinancial statements- at

 

3

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March 31st, 2002 and 2001 respectively) arising fromthe restatement of fixed assets at current costs that reduced shareholders’equity by this amount and from approximately Bs 39,649 million (Bs 41,467million and Bs 40,709 million at March 31st, 2002 and 2001respectively, net of 19,326 million offset -see Note 9 to the consolidated financialstatements-), from calculation of depreciation expense at current costs.

 

All amounts shownthroughout this Form 20-F are expressed in constant bolivars as ofNovember 30th, 2002, unless otherwise indicated. Translationsof certain constant bolivar amounts (monetary assets and liabilities) into U.S.dollars were made at the average daily exchange rate announced by the CentralBank of Venezuela on November 30th, 2002,  unless otherwise indicated, which was Bs1,325.00 per $ 1.00.

 

Some of the statementsmade in this report are forward-looking in nature. Statements that are nothistorical facts, including statements about the Company’s beliefs andexpectations, are forward-looking statements. These statements are based oncurrent plans, estimates and projections, and you should not place too muchreliance on them. Forward-looking statements speak only as of the date they aremade, and the Company undertakes no obligation to update any of them in lightof new information or future events. Forward-looking statements involveinherent risks and uncertainties. The occurrence of the events described, andthe achievement of the intended results, is subject to many factors, some orall of which are not predictable or within the Company’s control; therefore actualresults or outcomes may differ materially from those anticipated in anyforward-looking statement. These factors include those identified under theheading “Risk Factors” and elsewhere in this report.

 

4

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# **PART I**

# ** **

## **Item 1**.Identity of Directors, Senior Management and Advisers

Not applicable.

 

**Item 2****. OfferStatistics and Expected Timetable**

Not applicable.

 

**Item 3****. KeyInformation**

 

***3A. Selected Financial Data.***

 

The following tablepresents selected consolidated financial information for each of the periodsindicated. The selected consolidated financial information set forth belowshould be read in conjunction with, and is qualified in its entirety byreference to, the Company’s consolidated financial statements, and theiraccompanying notes, included herein.

 

The Company’sconsolidated financial statements have been prepared in accordance withVenezuelan GAAP, which differ in certain respects from U.S. GAAP. Note 19 ofthe consolidated financial statements provides a description of the principaldifferences between Venezuelan GAAP and U.S. GAAP as they relate to the Companyand a reconciliation to U.S. GAAP of net loss and shareholders’ equity andcertain other financial information.

 

As required by VenezuelanGAAP, the consolidated financial statements and selected consolidated financialinformation set forth below recognize the effects of inflation and restatedinformation for prior years in constant bolivars of November 30th,2002 purchasing power. Certain distortions occur in inflation-adjustedaccounting when the bolivar inflation and devaluation rates are not equal.During the eight-month period ended November 30th, 2002, theinflation rate in Venezuela was 21.33%, but the devaluation rate of the bolivarwith respect to the U.S. dollar was 48.13%. Given the disparity between theinflation rate and the devaluation rate, companies whose finished products arepriced in U.S. dollars were unable to transfer the full effects of inflation totheir finished goods and, therefore, experienced their operating marginsdecreased.

 

***Differences between U.S. GAAP and Venezuelan GAAP***

 

The accompanyingconsolidated financial statements were derived from the Company’s accountingrecords, which are prepared in accordance with Venezuelan GAAP, which differ incertain material respects from U.S. GAAP. (see Note 19 to the consolidatedfinancial statements).

 

5

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As used herein, “year”refers to the twelve-month period ending March 31st, whereasthose periods ended November 30th, 2001 and 2002 areeight-month periods.

 
|                                                                             |   | **Years  ended March 31st**                                                                                                |       | **For  8-month period  ended Nov. 30th** |       |
|----------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------|------------|
|                                                                             |   | **1998**                                                                                                                        |       | **1999**                                 |       | **2000** |   | **2001** |   | **2002** |   | **2001** |   | **2002** |   |
|                                                                             |   | **(In  million of constant bolivars at November 30th****, 2002 purchasing  power, except for per share and per ADS data)** |       |
| **Venezuelan  GAAP:**                                                            |   |                                                                                                                            | ** ** |                                     | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |
| **Consolidated  Income Statement Data**                                          |   |                                                                                                                            |       |                                     | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |
|                                                                             |   |                                                                                                                            |       |                                     |       |   |   |   |   |   |   |   |   |   |   |
| Net  sales                                                                       |   | 150,513                                                                                                                         |       | 112,466                                  |       | 88,890 |   | 107,803 |   | 102,878 |   | 80,176 |   | 73,949 |   |
| Gross  profit                                                                    |   | 49,335                                                                                                                          |       | 39,421                                   |       | 24,265 |   | 24,038 |   | 23,328 |   | 19,920 |   | 19,585 |   |
| Selling,  general and administrative expenses                                    |   | 47,401                                                                                                                          |       | 32,890                                   |       | 25,290 |   | 25,754 |   | 29,019 |   | 18,672 |   | 20,293 |   |
| Operating  income (loss)                                                         |   | 1,934                                                                                                                           |       | 6,531                                    |       | (1,025 | ) | (1,716 | ) | (5,691 | ) | 1,248 |   | (708 | ) |
| Financial  income (expense)                                                      |   | 4,187                                                                                                                           |       | (1,290                                   | )          | (3,208 | ) | (3,497 | ) | (3,314 | ) | (1,934 | ) | (4,644 | ) |
| Income  (loss) from ongoing operations                                           |   | (11,073                                                                                                                         | )          | 4,103                                    |       | (5,966 | ) | (10,178 | ) | (6,280 | ) | 1,220 |   | (4,991 | ) |
| Income  (loss) from discontinued operations, net of taxes and minority interests |   | 3,338                                                                                                                           |       | (3,671                                   | )          | (13,768 | ) | (9,221 | ) | — |   | — |   | — |   |
| Extraordinary  item – Utilization of tax loss carryforward                  |   | 12,884                                                                                                                          |       | —                                   |       | — |   | — |   | — |   | — |   | — |   |
| Net  income (loss)                                                               |   | (7,735                                                                                                                          | )          | 431                                      |       | (19,734 | ) | (19,399 | ) | (6,280 | ) | 1,220 |   | (4,991 | ) |
| Income  (loss) per share from ongoing operations(1)                              |   | (16.84                                                                                                                          | )          | 5.54                                     |       | (7.92 | ) | (13.51 | ) | (8.33 | ) | 1.62 |   | (6.62 | ) |
| Income  (loss) per ADS from ongoing operations(1)                                |   | (8,420.53                                                                                                                       | )          | 2,768.18                                 |       | (3,958.86 | ) | (6,753.82 | ) | (4,166.82 | ) | 809,56 |   | (3,311.00 | ) |
| Income  (loss) per share from discontinued operations(2)                         |   | 5.08                                                                                                                            |       | (4.95                                    | )          | (18.27 | ) | (12.24 | ) | — |   | — |   | — |   |
| Net  income (loss) per share                                                     |   | (11.76                                                                                                                          | )          | 0.58                                     |       | (26.19 | ) | (25.75 | ) | (8.33 | ) | 1.62 |   | (6.62 | ) |
| Extraordinary  item per share                                                    |   | 20.00                                                                                                                           |       | —                                   |       | — |   | — |   | — |   | — |   | — |   |
| Weighted  average shares outstanding (million)                                   |   | 657.5                                                                                                                           |       | 741.1                                    |       | 753.5 |   | 753.5 |   | 753.7 |   | 753.5 |   | 753.7 |   |
| Shares  outstanding (million) (at year-end)                                      |   | 723.8                                                                                                                           |       | 753.5                                    |       | 753.5 |   | 753.5 |   | 753.7 |   | 753.5 |   | 753.7 |   |
| **Consolidated  Balance Sheet Data (year-end)**                                  |   |                                                                                                                            |       |                                     |       |   |   |   |   |   |   |   |   |   |   |
| Total  assets                                                                    |   | 357,330                                                                                                                         |       | 290,263                                  |       | 222,504 |   | 191,300 |   | 168,466 |   | 177,442 |   | 184,588 |   |
| Long-term  debt                                                                  |   | 48,382                                                                                                                          |       | 35,099                                   |       | 15,349 |   | 11,983 |   | 18,469 |   | 8,104 |   | 18,397 |   |
| Capital  Stock (Nominal)                                                         |   | 72,381                                                                                                                          |       | 75,349                                   |       | 75,349 |   | 75,349 |   | 75,368 |   | 75,349 |   | 75,368 |   |
| Shareholders’  equity                                                       |   | 192,261                                                                                                                         |       | 151,532                                  |       | 116,867 |   | 88,388 |   | 82,044 |   | 86,285 |   | 89,315 |   |

 

6

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Consolidated financialdata under U.S. GAAP are as follows:

 
|                                                                          |   | **Years  ended March 31st**                                                                                                |       | **For  8-month period  ended Nov. 30th** |       |
|-------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------|------------|
|                                                                          |   | **1998**                                                                                                                        |       | **1999**                                 |       | **2000** |   | **2001** |   | **2002** |   | **2001** |   | **2002** |   |
|                                                                          |   | **(In  million of constant bolivars at November 30th****, 2002 purchasing  power, except for per share and per ADS data)** |       |
| **U.S.  GAAP**:                                                               |   |                                                                                                                            | ** ** |                                     | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |
| **Consolidated  Income Statement Data**                                       |   |                                                                                                                            |       |                                     | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |
|                                                                          |   |                                                                                                                            |       |                                     |       |   |   |   |   |   |   |   |   |   |   |
| Net  sales                                                                    |   | 150,513                                                                                                                         |       | 112,466                                  |       | 88,890 |   | 107,803 |   | 102,878 |   | 80,176 |   | 73,949 |   |
| Income  (loss) from ongoing operations                                        |   | (15,511                                                                                                                         | )          | 12,213                                   |       | (13,244 | ) | (1,137 | ) | (25,117 | ) | 8,858 |   | (4,916 | ) |
| Income  (loss) from discontinued operations                                   |   | 6,735                                                                                                                           |       | (2,104                                   | )          | (11,638 | ) | (11,469 | ) | — |   | — |   | — |   |
| Net  income (loss)                                                            |   | (8,777                                                                                                                          | )          | 10,109                                   |       | (24,881 | ) | (12,606 | ) | (21,065 | ) | 8,858 |   | (4,916 | ) |
| Basic  and diluted income (loss) per share from ongoing operations            |   | (23,59                                                                                                                          | )          | 16.,48                                   |       | (17.58 | ) | (1.51 | ) | (33.32 | ) | 11,76 |   | (6.92 | ) |
| Income  (loss) per ADS from ongoing operations(1)                             |   | (11,795.44                                                                                                                      | )          | 8,239.78                                 |       | (8,788.32 | ) | (754.48 | ) | (16,662.47 | ) | 5,878.00 |   | (3,458.55 | ) |
| Basic  and diluted income (loss) per share from discontinued operations(1)(2) |   | 10.24                                                                                                                           |       | (2.84                                    | )          | (15.45 | ) | (15.22 | ) | — |   | — |   | — |   |
| Income  (loss) per ADS from discontinued operations(2)                        |   | 5,121.67                                                                                                                        |       | (1,419.51                                | )          | (7,722.63 | ) | (7,610.48 | ) | — |   | — |   | — |   |
| Basic  and diluted net income (loss) per share                                |   | (13.35                                                                                                                          | )          | 13.64                                    |       | (33.02 | ) | (16.73 | ) | (27.95 | ) | 11.76 |   | (6.92 | ) |
| Net  income (loss) per ADS(1)                                                 |   | (6,674.47                                                                                                                       | )          | 6,820.16                                 |       | (16,510.56 | ) | (8,364.77 | ) | (13,974.07 | ) | 5,878.00 |   | (3,458.55 | ) |
|                                                                          |   |                                                                                                                            |       |                                     |       |   |   |   |   |   |   |   |   |   |   |
| **Consolidated Balance Sheet Data**                                           |   |                                                                                                                            |       |                                     |       |   |   |   |   |   |   |   |   |   |   |
| Total  assets                                                                 |   | 365,772                                                                                                                         |       | 282,447                                  |       | 218,291 |   | 185,644 |   | 160,773 |   | 171,100 |   | 173,787 |   |
| Long-term  debt                                                               |   | 48,382                                                                                                                          |       | 35,099                                   |       | 15,349 |   | 11,983 |   | 18,468 |   | 8,104 |   | 18,397 |   |
| Shareholders’  equity                                                    |   | 168,402                                                                                                                         |       | 137,344                                  |       | 97,362 |   | 75,677 |   | 54,548 |   | 57,977 |   | 61,893 |   |

 

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1)              The aboveinformation has been calculated retroactively on the basis of 500 common sharesper ADS, since January 22nd, 2002 when the change of ratioapproved by the CNV - National Securities Commission became effective (see Item9A), as if the ADSs had been outstanding at such date. Income per share and ADSdata was calculated on the basis of the weighted average shares outstanding forthe period adjusted to reflect stock splits and stock dividends.

2)              Construcentro CRO,C.A. and Tiendas Montana, C.A. are considered discontinued operations.

 

7

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***3B. Capitalizationand Indebtedness***

Not applicable.

 

***3C. Reasons for the Offer and Use ofProceeds***

Not applicable.

 

***3D. Risk Factors***

 

Country-related Factors:

 

The Company’s business issubstantially conducted in Venezuela. Therefore, the Company’s results ofoperations and financial position have been and are expected to continue to begenerally affected by inflation, exchange rates, interest rates, changes ingovernment leadership and policy, taxation and other political, economic ordevelopments in or affecting Venezuela.

 

***Venezuelan political risk:*** Since 1958,Venezuela has had democratic governments elected by the people. However, twoattempts were made in 1992 to overthrow the Government, but were quicklycontrolled by military forces. The current President, Hugo Chavez Frias, wholed one of the 1992 coup attempts, was elected in December 1998 and tookoffice in February 1999. In April 2002, after growing protests,President Chavez was himself subject to a governmental coup that lasted 3 days,and ended with his restatement as president on April 14, 2002.

 

The Government ofPresident Hugo Chavez has implemented significant political changes. The ChavezAdministration convened the National Constituent Assembly to draft a newVenezuelan Constitution. It took effect on December 30, 1999 and providedfor a new “Citizen Power” branch in addition to the Executive branch, theNational Assembly and the Supreme Court of Justice. On July 30, 2000,voters re-elected President Chavez, whose political party, the Fifth RepublicMovement (MVR), also won 77 of the 165 legislature seats. President Chavez’sGovernment has relied heavily on his connection with the Venezuelan military,and there has been increasing controversy over the use of the armed forces intraditionally non-military roles. In August 2000, President Chavezannounced his plans for broad economic reform for the promotion of privateinvestment and economic growth. In November 2000, the Venezuelan Congresspassed the Ley Habilitante (Enabling Law), which allows President Chavez toenact laws for a one-year period by decree. The Government has outlined severalareas in which decrees will be made, including infrastructure and the financialsector that may affect foreign investment.

 

On November 13,2001, President Chavez enacted forty-nine (49) laws under the Enabling Law,including the Hydrocarbons Law, Land and Agricultural Development Law, Fishingand Aquaculture Law, General Law of Marine and Related Activities, GeneralBanking and other Financial Institutions Law, Partial Reform of Auction Law,and the Statute of Public Function Law. These laws are controversial and havebeen questioned because of their State-interventionist and undemocraticorientation. Together, these laws may affect present and future private andforeign investment and could jeopardize property rights. The Company does notconduct business in any of the areas directly related to these laws, so it hasnot and should not be affected by them.

 

8

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The laws enacted inNovember 2001 under the Enabling Law has also been questioned by LaFederacion Venezolana de Camaras y Asociaciones de Comercio y Produccion (TheVenezuelan Federation of Commerce and Production Chambers and Associations)(“Fedecamaras”), the leading federation of trade and industry organizations.Fedecamaras asserted that these laws were approved without proper debate andwithout satisfying the consultative requirements for approving laws pursuant tothe Organic Law of Public Administration and the National Constitution of 1999

 

The discontent producedby the laws enacted in November 2001 under the Enabling Law developed intomassive public protests that have raised the level of political instability.Among the most important protest actions was the national strike onDecember 10, 2001. Organized by Fedecamaras, the strike received thesupport of all the important businesses sectors of the country (banking,commerce and industry) and paralyzed essentially all commercial activity thatday. Additionally, some sectors have petitioned the Tribunal Supremo deJusticia (“Supreme Court of Justice”) for partial or total nullification ofthese laws. Specifically, La Federacion Nacional de Ganaderos (“Fedenaga”)(TheNational Federation of Cattle Breeders) filed a request for a nullificationorder against the Land and Agricultural Development Law, while Fedecamarasfiled a nullification order against all of the laws approved under the EnablingLaw. The National Assembly established a forum to discuss all the proposedreforms to these laws; in particular, Accion Democratica, an oppositionpolitical party, has asked for a vacatio legis (an extension of the time periodbetween the enactment of a law and the date on which it becomes effective) forall the laws.

 

Discontent and dissidenceagainst the current Government has been expressed in Venezuela and reflects notonly dissatisfaction with the Enabling Law, but also with the management ofeconomic policy and international relations and the increasing confrontationalattitude of the President against diverse social sectors considered as keyinstitutions, such as the Catholic Church, the media and the Confederacion deTrabajadores de Venezuela (“CTV”) (Confederation of Venezuelan Workers), thebiggest labor union organization.

 

In early 2002, severalactive members of the armed forces and the National Assembly considered loyalto President Chavez, publicly expressed their dissidence with the Government.In the economic sector there is uncertainty regarding very important laws,particularly relating to taxation and social security matters. The politicaluncertainty in Venezuela has increased substantially in recent months.Specifically, tensions within the media, labor unions, management of PDVSA(Petróleos de Venezuela, S.A.) and industrial associations has intensified,leading to regular demonstrations both in favor of and against the VenezuelanGovernment.

 

In lateFebruary 2002 managers of PDVSA, who did not support the appointment ofPresident Chavez loyalists to the company’s board of directors and increasedgovernment control of the company, participated in a work slowdown and began astrike on April 4, 2002.

 

On April 9, 2002,leaders of the CTV and Fedecamaras joined PDVSA’s strike, calling for a generalstrike that lasted three days and culminated on April 11, 2002 with amassive opposition march in Caracas. This event prompted dissidentofficers of the armed forces to intervene and ask President Chavez to resign.During the early hours of April 12,

 

9

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2002 President Hugo Chavez, was forced out of office. A transitionalgovernment led by Pedro Carmona Estanga, head of Fedecamaras, replacedPresident Chavez. Mr. Carmona’s decision upon taking office to dissolveVenezuela’s elected National Assembly, as well as to fire members of theSupreme Court of Justice and revoke the package of controversial laws enactedin November 2001 pursuant to the Enabling Law in 2001, were met withsevere domestic and international criticism. Under pressure from militaryforces loyal to President Chavez and public demonstrations in support ofPresident Chavez, and as a result of the lack of support for Mr. Carmona frommoderate factions within the military and the general public, Mr. Carmonaresigned and President Chavez was reinstated as President on April 14,2002. In a conciliatory move, President Chavez dissolved the recently installedboard of directors of PDVSA.

 

The nationwide strikethat took place during April 2001 did not have a significant impact in theCompany’s business operations, since the highest sales volumes are registeredfrom August to December each year.

 

Two days later, onApril 16, some opposition leaders asked for a referendum on Chavez’spresidency so that the people could democratically decide if they wanted thecurrent administration to continue leading the country;  while others were confident that therecently reinstated President was truthful about his call for dialogue andnational reconciliation.

 

Despite Presidentialassurances after the events of April 2002, the 49 laws enacted onNovember 2001 under the Enabling Law, have not been yet modified toeliminate those features that raised dispute among Chavez’s supporters anddetractors.

 

Four months later, theSupreme Court of Justice overruled an ordered to open a trial on some of themilitary leaders of the failed coup. This decision caused violent clashes anddemonstrations in Caracas. Protests and public manifestations of discontentbegan to occur rather frequently, and later on that year, at the beginning ofDecember, a nationwide strike was called by both Fedecamaras and the CTV. PDVSA(Petróleos de Venezuela, S.A.) joined in.

 

The main objective of thestoppage was to persuade President Chavez to agree to early elections andpeacefully solve the political crisis, but the Government assured that novoting would take place any sooner than August 2003 when the Constitutionallows for a recall  referendum. Suchvoting has not yet been performed, and in mid October 2003, the ConsejoNacional Electoral – CNE (the national elections authority) set a plan thatcontemplated the collection, during late November 2003, of the requiredsignatures for the Referendum and the execution of the Recall Referendum was setsometime in March 2004. Meanwhile, the OAS (Organization of AmericanStates) was trying to mediate in a dialogue between the Government and theopposition.

 

In order to avoid an oilshortage and to ensure that oil workers did not join the strike, National Guardtroops were deployed at major petroleum refineries, and forced employees toshow up for work. Mr. Ali Rodriguez, president of PDVSA, affirmed that thecompany was able to supply its domestic and foreign customers, but he warnedthat a prolonged strike involving the oil sector could devastate Venezuela.

 

10

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By the end ofJanuary the nationwide strike started to fade due to the economiccontraction and its effect on the population, the shortage of oil and theworldwide need for fuel facing a possible war at Iraq.

 

With many of itssupporters facing bankruptcy, the opposition lifted the strike in the privatesector on February 2nd, 2003.

 

Despite the length andintensity of the strike, utilities and basic services, such as electricity,water, transportation and health care, were never suspended or interrupted. TheCompany was affected to some extent by this strike because it cut short theCompany’s sales season, since most of its sales occur between August andDecember each year. Estimated loss of sales for the month ofDecember 2002 and January 2003 were Bs 12,260 million (USD  9,252 million). In case the political/economic situation shouldonce more become destabilized, the Company could become vulnerable to itseffects, but would attempt to adjust its production and sales to minimize theadverse consequences.

 

There can be no assurancethat the economic and political uncertainty, which has negatively affected thegrowth of the Venezuelan economy in the past, will not persist (for moreinformation refer to sections “Importance of Oil Sector” and “Company-relatedfactors”).

 

***Impact of Inflation, Depreciation and Economic Activity inVenezuela:*** Government actions concerning the economy arelikely to have an important effect on the financial position and results ofoperations of Venezuelan companies; the ability of Venezuelan companies to makecapital expenditures, and the market price, liquidity and return on securitiescarrying Venezuelan risk.

 

Demand for paint andrelated products in Venezuela, as well as the Company’s results of operationsand financial position, has been and is expected to continue to be affected bythe state of Venezuela’s economy.

 
| **Description**                             |   | **2000** |   | **2001** |   | **2002** |   | **June  2003** |   |
|---------------------------------------------|--------|----------|--------|----------|--------|----------|--------|----------------|--------|
| GDP growth (%)                              |   | 3.24     |   | 2.79     |   | -8.88    |   | -41            | (1)    |
| Bs/US$  (year-end)                          |   | 699.75   |   | 758.00   |   | 1,403.00 |   | 1,600.00       |   |
| Annual  inflation (%)                       |   | 13.43    |   | 12.28    |   | 31.22    |   | 15.35          | (2)    |
| International  reserves (in million of US$) |   | 20,451   |   | 18,522   |   | 12,003   |   | 16,874         |   |
| Unemployment  (%)                           |   | 13.80    |   | 11.00    |   | 16.20    |   | 16.20          |   |

Source:  BancoCentral de Venezuela

 

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(1)   For the three months endedMarch 31st, 2003 with respect to the same period of calendaryear 2002.

(2)   Accumulated inflation throughJune 30th, 2003.

 

Venezuela has experiencedhigh levels of inflation during the past decade. The general rate of inflationas measured by the Consumer Price Index or CPI, was 13.4%, 12.3% and 31.2% for2000, 2001 and 2002, respectively, and as measured by the Wholesale PriceIndex, or WPI, was 14.1%, 11.2% and 37.9% for 2000, 2001 and 2002,respectively. Consumer and wholesale prices are expected to increase in 2003,fueled by currency devaluation. Consumer price inflation was approximately 5.5%in February, 2003, the highest monthly increase since June 1996, raisingaccumulated consumer price inflation for the first six months of 2003 to15.35%. These high rates of inflation called for the Company to adjust itssales prices to maintain profitability and reduce the impact of the

 

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elevated cost of raw materials. There is no assurance that inflationwill not keep increasing in the future, so it is possible that the Company willhave to keep adjusting its prices in the seasons to come. The Company does notanticipate a substantial risk of a reduction in net sales due to such priceadjustments because even if volume decreases, profitability margins areexpected to remain unaffected.

 

***Impact of Exchange Controls***: OnJanuary 22nd, 2003 the Venezuelan Central Bank (BCV) suspendedforeign exchange trading and announced it would implement an exchange controlthat was ultimately presented on February 5th. It set thebolivar’s value at Bs 1,596 a dollar for sales and Bs 1,600 for purchases. OnJanuary 21st, the last day of currency trading, the bolivarclosed at Bs 1,853 per dollar for sales. The government also set top saleprices for essential goods and services, such as some food, medicines and rent.

 

The execution of thisrestricted exchange system would be managed by two institutions, the VenezuelanCentral Bank, responsible for determining the amounts of foreign reserve thatwould be available to the public; and the newly created Foreign CurrencyAdministration Commission (CADIVI),which would assign the foreign currency toany person or institution that complied with the regulations and procedures setby the Commission.

 

Foreign currency isavailable through CADIVI to import certain products considered to be essential,such as food, medicines, paper and some chemicals; no currency would be givento import goods not listed in the official reports issued by the VenezuelanGovernment. Importers have to give substantial proof of need, like a bill, aletter of credit or c debt confirmation, in order to be eligible to get thecurrency.

 

With regard toreceivables, every national individual or corporation must report and sell tothe Venezuelan Central Bank any foreign currency they collect from exports ofgoods and services during the time the Exchange Control regime is in place.This transaction would take effect at the official exchange rate of Bs 1,596 adollar for sales.

 

It took CADIVI more thantwo months to deliver the first batch of foreign currency, and as of now, theexchange control is still effective. Up until late August 2003, the periodof getting currency approval was something between three and four weeks, andonly after this term, the currency delivery process could begin, taking itselfanother three to four weeks. During September, the Commission improved theirmechanisms, making it possible to receive approval in 48 hours, while the timefor receiving the currency remained unchanged.

 

As of July, 2003 Corimonhad received from CADIVI less than 20% the amount it had requested to pay forraw material, and as of September 15th, 2003 this percentagehad fallen to less than 10% the amount it had requested to pay for rawmaterial, which has made it difficult for the Company to comply with itscommercial commitments by relying only on government-provided currency (seesection 10D for more information). The fact that the Company has to gothrough this process to obtain foreign currency has held back its productioncycle to some extent, which has been partially compensated for with theutilization of other ways of obtaining currency such as the purchase of bondsissued by the Venezuelan Government which can be sold for foreign currency.

 

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In July 2003, theVenezuelan Government issued a series dollar-denominated bonds to localinvestors that could be acquired in local currency and sold in internationalmarkets, giving investors the possibility of legally obtaining foreign currencywithout going through CADIVI’s process. The Company utilized this tool andbought about Bs 1,280 million (equivalent to USD 800,000 at the exchange rateof Bs 1,600/1US$) in late July for imports of raw material which amountedto approximately US$ 528,000. Once the bonds were released to the internationalmarket in early August 2003, they were no longer available in localcurrency.

 

No one can be certainwhen the exchange control would be lifted or if the bolivar will not continueto decline in value with respect to the U.S. dollar. Either one could adverselyaffect the financial position and results of operations of the Company and themarket value of the common shares.

 

The following table showscertain information for the periods and dates indicated regarding the bolivarto U.S. dollar exchange rate based on the free market exchange rate expressedin historical bolivars per U.S. dollar:

 

| **Fiscal Year Ended**    |   | **Period  End** |   | **Average  Rate (1)** |   | **Low**  |   | **High** |   |
|--------------------------|--------|-----------------|--------|-----------------------|--------|----------|--------|----------|--------|
| March 31st, 1995    |   | 170.00          | (2)    | 163.20                |   | 115.10   |   | 197.02   |   |
| 1996                     |   | 500.00          |   | 296.56                | (3)    | 170.00   |   | 500.00   | (4)    |
| 1997                     |   | 478.25          |   | 473.69                |   | 464.25   |   | 483.00   |   |
| 1998                     |   | 525.25          |   | 500.42                |   | 581.75   |   | 525.25   |   |
| 1999                     |   | 583.75          |   | 565.81                |   | 525.00   |   | 583.75   |   |
| 2000                     |   | 670.00          |   | 630.69                |   | 583.75   |   | 670.00   |   |
| 2001                     |   | 707.75          |   | 692.65                |   | 670.00   |   | 707.75   |   |
| 2002                     |   | 894.50          |   | 774.96                |   | 712.25   |   | 1,038.25 |   |
| November 30th, 2002 |   | 1,325           |   | 1,385.54              |   | 838.75   |   | 1,600.00 |   |
| April, 2003              |   | 1,600.00        | (5)    | 1,600.00              |   | 1,600.00 |   | 1,600.00 |   |
| May, 2003                |   | 1,600.00        | (5)    | 1,600.00              |   | 1,600.00 |   | 1,600.00 |   |
| June, 2003               |   | 1,600.00        | (5)    | 1,600.00              |   | 1,600.00 |   | 1,600.00 |   |
| July, 2003               |   | 1,600.00        | (5)    | 1,600.00              |   | 1,600.00 |   | 1,600.00 |   |
| August, 2003             |   | 1,600.00        | (5)    | 1,600.00              |   | 1,600.00 |   | 1,600.00 |   |
| September, 2003          |   | 1,600.00        | (5)    | 1,600.00              |   | 1,600.00 |   | 1,600.00 |   |
| October, 2003            |   | 1,600.00        | (5)    | 1,600.00              |   | 1,600.00 |   | 1,600.00 |   |
| November 15, 2003   |   | 1,600.00        | (5)    | 1,600.00              |   | 1,600.00 |   | 1,600.00 |   |

 

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(1)          The average of theexchange rates on the last day of each month during the period.

(2)          Official Exchange Ratesince July 9, 1994 until December 5, 1995.

(3)          The average exchangerate for 1996 results from averaging the official exchange rates of Bs 170 andBs 290 for US$ 1 and using the Brady Bond exchange rate for the periodDecember 11, 1995 - March 31st, 1996.

(4)          This reflects the BradyBond Exchange rate, officially in effect on June 16, 1995.

(5)          Official Exchange Ratesince February 5th, 2003.

 

Most of the Company’sliabilities are denominated in bolivars. The Company’s net liabilitiesdenominated in U.S. dollars amount to US$ 27 million, of which nearly US$ 3million corresponds to financial creditors that are currently involved withCorimon, C.A. in debt restructuring negotiations (see Note 8 to theconsolidated financial statements). As of November 30th, 2002,these negotiations were in their final stage, and the entire US$ 3 million werefinally restructured between February and June 2003. Bolivar devaluationor restrictions on the availability of foreign currency adversely affect theCompany, but only

 

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to the extent of its indebtedness in U.S. dollars; this devaluation hashad a material impact because it increases the Company’s dollar denominatedliabilities in relation to the Company’s revenues, which are denominated inbolivars. Changes in the bolivar to the U.S. dollar exchange rate may alsoaffect the dollar equivalent of bolivar prices of the Company’s Common Shareson the Caracas Stock Exchange and, as a result, most likely affect the marketprice of the Company’s American Depository Shares (ADSs) in the United Statesin the over-the-counter market (see section 10D for more information on theVenezuelan Exchange Control).

 

The Company does notcurrently utilize derivative instruments designed to hedge any market riskrelating to the Exchange Control, or any other hedging activities.

 

***Importance of Oil Sector****:*The oil industry plays a vital and predominant role in the Venezuelan economy.In 2002, this industry accounted for an estimated 25.34% portion of Venezuela’sGDP (approximately 48% of the Government’s total current revenues and 80% ofthe total value of Venezuela’s exports)

 

Consequently, theeconomic growth rate, the tax revenue level, government spending and governmentborrowing, and foreign exchange in Venezuela are significantly affected by oilprices and conditions prevailing on the global oil market. Any future economicdownturn in the Venezuelan oil industry could negatively affect the economy andhave adverse consequences on the Company’s financial position and results ofoperations.

 

Between 1997 and thefirst quarter of 1999, a market decline in international oil prices adverselyaffected the Venezuelan economy. During that period, Venezuela and otheroil-producing nations realized lower per barrel oil prices than at any othertime in the last ten years. The 1998 recession was the result of a decline inoil revenues, government spending cuts and decreased foreign and domesticprivate investment.

 

Since April 1999,international oil prices have increased partially due to production cutbacksmandated by the Organization of Petroleum Producing Countries (OPEC). TheGovernment has announced its intention to back OPEC and continue to cutproduction accordingly.

 

The oil price increasehas benefited the government budget. For the eight-month period endedNovember 30th, 2002, the average price of Venezuelan oil wasUS$23,44 per barrel. For budgetary purposes, the Government estimated theaverage price of oil for 2002 at US$ 18.50 per barrel. PDVSA is the state-ownedoil company; it is also one of the Company’s clients.

 

Under the power grantedto President Chavez by the Enabling Law, the Hydrocarbons Law was enacted inNovember 2001. This law ratifies the exclusive ownership rights of thestate over PDVSA, the state oil company. Primary activities of exploration,extraction and storage will be reserved for state enterprises or companies in whichthe state has a majority stake. The law also reduces the maximum income taxrate for oil companies from 67% to 34%, but increases the production tax orroyalty from 16.7% to 30% of the volume of extracted hydrocarbons, one of thehighest in any oil-producing country.

 

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According to theVenezuelan Oil Chamber, this New Hydrocarbons Law may limit the potential forforeign investments in the country’s oil sector mainly for three reasons.First, reserving exploration, extraction and storage for state-ownedenterprises or those companies in which the state is a majority shareholder,will imply that all joint ventures and strategic alliances will requirelegislative approval (such as required by the Public Patrimony Safeguard Actand the Public Credit Act). Additionally, the National Assembly will have theright to modify the terms of any proposed joint venture or strategic alliance.These factors will limit investors’ willingness to participate in financing ofGovernment-controlled projects. Under the law, privately owned companies willbe allowed to operate in the refining sector but the Government will have theright to set prices of refined products sold in the domestic market. Third, itis not clear whether the Hydrocarbons Law will apply to those joint venturesthat were already active at the time the law was enacted.

 

At the end ofAugust 2003, Venezuela produced 2,616 million of barrels per day, 24%below budgeted levels, which indicates that the oil industry has not achievedits regular performance yet. With regards to exports, crude exports were about81% of what was expected for August, and oil derivatives exports werecalculated at 32% below estimates. This reduction was primarily caused by thenationwide strike that took place during the months of December 2002 andJanuary 2003.

 

Although the Company isnot directly dependent on the oil industry, it is partially and indirectlyaffected by developments in this industry because of the impact it has on thenational economy. Accordingly the Company’s business may be materiallyadversely affected if political instability should continue to impact oilproduction levels in the future.

 

Company-relatedFactors:

 

The Company’s results ofoperations have been, are, and will be affected by the country’s economicenvironment. The Venezuelan political structure has undergone significantchanges with certain economic consequences affecting all companies in thecountry, as well as private and foreign investment. Some indicators to considerare a Consumer Price Index (CPI) of 31.2% in 2002 with regards to 2001 and an16.2% unemployment rate in 2002. These two trends together with politicalfactors such as the exchange control will continue to affect the results of theCompany’s operations. A significant portion of the Company’s revenues isrepresented by paint and related products sales. The purchasing power ofVenezuelans is decreasing due to the above, and client demand for our productsis also affected by them. As in every industry in the country, sales havediminished considerably, and in a drastic way, since December 2001 due tothe political conflict. Furthermore, in February 2002 the Government’seconomical announcements caused the bolivar depreciation to reach its highestlevel ever.

 

The Company and itsVenezuelan subsidiaries have had to adopt certain measures, the mostsignificant of which are:

 

•                  Rationalize useof production consumables and replace certain foreign suppliers due to importlimitations on some products.

 

•                  As fromFebruary 2003, working hours were reduced in the subsidiaries of the paintand related products division in order to decrease personnel costs. SinceMarch 2003 certain

 

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personnel of the packaging and inks division have beentemporarily laid off due to the decrease in production. All these measures weretaken in mutual agreement with employees.

 

•                  Adjustingproduct sale prices to new production costs resulting from the coming intoeffect of the currency exchange control and price control regimes whilemaintaining a profit margin that will at least allow recovery of operatingcosts. This price adjustment is within the market’s competitive margin (seeNote 14 to the consolidated financial statements).

 

•                  Negotiatingpayment terms and conditions with suppliers and financial creditors.

 

However, the Company’sresearch and development strategy aims at continuously launching new andimproved products, thereby allowing the Company to maintain its leadership inthe Venezuelan market.

 

***Competitors***: In the paints segment,the Company has a 21% share of the Venezuelan market, although it hascompetition from many local, regional, national and international suppliers interms of manufacturing, distributing and selling of coatings and relatedproducts.

 

In the packaging and inkssegment competition comes mostly from national competitors. In the packagingsegment Montana Gráfica-Convepal, C.A. is second in the Venezuelan market witha 13% market share; its main competitor is Rotoven with 27% market share; andGrafis, C.A. in the inks segment is third in the Venezuelan market with 15%market share, its main competitor is Sun-Chemical with a 19% market share.

 

Corimon, C.A. is theleading manufacturer and retailer of coatings and related products toprofessional, industrial, commercial and retail customers; however, itscompetitive position varies according to its products and markets. Technology,product quality, product innovation, breadth of product line, technicalexpertise, distribution, service and price are the key competitive factors forthese segments.

 

In the paint storessegment, the Company is present throughout the country. Competitors includeother paint stores, home centers, independent hardware stores and hardwarechains. Product quality, service and price determine the competitive edge forthis segment.

 

The chart below shows themarket share of Corimon Pinturas C.A. and its main competitors in theVenezuelan paint markets:

 
| **Company(2)**           |   | **Market  Share(2)** |   |
|--------------------------|--------|----------------------|--------|
| Venezolana de Pinturas   |   | 22                   | %      |
| **Corimon  Pinturas(1)** |   | **21**               | **%**  |
| Solintex                 |   | 18                   | %      |
| Others                   |   | 39                   | %      |

 

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(1)   Subsidiary

(2)   Source: Asopinturas de Venezuela

 

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The chart below shows the Venezuelan market share forthe packaging division:

 
| **Company**                            |   | **Market  Share(2)** |   |
|----------------------------------------|--------|----------------------|--------|
| Rotoven                                |   | 40                   | %      |
| **Montana  Gráfica Convepal (1)** |   | **33**               | **%**  |
| Global-Print                           |   | 6                    | %      |
| Colomural                              |   | 4                    | %      |
| Others                                 |   | 17                   | %      |

 

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(1)   Subsidiary

(2)   Source: Clients and suppliers surveys.

 

The chart below shows the Venezuelan market share forthe ink division:

 
| **Company**        |   | **Market  share(2)** |   |
|--------------------|--------|----------------------|--------|
| Sun-Chemical       |   | 19                   | %      |
| Barnivenca         |   | 17                   | %      |
| **Grafis,C.A.(1)** |   | **15**               | **%**  |
| Olin               |   | 11                   | %      |
| Qumitex            |   | 8                    | %      |
| Colquim            |   | 7                    | %      |
| Others             |   | 23                   | %      |

 

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(1)   Subsidiary

(2)   Source: Clients and suppliers surveys.

 

The chart below shows the Venezuelan market share forCerdex, C.A.:

 
| **Company**   |   | **Market  share(2)** |   |
|---------------|--------|----------------------|--------|
| **Cerdex(1)** |   | **42**               | **%**  |
| Cebra         |   | 35                   | %      |
| Fanabro       |   | 10                   | %      |
| Others        |   | 13                   | %      |

 

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(1)   Subsidiary

(2)   Source: Clients and suppliers surveys.

 

The chart below shows the Venezuelan market share forResimon, C.A.:

 
| **Market**       |   | **Company**     |   | **Market  share(2)** |   |
|------------------|--------|-----------------|--------|----------------------|--------|
| **Coatings**     |   | **Resimon(1)**  |   | **50**               | **%**  |
|             |   | Intequim        |   | 22                   | %      |
|             |   | Resival         |   | 12                   | %      |
|             |   | Flamuko         |   | 11                   | %      |
|             |   | Others          |   | 5                    | %      |
| **Plastic**      |   | **Resimon (1)** |   | **60**               | **%**  |
|             |   | Intequim        |   | 17                   | %      |
|             |   | Import          |   | 16                   | %      |
|             |   | Baker           |   | 4                    | %      |
|             |   | Others          |   | 3                    | %      |
| **Agglomerates** |   | **Resimon (1)** |   | **50**               | **%**  |
|             |   | Intequim        |   | 27                   | %      |
|             |   | Others          |   | 23                   | %      |

 

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(1)   Subsidiary

(2)   Source: Clients and suppliers surveys.

 

17

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***Losses in recent periods***:The Company has incurred net losses in each of our last three fiscalperiods.  For the 8-month period endedNovember 30, 2002 we reported a loss of Bs 4,991 million, and we reportedlosses of Bs 6,280 million and 19,399 million for the fiscal years endedMarch 31, 2002 and March 31, 2001, respectively. The Company’s managementhas devised a strategic plan (discussed in Item 5D) that seeks to mitigate theCompany’s current situation, but there is no certainty as to the effectivenessof these measures, and to this point we are in no position to evaluate theeffects they will have in the consolidated financial statements. Accordinglythere is no assurance that we will be able to achieve profitability in futureperiods.

 

***Ability to meet debt obligations:***There is some interest and currency risk related to debt obligations, mainlybecause of the current Venezuelan political and economic situation, which couldcause bank interest rates to increase. Additionally, there is an ExchangeControl been executed at this moment, which once lifted could make exchangerates very volatile; any of these situations could make it difficult for theCompany to meet its financial obligations. However, the Company believes thatit currently has the financial resources to meet its debt obligations as theycome due. The Company does not currently utilize derivative instrumentsdesigned to hedge any market risk relating to interest rate.

 

***Lack of liquidity due to the ADR delisting***:On May 8th, 2003, Corimon’s ADRs were suspended from trading on the NewYork Stock Exchange. Following this suspension, Corimon’s ADRs have been tradedonly on the Over-the-Counter Bulletin Board. This market provides significantlyless liquidity than the NYSE and our ADRs have been thinly traded since beingquoted on the Bulletin Board.  ThereforeADR holders may have difficulty selling their securities on favorable terms, orat all.

 

***Different Corporate Disclosure andGovernance***: The securities and corporate laws inVenezuela differ from those in the United States in some aspects. Publiclyavailable information about issuers of securities listed on the Venezuelansecurities market is not as detailed as that information provided by publicissuers in the United States or other countries. Also, the Venezuelansecurities market is not so strongly regulated and supervised as the UnitedStates securities market. Venezuelan minority stockholders may have differentrights under Venezuelan laws than they might have if they were minoritystockholders of a American public issuer. See Item 10B for a discussion ofspecific differences between the rights of shareholders under the Company’sArticles of Incorporation and Bylaws and the rights typically afforded toshareholders of US issuers.

 

***US shareholders may not be able to enforcecivil liabilities against the Company:***A number of theCompany’s directors and executive officers are non-residents of the US, and allor a substantial portion of the assets of such persons are located outside theUS. As a result, it may not be possible for investors to effect service ofprocess within the US upon such persons or to enforce against them judgmentsobtained in US courts predicated up on the civil liability provisions of thefederal securities laws of the US. There is no assurance as to theenforceability in Venezuela, in original actions or in actions for enforcementof judgments of US courts, of civil liabilities to the extent predicated uponthe federal securities laws of the US.

 

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**Item 4****. Information on the Company**

 

***4A. History andDevelopment of the Company***

 

Introduction:

Corimon, C.A. is acorporate group with seven operating subsidiaries divided into two majorStrategic Business Units:

 

a)              *Paint and Related Products:*Thisdivision manufactures and sells paint, coatings and related products. The entitiescomprising this division are: 1) *Corimon Pinturas, C.A.* in Venezuela and 2)*SissonsPaints Limited*in Trinidad and Tobago*,* which produces paint andcoatings for industrial, architectural, wood finishing, maritime and automotivemarkets and Cerdex brand paint brushes in Trinidad and Grenada; 3) *Resimon,C.A.,* a chemical entity located in Venezuela that produces resin; 4)*Cerdex,C.A.*that produces brushes, paint rollers and related paint articlesand is located in Venezuela, and 5) *Tiendas Montana, C.A.,* a paint storefranchise chain located throughout Venezuela where products from the groupsubsidiaries, Corimon Pinturas, C.A. and Cerdex, C.A. are sold.

 

b)             *Packaging Material and Ink:*  This division manufactures packagingmaterial and ink for graphic art purposes. The subsidiaries in this divisionare: 1) *MontanaGráfica-Convepal, C.A.,* which manufactures packaging material forvarious consumer product industries, and 2) *Grafis, C.A.,* which manufactures ink forgraphic art applications. Both subsidiaries are located in Venezuela.

 

The Company is an openstock corporation (“Compañía Anónima, (C.A.)”) under Venezuelan laws. Corimon,C.A. was incorporated June 14th, 1949 and it operates under theBolivarian Republic of Venezuela’s legislation; specially, but not limited to,the Commerce Code, the Securities Market Law and the norms relating to theperiodic or occasional information that must be submitted by those persons orentities under the National Securities Commodities control. Its Head Office islocated at Calle Hans Neumann, Edificio Corimon, PH, Los Cortijos de Lourdes,Caracas 1010-A, Venezuela. The Company’s web site is www.corimon.com and itstelephone number is (0058) 212-400-5530.

 

History:

 

Pinturas Montana, C.A. (currently Corimon Pinturas, C.A.)was founded in 1949 and was one of the first factories in the Venezuelan paintmarket. The entity was first named “Montana Fábrica de Pinturas” also known asPinturas Montana. Its core business was the manufacture of high quality paintin Venezuela.

 

Ten years later, in 1959, Montana Gráfica-Convepal,C.A. became the second member of the group; later that same year, Resimon, C.A.was incorporated to supply resin to the Pinturas Montana, C.A. plant as asubstitute for imported resin. From the beginning, Montana Gráfica-Convepal,C.A. and Resimon, C.A. were well identified as independent from PinturasMontana, C.A. Once consolidated in the architectural market, Pinturas

 

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Montana, C.A. penetrated the industrial, maintenance, wood, marine andautomotive markets. Chrysler and General Motors were its first automotiveclients.

 

The group extended itscontribution to the country beyond the industrial sector by supporting cultureand education through foundations and cultural centers created in 1959 as ameans of improving and developing the Venezuelan standard of living.

 

In the early seventies,four new entities were incorporated in addition to the three already existingnamely: Grafis, C.A., Cerdex, C.A., Adhesivos y Gomas de Venezuela, C.A. -Adgovenca and Minomet, C.A.

 

Pinturas Montana, C.A.introduced a new concept of industrial diversification by developingconstruction materials and ink. The group encompassed a total of 25 entitiesknown as “Grupo Corimon (Corporación Industrial Montana).” New strategicbusiness units were then incorporated to the diversity of entities comprisingthe Corimon Group including Frica in food and beverages. Corimon, C.A. shiftedits main business strategy to non-related diversification.

 

Corimon listed its shareson the Caracas and Maracaibo Stock Exchanges in 1979 and its ADRs on the NewYork Stock Exchange in March 1993.

 

In 1993 Corimon focusedon geographical diversity rather than business diversity; in this regard,Corimon’s activities shifted towards becoming a widespread multinational paintentity.

 

In 1994 Corimonstrengthened its position with support from the most important and respectedprivate entrepreneurs in Venezuela. That same year the Company focused onstrengthening its paint business through nine of its entities: Montana, C.A.,Pinco Pittsburgh, C.A., Wantzelius, C.A. (later Tiendas Montana, C.A.),Construcentro, C.A., Cerdex, C.A., Colorín, Sissons Paint Limited, GeneralPaint Company and Standard Brands Paint LTD. Operations were expanded toMexico, Colombia and the southeastern coast of the United States. Venezuelan,Argentinean and Caribbean operations were strengthened and increased.

 

A recession in Venezuela,as well as the unforeseen negative turnout of foreign investment decisions fromprevious years, that resulted in losses from non-domestic operations for fiscalyear 1996, had an adverse effect on Corimon in 1995. As a result of thesefactors, the Company became highly indebted and faced liquidity problems.

 

During fiscal year 1996Corimon initiated a debt restructuring and rescheduled almost all of itsfinancial commitments. As part of the restructuring process, the Company’slenders and trade creditors became shareholders in the Company, receiving an aggregateof over 78% of our total outstanding shares. Furthermore, Corimon decided towithdraw from the international market (keeping only Sissons Paints in Trinidadand Pinturas Montana C por A in the Dominican Republic) to focus only onprofitable Venezuelan entities. Over the next two years, Corimon was run by itscreditors; in 1997 a controlling interest was bought by a group of Venezuelanprivate-sector shareholders headed by Carlos Gill and Eduardo Gómez Sigala.

 

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The new managementimplemented new strategies targeting three broad business units: 1) Paintand related products with its subsidiaries, Corimon Pinturas, C.A.(formerly Pinturas Montana), Resimon, C.A., and Cerdex, C.A. in Venezuela;Sissons Paints Limited in Trinidad and Pinturas Montana C por A in theDominican Republic. 2) Hypermarket with its subsidiaries, Construcentro,C.A. and Tiendas Montana, C.A., both in Venezuela, and 3) Ink and Packagingwith its subsidiaries, Montana Gráfica-Convepal, C.A. and Grafis, C.A., both inVenezuela.

 

During 2000 thesubsidiary Tiendas Montana, C.A. established a franchise system and begantransferring the management and marketing rights to the products manufacturedby the paints and related products division to franchisees. InFebruary 2000 the Board of Directors of this subsidiary approved the rightof franchisees to use the Tiendas Montana, C.A. trademark by charging a singlefee, whose amount would depend on the type of franchise, plus a percentage ofgross sales. As of November 30th, 2002, more than 80 franchiseshave been granted.

 

In July 2000Construcentro, C.A.’s assets were successfully sold to CATIVEN. Only theConstrucentro trademark remained after the sale. Corimon’s liabilities weresubstantially reduced as a result.

 

In May 8th, 2003,Corimon ADRs were suspended from trading on the New York Stock Exchange. TheNYSE reached its decision in light of the fact that the Company fell below theNYSE’s continued listing criteria for (1) average global market capitalizationover a consecutive 30 trading-day period, and (2) total stockholders’ equity.Following this suspension, Corimon’s ADRs are being traded only in theOver-the-Counter Bulletin Board (the “OTCBB”), which is an inter-dealersecurities market not conducted through a formal exchange.

 

Corimon’s presentstrategy is to direct all efforts to the paint and related products divisionand the ink and packaging materials division. Corimon has seven operatingsubsidiaries, six of them located in Venezuela: 1) Corimon Pinturas, C.A., apaint and coatings manufacturer; 2) Sissons Paints Limited, a paintmanufacturer; 3) Resimon, C.A., a resin manufacturer; 4) MontanaGráfica-Convepal, C.A., a packaging material manufacturer; 5) Grafis, C.A., anink manufacturer; 6) Cerdex, C.A., a brush and paint-related productmanufacturer, and 7) Tiendas Montana, C.A., a franchise chain for productsales.

 

Information on Corimon’ssubsidiaries and their position in the Venezuelan market is provided later inthis document.

 

***4B. Business Overview***

 

Corimon is a corporateentity that manages seven operating subsidiaries whose activities fall undertwo major business segments: (1) Paint and related products and (2) Ink andPackaging materials. The discussion of the operations included in thissection is based on gross results by individual companies, and does notinclude intercompany balances and transactions.

 

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There are no specificgovernmental economic, fiscal, monetary or political policies or factors, otherthan disclosed in this document, that have materially affected, directly orindirectly, the Company’s operations or investments.

 

**4B. 1) Paint and Related Products:**

 

***Corimon Pinturas, C.A.***

 

Corimon Pinturas is a stockcompany (“Compañía Anónima”) incorporated in 1949 under Venezuelan Law, with alife term that expires in 2022. Its domicile is Av. Hans Neumann, Urb.Industrial El Bosque, Valencia, Edo. Carabobo, Venezuela.

 

CapitalExpenditures:

 

In the last two fiscalyears ended March 31st, 2001 and 2002 and the two lasteight-month period ended November 30th, 2001 and 2002, CorimonPinturas, C.A.’s capital expenditures amounted to USD 2.3 million as shownbelow:

 
|                                                                |   | **In  thousand of USD**         |       |
|---------------------------------------------------------------------|--------|---------------------------------|------------|
|                                                                |   | **Year Ended  March 31st** |       | **For the  eight-month period  ended Nov. 30th** |   |
| **Assets**                                                          |   | **2001**                        |       | **2002** | ** ** | **2001** | ** ** | **2002** | ** ** |
| Buildings  and facilities                                           |   | 46                              |       | 83 |   | 78 |   | 8 |   |
| Machinery  and equipment                                            |   | 668                             |       | 1,168 |   | 656 |   | 204 |   |
| Office  furniture                                                   |   | 11                              |       | 42 |   | 5 |   | 2 |   |
| Transportation  equipment                                           |   | 116                             |       | — |   | — |   | — |   |
| **TOTAL  IN THOUSAND OF USD**                                       |   | **841**                         | ** ** | **1,293** | ** ** | **739** | ** ** | **214** | ** ** |
| **TOTAL  IN MILLION CONSTANT BOLIVARS AT NOVEMBER 30th, 2002** |   | **724**                         | ** ** | **1,239** | ** ** | **721** | ** ** | **284** | ** ** |

 

The main capitalexpenditures made in the last two fiscal years ended March 31st, 2001 and2002 and the two last eight-month period ended November 30th, 2001 and2002, include: 1) Project Titanium (November 2002) (USD 163,686); whichallows for a change in the manufacturing process that reduces processing timeby 40%; 2) the installation of three new dispersors that will permit thereduction of production slots to 500 gallons (November 2002) (US$ 15,000);3) the connection of a 300 KVA transformer to stabilize energy supply andtherefore extend the equipments’ useful life (November 2002) (USD 11,000);4) Purchases of Color’s System machines (August 2001) (USD 588,000) tosatisfy client demands; 5) a Sales Automation Plan (August 2001) for USD80,695 to improve registration and processing of purchase orders and clientpayment; 6) the installation of seven label’s frontal application machinesrepresenting capital expenditures of USD 82,502 (October 2001), whichmachines will improve the speed and precision of the labeling process; and 7)Expansion of the finished products storage capacity by the installation of a canvasand metal awning (US$34,956) allowing to extend the products’ life cycle(November 2001). For fiscal year 2003, the Company plans to invest Bs 49million (USD 30,625) in machinery and equipment.

 

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Business Overview:

 

Corimon Pinturas, C.A. isengaged in manufacturing and selling top quality paint and coating productsincluding finishes for architectural, industrial and marine maintenance,woodworking and automotive purposes, and original equipment uses.

 

Sales, Productsand Markets:

 

In the last two fiscalyears ended March 31st, 2001 and 2002 and the two lasteight-month period ended November 30th, 2001 and 2002, salesfor each market segment were comprised as follows:

 
|                                                                       |   | **In  thousand of US$**         |       |
|----------------------------------------------------------------------------|--------|---------------------------------|------------|
|                                                                       |   | **Year Ended  March 31st** |       | **For the  eight-month  period ended Nov. 30th** |   |
| **Market Segments**                                                        |   | **2001**                        |       | **2002** | ** ** | **2001** | ** ** | **2002** | ** ** |
| Architectural                                                              |   | 39,297                          |       | 37,558 |   | 32.390 |   | 17,232 |   |
| Industrial  and marine maintenance                                         |   | 5,826                           |       | 5,546 |   | 4.388 |   | 3,307 |   |
| Automotive  finishes                                                       |   | 4,376                           |       | 3,780 |   | 2.998 |   | 2,156 |   |
| Wood  finishes                                                             |   | 1,797                           |       | 1,936 |   | 1.452 |   | 829 |   |
| Original  equipment                                                        |   | 2,406                           |       | 3,179 |   | 2.433 |   | 2,229 |   |
| **TOTAL  IN THOUSAND OF USD**                                              |   | **53,702**                      | ** ** | **51,999** | ** ** | **43,661** | ** ** | **25,753** | ** ** |
| **TOTAL  IN MILLION OF CONSTANT BOLIVARS AT NOVEMBER 30**th**, 2002** |   | **55,509**                      | ** ** | **51,830** | ** ** | **43,058** | ** ** | **35,574** | ** ** |

 

In the last two fiscalyears ended March 31st, 2001 and 2002 and the two lasteight-month period ended November 30th, 2001 and 2002,geographic distribution of sales within Venezuela was comprised as follows:

 
|                                                                   |   | **In  thousand of US$**         |       |
|------------------------------------------------------------------------|--------|---------------------------------|------------|
|                                                                   |   | **Year Ended  March 31st** |       | **For the  eight-month period  ended Nov. 30th** |   |
| **Zone**                                                               |   | **2001**                        |       | **2002** | ** ** | **2001** | ** ** | **2002** | ** ** |
| Capital  Region                                                        |   | 20,520                          |       | 19,852 |   | 13.121 |   | 10,168 |   |
| Central  Region (Llanos)                                               |   | 11,077                          |       | 6,692 |   | 11.170 |   | 6,021 |   |
| Occidental  Region                                                     |   | 8,661                           |       | 9,869 |   | 5.766 |   | 3,478 |   |
| Oriental  Region                                                       |   | 8,361                           |       | 9,370 |   | 9.316 |   | 4,667 |   |
| Andes  Region                                                          |   | 5,083                           |       | 6,216 |   | 4.288 |   | 1,419 |   |
| **TOTAL  IN THOUSAND OF USD**                                          |   | **53,702**                      | ** ** | **51,999** | ** ** | **43.661** | ** ** | **25,753** | ** ** |
| **TOTAL  IN MILLION OF CONSTANT BOLIVARS AT NOVEMBER 30th, 2002** |   | **55,509**                      | ** ** | **51,830** | ** ** | **43,058** | ** ** | **35,574** | ** ** |

 

During the eight-monthperiod ended November 30th, 2002 sales reached the amount ofUSD 25,753 million, which represents a 41% decrease with respect to theprevious fiscal year (4% less than total market sales decrease, which was 45% forthe same period), however, market share was 21%. There was a demand contractionduring this period, as a consequence of the political situation and workstoppage in Venezuela, but Corimon Pinturas managed to place 3,539 gallons inthe market.

 

In “season 2002  October 15th, 2002 –December 15th. 2002”, Corimon Pinturas was able to get advancepayments against future customer purchases for USD 1.567 million that

 

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could be used to obtain raw material. In addition, more than 200 newclients were acquired through the “Pinco” products (paints for thearchitectural and industrial market) sales program via Cerdex, another Corimon,C.A. subsidiary. “Pinco” products are also sold through Tiendas Montana.

 

Some new products wereincorporated during the eight-month period ended November 30th,2002, including two low-cost varieties of paint that are sold in bags (“Trazos”and “Cubremax”), and two new products lines exclusive to Tiendas Montana:“Chicos” and For Kids. The aggregate cost of both installations was Bs 69million (USD 52,075).

 

During the 8-month periodended November 30, 2002, the original equipment segment experienced a 15%reduction of sales in gallons relative to the same period in the prior year,due primarily to a 30% decline in car sales in Venezuela. In the wood finishesmarket sales registered a reduction of 41%, mainly caused by the marketrecession. Direct import of premium “nitrocelulosicos” sealers from oursubsidiary Sissons Paints began during this period because it was moreadvantageous to import them than to produce them in-house, this strategyincreased profitability by reducing operating expenses. In the automotivefinishes market segment, sales for the eight-month period ended November 30th,2002 declined by 30% as measured in gallons sold and 31% as measured in USDcompared to the same period in the prior year. In October 2002, theCompany started negotiations with PPG Industries Inc. to assist in overhaulingthe Company’s product line and distribution and strengthening the paint andcoating segment. Even though this contract has not been formally signed yet,the parties have been performing the contemplated terms thereof sinceOctober 2002, with PPG providing technical assistance to Corimon Pinturasat a cost of Bs 60 million (USD 45,283) per year.

 

In the industrial andmarine maintenance market, sales fell by 37% in gallons, due to a marketcontraction.

 

Market:

 

Corimon Pinturas, C.A. ispresent in the main five market segments comprising the general paint andcoatings market, namely: architectural, industrial and marine maintenance,automotive finishes, wood finishes and original equipment.

 

The *architectural*market segmentcovers coating requirements for all types of structure surfaces. The *industrialand marine maintenance*market segment offers top quality coatingsfor special surfaces on machinery, maritime vessels and others. The *automotivefinishes* market segment sells automobile coatings for repair andmaintenance purposes. The *wood finishes* market segment offers a widerange of product lines to maintain and enhance wood surfaces. Finally, the *originalequipment* market segment sells coatings to the automotive industryand other original equipment manufacturers.

 

Seasonality:

 

The architectural marketsegment constitutes Corimon Pinturas’ main market with 67% of its total sales.The behavior patterns of Venezuelan consumers are the main factor driving salesin this market segment. Venezuelans habitually paint and renew their houses,

 

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façades and interiors in the last few months of the year, making thepaint business highly seasonal. Corimon Pinturas’ highest sales volumes areregistered from August to December each year.

 

The chart belowillustrates business seasonality in terms of quarterly sales:

 
|                                                                  |   | **In  thousand of US$**         |
|-----------------------------------------------------------------------|--------|---------------------------------|
|                                                                  |   | **Year Ended  March 31st** |   | **For the  eight-month  period ended Nov. 30th** |   |
| **Months**                                                            |   | **2001**                        |   | **2002** |   | **2001** |   | **2002** |   |
| April-July                                                            |   | 10,879                          |   | 11,312 |   | 11.308 |   | 8,112 |   |
| August-November                                                       |   | 30,014                          |   | 32,351 |   | 32.353 |   | 17,641 |   |
| December-March                                                        |   | 12,809                          |   | 8,336 |   | — |   | — |   |
| **TOTAL  IN THOUSAND OF USD**                                         |   | **53,702**                      | ** ** | **51,999** | ** ** | **43,661** | ** ** | **25,753** | ** ** |
| **TOTAL  IN MILLION OF CONSTAT BOLIVARS AT NOVEMBER 30th, 2002** |   | **55,509**                      | ** ** | **51,830** | ** ** | **43,058** | ** ** | **35,574** | ** ** |

 

Raw Materials:

 

Sixty percent (60%) ofthe raw materials used to manufacture Corimon Pinturas paints and coatings areimported and the other 40% are supplied locally. One of the characteristics ofimported raw materials is that their prices do not substantially increase overtime compared with local raw materials and, therefore, planning for incidenceof raw material costs on finished goods is better determined. However, theimposition of governmental controls with respect to currency exchange has madeit difficult to obtain imported raw materials, which has affected the Company’sability to meet production goals and comply with commercial commitments (Seesection 10D for more information regarding the Venezuelan ExchangeControl.)

 

The origin andavailability of imported raw materials is shown in the chart below:

 
| **Country of Origin** |   | **% of  Imported  Raw Materials** |   | **Days to  Arrive** |   |
|-----------------------|--------|-----------------------------------|--------|---------------------|--------|
| South  America        |   | 5                                 | %      | 25                  |   |
| North  America        |   | 81                                | %      | 35                  |   |
| Europe                |   | 14                                | %      | 60                  |   |

 

Prices for local rawmaterials are more likely to fluctuate over time than imported materials, dueto changes in the Venezuelan economy such as the inflation rate and currencyexchange rates. Experience has shown that local prices for raw materialsgenerally increase over time, and we expect this trend to continue. With regardto the availability of local raw materials, Corimon Pinturas’ PurchasingDepartment anticipates that local supply will meet its estimated requirements;it implements a policy that accounts for each raw material lead time so thatsupply can be optimized. In any case, the Company considers that prices fornational raw material would not be prohibitively high as to interfere withproduction.

 

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Marketing Channels:

 

Corimon Pinturas, C.A.sells its products through various distribution channels such as hardwarestores (27%), wholesale merchants (34%), paint-related stores (23%) andcommercial partners (16%). It has a total of 884 active clients. Wholesalemerchant clients are those who maintain significant purchase volumes andreceive a discount. They offer products in hardware stores or sell them tofinal consumers. Paint-related stores are those licensed to operate TiendasMontana stores, in which every product sold is manufactured either by a Corimonsubsidiary.

 

Financial Contracts:

 

In September 2002Corimon Pinturas issued a promissory note to Provivienda E.A.P. for Bs 1,000million with maturity in five years and monthly capital and interest payments,Corimon Pinturas, C.A. granted usufruct and first mortgage on real property forup to Bs 1,500 million. For the eight-month period ended November 30th,2002, a total of Bs 31 million were paid as interest and Bs 8 million ascapital. Likewise, in June 2000 Corimon Pinturas, C.A. issued promissorynotes to a local bank for approximately Bs 3,500 million, consisting ofthree notes for Bs 1,000 million and one for Bs 500,000. They have a maturityof three years. These notes were issued at a 50% discount with a variableinterest rate adjusted quarterly, based on market rates. Aggregate payments ofBs 56 million have been made since the inception of this loan.

 

Industrial Contracts:

 

Corimon Pinturas, C.A.and PPG Industries are in negotiations to enter into a technology transferagreement pursuant to which PPG will provide information, know-how andtechnical assistance on paint manufacturing for the original equipment sector.In the event this agreement materializes, Corimon Pinturas, C.A. believes thiswould reinforce its position as the main supplier in Venezuela for MMCAutomotriz (Mitsubishi and Hyundai) and General Motors of Venezuela, becauseCorimon Pinturas would become the only Venezuelan Company capable of producingthe specialized type of paint that MMC and General Motors desire.

 

Market Share:

 

Corimon Pinturas, C.A.leads the Venezuelan paint market with a 21% market share.

 

Corimon Pinturas, C.A.relies on the “Asociación de Fabricantes de Pinturas, ASOPINTURA” (PaintManufacturers Association) for information on Venezuelan paint manufacturersand sales to determine market share figures.

 

Property, Plantand Equipment:

 

Corimon Pinturas, C.A.currently owns two land parcels in Venezuela, one in Valencia, Carabobo Stateand the other in Charallave, Miranda State, covering 81,833 m2 and100,000 m2, respectively.

 

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The paint manufacturingplant is located on the land in Carabobo. Total plant production capacity is 12million gallons per year and is utilized at 46% of its installed capacityduring the off-season due to contraction in the paints market caused by theVenezuelan economic recession. Corimon Pinturas expects to operate at 80%capacity during the paint season of the last quarter of 2003, basicallyresponding to market and client demand. Finished goods are warehoused close tothe plant in a facility with a storage capacity of 600,000 gallons, whereproduct is prepared to be distributed and sold.

 

The land located inCharallave is temporarily being used to warehouse finished goods and othermaterials.

 

Operating andFinancial Review and Prospects:

 

Operating Results:

 

In the eight-month periodended November 30th, 2002 Corimon Pinturas generated operatingincome of Bs 2,052 million. This represents a decrease in sales of 17%, ascompared to the same period in the prior year due mainly to decreasing salesresulting from the deterioration of the country’s economic and politicalsituation after April 2002, creating high rates of inflation that deterredconsumer’s purchase power. This caused the Company to redefine its productionand sales goals and to implement a cost and expenses reduction plan in aneffort to keep decreasing sales from affecting operating margins significantly.As a result, operating margins related to net sales increased by 3%.

 

Similarly, variable costs(raw material) went from 60% of net sales during the 8-month period ended Nov30, 2001 to 56% during the eight-month period ended November 30th,2002. During the eight-month period ended November 30th, 2002, the Companyadjusted its sales prices according to the raise in production cost that cameas a result of the devaluation occurred in February 2002, which was notdone during the same period in the prior fiscal year.

 

Maintenance expensesdiminished by Bs 139 million because of the effort put into keeping theoperative capacity of the plant at its best level. Advertising costs werereduced by 55% (compared to the same period ended November 30th,2001) by selectively using the most effective channels to reach our customersand personnel costs declined by Bs 1,437 million because the Company was forcedto reduce its staff due to the country’s economic situation. Land freight costsshowed a 24% reduction related to the decreased sales levels for our products.

 

Liquidity and CapitalResources:

 

a)              Internal andExternal Sources:

In July 2002, theCompany applied a season plan consisting of the following payment conditions:1) discounts were raised by five points if the client paid in advance, 2) thediscount given at any stage was raised by two points, and 3) if the clientfinances its bill, we offer two payment options (30 and 60 days). This planhelped the Company keep its market share despite adverse macroeconomicconditions. The principal external sources of liquidity utilized by CorimonPinturas were the issuance of two borrowings of Bs 1,600

 

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million from Provivienda E.A.P. and Banco Canarias Banco Universal (seenote 8 to the consolidated financial statements).

 

As of November 30th,2002, working capital levels, which refer to accounts receivable and inventoryless accounts payable to suppliers, were kept in balance, and the Company hadassets for Bs 22,331 million to cover its obligations of Bs 11,579 million.Convertible assets are represented by inventories (Bs 10,121 million)  with a conversion cycle of approximately 51days.

 

b)             Cash Flow:

During the eight-monthperiod ended November 30th, 2002 Corimon Pinturas, C.A. generatedoperating cash inflow of Bs 33,207 million (USD 25,062,000) that was comprisedof 73% revenue from sales to third party national clients, 25% sales to TiendasMontana and 2% revenue from sales to companies within the Corimon group. Cashflow operating outlays reached Bs 30,058 million (USD 22,685,000), of which 56%was represented by raw material costs and 13% payroll expenses; non-operatingcash income were Bs 3,076 million (USD 2,321,000) and non-operating cashoutlays were Bs 5,525 million (USD 4,170,000) 59% of which relates toadministrative services, loan principal payments and financing costs. Totalcash flow for the period ended Nov 30, 2002 was Bs 550 million.

 

For the fiscal year 2002,negative cash flow reached the amount of Bs 217 million (USD 0.2 million), andcash inflows amounted to Bs 55,250 million (USD 59 million) where revenues fromlocal clients were the main source of cash flow for 2002.

 

Total cash flow outlaysamounted to Bs 48,627 million (USD 52 million). Operating expenses included Bs24,335 million (USD 26 million) for raw materials, Bs 7,847 million (USD 8million) for payroll and other employee-related disbursements, Bs 4,893 million(USD 5 million) for freight and customs fees, Bs 2,186 million (USD 3 million)for taxes and Bs 804 million (USD 2 million) for advertising expenses.

 

Research and Development,Patents and Licenses:

 

For fiscal year 2003,Corimon Pinturas plans to invest USD 150,000 destined to improve manufacturingprocesses, with an emphasis on reducing the production clusters to attain, in amore efficient manner, the new type of demand the Company is facing due toVenezuela’s current economic situation, which asks for smaller quantities ofproduct.

 

During the previous threefiscal years the Company has invested about Bs 592 million in Research andDevelopment activities that included the development of the following products:Grafi-Clean (an exterior paint that avoids graffiti stains), For Life (paintthat is guaranteed to last about 15 years), Decomad, Impercoat (waterproofpaint that protects the painted surface from water damage), Sea-Guard (protectsboats form sea rust), Rust-Guard (paint that protects from rust), For Kids andpaint sold in bags.

 

Corimon Pinturas, C.A.seeks strategic developments with its suppliers on an ongoing basis to improvetechnologies and maintain high quality products at lower costs.

 

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Trend Information:

 

During the first twomonths of the eight-month period ended November 30th, 2002there was a nationwide strike that affected sales significantly. In addition,we have been negatively impacted by the currency exchange suspension that beganon January 22, 2003, setting a fixed exchange rate of Bs 1,600 per USDollar. This situation forced us to implement price adjustments in order tomaintain profitability. Another consequence of the currency exchange control isthe possibility of delays obtaining imported in raw material supply stemmingfrom the difficulty of obtaining foreign currency (see section 10D formore information).

 

Corimon Pinturas estimatesthat operating profit in USD for fiscal year 2003 will be Bs 10,010 million,due to a significant sales increase due to price adjustments in every market.The Company will emphasize on raising sales volume for class “A” products toincrease profitability. To do so, Corimon Pinturas will invest Bs 893 millionin advertising through different media. (See Item 5D for more informationregarding trends).

 

***Sissons Paints Limited***

 

Sissons Paints Limited isa stock company (“Compañía Anónima”) incorporated on May 27, 1960 underTrinidad and Tobago Law, with an unlimited length of life. Its domicile isLight Pole #58, Uriah Butler Highway, Chaguanas, Republic of Trinidad &Tobago.

 

In July 2002 theCompany’s Board of Directors approved a feasibility study on the geographicexpansion of production and marketing operations of resins, inks, coatings andcoating tools from its Sissons Paints subsidiary to the rest of the Caribbeanand Central America.  The cost of thisstudy, made by an external advisory firm, amounted to approximately Bs 329million (equivalent to US$250,000), which was paid by the Company during theeight-month period ended November 30th, 2002 and is shown underGeneral and administrative expenses. This study concluded that it would besuitable for Sissons Paints to expand its marketing and commercializationoperations to other geographic markets mainly because of its advantageouslocation.

 

CapitalExpenditures:

 

During the eight-monthperiod ended November 30th, 2002, Sissons Paints sought tocontain costs and meet market demands in the surface coating business whileassessing its options in ancillary products. All capital expenditures have beenfully financed by internally generated funds. A three fiscal year comparativeis shown in the following chart:

 

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|                                                                |   | **At  March 31st,** |       | **At  November 30th,**                  |       |
|---------------------------------------------------------------------|--------|--------------------------|------------|----------------------------------------------|------------|
| **In thousand of USD**                                              |   | **Year**                 |       | **For  8-month period  ended Nov. 30****th** |       |
| **Assets**                                                          |   | **2001**                 |       | **2002**                                     |       | **2001** |   | **2002** |   |
| Land  and buildings                                                 |   | 27                       |       | 62                                           |       | 2 |   | 97 |   |
| Plant,  machinery and equipment (1)                                 |   | 186                      |       | 206                                          |       | 136 |   | 203 |   |
| Transportation  equipment                                           |   | -43                      |       | 40                                           |       | 15 |   | 0 |   |
| **TOTAL  IN THOUSANDS OF US$**                                      |   | **256**                  | ** ** | **308**                                      | ** ** | **153** | ** ** | **300** | ** ** |
| **TOTAL  IN MILLION CONSTANT BOLIVARS AT NOVEMBER 30****th,  2002** |   | **258**                  | ** ** | **335**                                      | ** ** | **139** | ** ** | **398** | ** ** |

 

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(1)     The figure for Plant, Machinery andEquipment includes office furniture.

 

Sissons Paints Limitedestimated capital expenditures for fiscal year 2003, as shown in the chartbelow, will provide for the expected new projects, in addition to machineryupgrade and maintenance:

 
| **Assets**                      |   | **In thousands  of US$** |       |
|---------------------------------|--------|--------------------------|------------|
| Land  and buildings             |   | 50                       |       |
| Plant,  machinery and equipment |   | 425                      |       |
| **TOTAL**                       |   | **475**                  | ** ** |

 

The Company anticipatesthat these expenditures will be met from internal funds flow. It is projectedthat the Grenada operations will be allocated USD 134,000 of the total budgetwhile the Trinidad and Tobago operations will utilize the balance of USD341,000. The above does not include the possible investment in the ResinProject which consisted in the implementation of a plant of resin-basedproducts, but it still in its initial stage.

 

Business Overview:

 

Sissons Paints Limitedwas incorporated in the Republic of Trinidad and Tobago in 1960. It is engagedin manufacturing household and industrial paints in Trinidad and Tobago andGrenada, and also accessories at its Trinidad and Tobago plant. Its principalsubsidiary is Sissons Paints (Grenada) Limited, a manufacturing anddistribution company incorporated in Grenada, West Indies. Sissons Paints alsohas the following wholly-owned subsidiares:

 

•      Sissons Paints (Barbados) Limited(dormant), incorporated in Barbados, West Indies

•      Decorative and Industrial PaintingContractors Limited (dormant), incorporated in Trinidad and Tobago

•      Infinity Colour Shops Limited (active),incorporated in Trinidad and Tobago

 

Sales, Productsand Markets:

 

Sissons Paints Limitedmanufactures and distributes architectural coatings in the followingcategories: water-based products, alkyd products, varnishes, primers, lightindustrial products, and wood finishes. In addition, it now produces Inksolutions and NC products, which are nitrocellulose-based products used forpainting and treating wood and

 

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as a base for some types of ink, and has also commenced production ofthe Cerdex brand paint brushes, for sale throughout it present markets and alsospecific foreign markets within the Caribbean Basin.

 

In October 2003there were seven Colour Shop Stores in Trinidad & Tobago, most of themlocated in Port of Spain, St. Agustine, Chaguanas and Marabella; one of thesestores is owned and managed by Sissons Paints and the rest operates under afranchise scheme.

 

Market:

 

Sissons Paints Limiteddistributes locally in Trinidad and Tobago and Grenada and exports to thefollowing countries and cities in Central and South America and the Caribbean:Jamaica, Antigua, St Kitts, St Vincent, St Lucia, Barbados, Belize, Guyana,Suriname and Margarita Island in Venezuela.

 

Revenues are distributedas shown in the chart below:

 
|                                                                   |   | **At  March 31st****,** |       | **At November 30th****,**           |       |
|------------------------------------------------------------------------|--------|------------------------------|------------|------------------------------------------|------------|
| **In thousand of USD**                                                 |   | **Year**                     |       | **For  8-month period  ended Nov. 30th** |       |
| **Market**                                                             |   | **2001**                     |       | **2002**                                 |       | **2001** |   | **2002** |   |
| Local  Trinidad and Tobago                                             |   | 5,075                        |       | 5,376                                    |       | 3,506 |   | 4,079 |   |
| Local  Grenada                                                         |   | 2,359                        |       | 2,100                                    |       | 1,309 |   | 1,540 |   |
| Exports                                                                |   | 1,109                        |       | 1,371                                    |       | 760 |   | 1,306 |   |
| **TOTAL  IN THOUSAND OF US$**                                          |   | **8,543**                    | ** ** | **8,847**                                | ** ** | **5,575** | ** ** | **6,925** | ** ** |
| **TOTAL  IN MILLION OF CONSTANT BOLIVARS AT NOVEMBER 30th, 2002** |   | **8,444**                    | ** ** | **8,318**                                | ** ** | **5,322** | ** ** | **8,932** | ** ** |

 

Sissons Paints commencedshipments to mainland Venezuelan in March 2002 and achieved sales of USD 449,000for the eight-month period ended November 30, 2002. These sales areincluded in the Exports figure above. Sales of locally manufactured paintbrushes in the markets started in October 2002.

 

Seasonality:

 

In Sisson Paints’principal markets, demand tends to peak during the last quarter of the calendaryear (October - December), when 39% of the year’s total sales arerealized.

 

Raw Materials:

 

Raw materials areimported from Europe (5%), the United States of America (36%), Central America(2%), South America (17%), Venezuela (34%, primarily from Resimon, C.A.), FarEast (3%) and the Caribbean (3%). As a result of the work stoppage in late 2002and early 2003, oil prices continue to adversely affect the prices of our rawmaterials. Sourcing of new suppliers and the re-negotiating of existingcontracts are being employed in an attempt to deal with this situation.

 

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Marketing Channels:

 

Local distributionchannels are:

•             Direct sales to customers (includingcontractors and architects)

•             Distributors (Hardware merchantsand Colour Shops)

 

Export distributionchannels are:

•             Direct sales

•             Agents (both exclusive andnonexclusive)

 

Patents and Licenses:

 

Sissons Paints Limiteddoes not manufacture under any license or patent. Its relationship with theColour shops is conducted under a franchise arrangement, which includesexclusivity of sale products unless specifically approved by Sissons PaintsLimited. Sissons also gets technological assistance from its affiliated companyCorimon Pinturas in the industrial and maintenance market segment.

 

Market Share:

 

Sissons Paints Limitedmarket share for the eight-month period ended November 30th,2002 reached 30% in Trinidad and Tobago and 85% in Grenada. This market shareis based on statistical information provided both by Sissons’ clients and byindependent surveys the Company has required.

 

The company has continuedits growth path which started six years ago. The following chart shows that forthe last four fiscal years:

 
| **Period**                                    |   | **Sales**                |   |
|-----------------------------------------------|--------|--------------------------|--------|
|                                          |   | **(%  Increase in USD)** |   |
| Fiscal  year 2000 vs. Fiscal year 1999        |   | 9.9                      |   |
| Fiscal  year 2001 vs. Fiscal year 2000        |   | 9.7                      |   |
| Fiscal  year 2002 vs. Fiscal year 2001        |   | 3.6                      |   |
| Fiscal  year 2002(2) * vs. Fiscal year 2002 * |   | 24.2                     |   |

 

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* For the eight-month periods ended November 30,2002 and November 30, 2001

 

Based on externalsurveys, we believe that Sisson Paints’ products are very well respected in themarketplace and are in stronger demand than in previous years. This is the caseeven with the current proliferation of finished goods importation.

 

The fierceness of thecompetition over the above periods forced Sissons Paints to maintain theaverage level of prices.

 

Property, Plantand Equipment:

 

Sissons Paints has twooperating plants, one located in the Uriah Butler Highway, Chaguanas, Republicof Trinidad & Tobago and the other one located in Grand Anse, St. George’s,Grenada. Although its equipment has served Sissons Paints well over the years,we consider it to be aged and a replacement program has been implemented toreplace

 

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some dispersors and lab equipment, to improve competitiveness both inquality and cost. This project accounted for about USD 50,000, which were fullyprocured with funds from Sissons’ own operations and allocated throughout theeight-month period ended November 30th, 2002, period in which the projectwas completed. The main purpose of this project is not to increase capacity butto secure current production levels as well as quality. In Trinidad all fixedassets are owned by Sissons Paints except the land, which is under long-termlease from the government. In Grenada both the building and land are leasedfrom a government agency.

 

Sissons Paints has along-term property lease on the land where the Trinidad & Tobago plant islocated. It is a government sponsored lease of ninety nine years (endingin  2057) at a yearly rental of USD1.79. Sissons Paints also has a five-year lease on the building in which theGrenada plant operates at a yearly rental of USD 58,666.67. This leaseterminates December 31st, 2003 but an agreement has been reached for itscontinuation for another five years.

 

The Republic Bank Limitedof Trinidad and Tobago holds a lien on the fixed and floating assets of theoperations of Sissons Paints Limited in Trinidad and Tobago as security under aUSD 1 million credit facility issued in November 2002. Future income isexpected to service this facility adequately.

 

The following summarizesthe property and facilities utilized by Sissons Paints:

 
| **Assets**                                 |   | **Trinidad** |   | **Grenada** |   |
|--------------------------------------------|--------|--------------|--------|-------------|--------|
| Land  (long-term leases in both countries) |   | 11,380       | m2     | 2,700       | m2     |
| Buildings:                                 |   |         |   |        |   |
| Production                                 |   | 4,287        | m2     | 892         | m2     |
| Warehousing                                |   | 692          | m2     | 174         | m2     |
| Administration                             |   | 1,118        | m2     | 198         | m2     |

 

Each of Sissons Paints’plants has a production capacity of 1 million gallons per year, operating inone shift per day. Total production levels for both plants are as shown in thechart below:

 
|                  |   | **Year Ended  March 31st** |   | **For  8-month period  ended Nov. 30th** |   |
|-----------------------|--------|---------------------------------|--------|------------------------------------------|--------|
|                  |   | **2001**                        |   | **2002**                                 |   | **2001** |   | **2002** |   |
| Thousands  of gallons |   | 781                             |   | 765                                      |   | 434 |   | 663 |   |

 

Sissons Paints isconcerned about environmental issues; it has installed solvent recoveryequipment and a wastewater treatment plant, which are providing adequateadherence to the environmental requirements.

 

Operating andFinancial Review and Prospects:

 

Operating Results:

 

Sales during theeight-month period ended November 30th, 2002 increased by 24%compared to the eight-month period ended November 30th, 2001,as a result of market

 

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expansion. Moreover, since prices have remained stable (as statedabove) therefore the increase in sales revenue is due to the increase in salesvolume that came as a result of the geographic expansion of the market. Ourentry to the Venezuelan mainland market has also contributed positively,generating (6%) of total sales.

 

During the eight-monthperiod ended November 30th, 2002 net income increased by 35%compared to the same period in the prior year, due to the increase in sales anda reduction in costs related to sales; similarly, operating income increased by37% for the same period. Sissons Paints has benefited by the fact that therates of exchange in its principal markets have been stable; also, since all foreignsales are conducted in US dollars the company experiences no negative foreignexchange exposure in connection with exports.

 

Liquidity and CapitalResources:

 

Sissons Paints’ liquidityposition has remained strong. Most working capital requirements have been metfrom internally generated cash flow as well as from a USD 313,000 bank loanfacility.

 

Sissons Paints also hasan overdraft facility of US$125,000 available for working capitalpurposes.  Capital commitments expectedfor the next fiscal year are:

 
|                                                                                              |   | **Thousand  of US$** |   |
|---------------------------------------------------------------------------------------------------|--------|----------------------|--------|
| **Building improvements**- to enhance existing facilities                                         |   | 50                   |   |
| **Machinery and equipment**- to upgrade laboratory and manufacturing facilities                   |   | 350                  |   |
| **Furniture and equipment**- replacements and upgrading including computer  hardware and software |   | 50                   |   |

 

Research and Development,Patents and Licenses, etc:

 

Research and developmentpolicies aim at producing environmentally friendly products by reducing theamount of solvents in alkyd paints and eliminating the use of lead-basedpigments in architectural paints.

 

Improvements to date havenot involved any significant additional expenses, other than regular operatingexpenses.

 

Sissons Paints is notdependent on patents or licenses, industrial, commercial or financialcontracts.

 

Trend Information:

 

Production capacity hasincreased during the eight-month period ended November 30th,2002 as a result of the acquisition of additional production equipment.Management believes this will be adequate to meet immediate futurerequirements. The performance in

 

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the ensuing year has been acceptable to date and we expect toaccomplish our projections for fiscal year 2003. Sissons Paints expects anincrease in sales (as measured in gallons), of approximately 10%. Seesection 5D for more  informationregarding trends).

 

***Resimon, C.A.***

 

Resimon, C.A. is a stockcompany (“Compañía Anónima”) incorporated on May 06, 1965 under VenezuelanLaw, with a life term that expires on June 08, 2009. Its domicile is CarreteraFlor Amarillo, Valencia.

 

CapitalExpenditures:

 

During the last threefiscal years, capital expenditures were not material. The only capitalexpenditures made were those for repairs of machinery and equipment amountingto Bs 40 million (US$ 36,892), Bs 205 million (US$ 141,688) and Bs 205 million(US$ 159,300) for fiscal years 2001, 2002 and for the eight-month period endedNovember 30, 2002, respectively. These expenses contributed to enhancingthe operating condition of the production areas.

 

Business Overview:

 

Resimon’s main activityis the manufacture and sale of synthetic resins oriented towards paints andcoatings, plastics, and agglomerated and molding compounds. Resimon, C.A. alsorenders services that include preparing products for certain clients (Pequiven,Nalco and Copequim) utilizing raw material provided by these clients. Thisservice is called “maquila”.

 

Sales, Productsand Markets:

 

Resimon, C.A.participates in the coatings, plastics and agglomerates international andnational markets. During the last three fiscal years, sales in the nationalVenezuelan market were as shown in the following chart:

 
|                                                                       |   | **At  March 31st****,** |       | **At  November 30th****,**          |       |
|----------------------------------------------------------------------------|--------|------------------------------|------------|------------------------------------------|------------|
| **In million of USD**                                                      |   | **Year**                     |       | **For  8-month period  ended Nov. 30th** |       |
| **Market**                                                                 |   | **2001**                     |       | **2002**                                 |       | **2001** |   | **2002** |   |
| Coatings                                                                   |   | 14                           |       | 14                                       |       | 13 |   | 7 |   |
| Plastics                                                                   |   | 4                            |       | 5                                        |       | 4 |   | 2 |   |
| Agglomerates                                                               |   | 5                            |       | 3                                        |       | 3 |   | 2 |   |
| **TOTAL  IN MILLION OF USD**                                               |   | **23**                       | ** ** | **22**                                   | ** ** | **20** | ** ** | **11** | ** ** |
| **TOTAL  IN MILLION OF CONSTANT BOLIVARS AT NOVEMBER 30**th**, 2002** |   | **26,762**                   | ** ** | **24,880**                               | ** ** | **19,565** | ** ** | **15,387** | ** ** |

 

Of these sales, 93% wereconcentrated in the Capital Region, 5% in the Oriental region and 2% in theOccidental Region of the country. In the exports market, Resimon’s salesreached Bs 2,015 million (US$ 2 million) for the eight-month period endedNovember 30, 2002, Bs 3,330 million (US$ 3 million) for the fiscal yearended March 31, 2002 and Bs

 

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4,391 million (US$ 4 million) for the 2001 fiscal year. In the lastthree fiscal years export sales were distributed among Caricom – CaribbeanCommunity (70%), the Andean Group (20%) and Central America (10%)

 

Seasonality:

 

Since Resimon, C.A.produces resins mainly for the coatings market, its sales follow the paints andrelated products seasonality in Venezuela, reaching its peak during the monthsfrom August through November. During this period, export sales toVenezuela can reach up to 65% of total annual sales for such market.

 

Raw materials:

 

Resimon obtainsapproximately 30% of its raw material supplies from domestic sources and approximately70% are imported. The main domestic suppliers are Casanay Chemical,Servifertil, Copequim, OCV Trading, Countertrade, Petrofert and Pralca. As forimports, 32% are from the United States of America where the main suppliers areShenectady, Paul Marsh, Oxyde and Degussa; 50% are from Europe, with the mainsuppliers being B.Veerednigde Oliefabrieken, Polialco and Perstop, and 18% fromSouth America, where the main suppliers are Producciones Químicas, YPF andOxiquim (see section 10D for more information).

 

Variations in the pricingof raw materials are linked to oil prices, since most of the resins used tomanufacture our products are derivatives of the oil industry.

 

Marketing Channels:

 

Resimon, C.A. sellsdirectly to clients in the national and export markets. Resimon, C.A. onlymakes use of three representative agents for exports to third parties, such asAsoquim in Ecuador, Shiloh Enterprise in Trinidad, and Química Comercial Andinain Colombia.

 

Patents and Licenses:

 

Resimon, C.A. hascontracts with two of its clients, Pequiven and Benetech, for the manufactureof products on behalf of the customer under the concept of the “maquila”service. Pursuant to these contracts, the clients provide the raw material andResimon, C.A. provides the manufacturing services needed to produce finishedgoods. The clients with whom Resimon has such contracts are: Pequiven andBenetech. Both these contracts are executed on a case-to-case basis, dependingupon the needs of the client and they do not imply any commitment for Resimonother than converting the raw material into finished goods. Resimon is notdependent on these contracts since they do not represent a significantpercentage of the Company’s income or production.

 

Resimon is not dependenton patents or licenses, industrial, commercial or financial contracts.

 

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Market Share:

 

During the eight-monthperiod ended November 30th, 2002,  Resimon, C.A. maintained its leadership in the Venezuelan resinsmanufacturing market with a market share of 50%, 60% and 50% in the coatings,plastics and agglomerates markets, respectively.

 

Resimon, C.A. determinesits market share calculation and its competitors market share based on constantsurveys made by its clients and by its own Sales and Marketing Department.

 

Government Regulations:

 

Some governmentregulations have had a positive effect on Resimon, such as the tax drawbacks,which allow companies to get taxes reimbursed. Every exporter has the option ofregistering itself at the Tax Administration and based upon to the productsthey export, receive a tax exception of up to 3,5% of the Freight-On-Board(FOB) value. Resimon, C.A, saved a little over Bs 15 million through thismechanism during the eight-month period ended November 30th,2002. These regulations increased Resimon’s competitiveness of finishedproducts overseas. The exchange controls imposed by the Venezuelan governmenthave negatively impacted the Company, as described in Item 10D.

 

Environmental issues:

 

Resimon, C.A. operates incompliance with Venezuelan Environmental Laws and conducts constant researchinto developing innovative and effective methods to reduce environmental risks.In February 2001, an evaluation to assess Resimon’s compliance with theselaws was conducted and revealed only two issues that Resimon is currentlyresolving satisfactorily.

 

Property, Plantand Equipment: 

 

Resimon, C.A. owns aplant of 24,527 m2 located on 86,305 m2 of land located in Carretera FlorAmarillo, Valencia. The plant has an installed capacity of 70,000 metric tonsof resin distributed over seven production areas with 25 reactors. The plant isutilized at 65% of its installed capacity.

 

Operating andFinancial Review and Prospects:

 

Operating Results:

 

For the eight-monthperiod ended November 30th, 2002 Resimon, C.A. registered salesof Bs 15,387 million, representing a 21% decrease with respect to the sameperiod in the previous fiscal year; such decrease was due to the political andeconomical situation explained in item 3.D (Risk Factors), principally as aresult of the high levels of inflation and the strong devaluation thatdepressed the resins market and contracted demand for Resimon’s products. Onlythrough a cost and expense optimization plan, Resimon was able to limit itsoperating loss to Bs 148 million.

 

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Liquidity and CapitalResources:

 

During the fiscal yearended March 31st, 2002 and the eight-month period endedNovember 30th, 2002, all capital resources were provided from operatingactivities, therefore Resimon did not engage in any financial debt. Duringfiscal year 2001 obtained loan proceeds in the amount of Bs 1,536 million fromBanesco Banco Universal (formerly Unibanca Banco Universal) and issued a promissorynote with Central E.A.P for a total of Bs 221 million.

 

a)              Cash Flows:

During the eight-monthperiod ended November 30th, 2002 Resimon, C.A. generatedoperating cash inflow of Bs 21,334 million (USD 12,152,000), which wascomprised 35% of revenue from sales to Corimon Pinturas, C.A., 52% of revenuefrom sales to unaffiliated parties in the Venezuelan market, and 13% of exportrevenue. Cash flow operating outlays reached Bs 14,783 million (USD11,157,000), of which 87% was represented by raw material costs, freight,customs duties and payroll expenses; and non-operating cash outlays were Bs1,716 million (USD 1,295,000) 90% of which relates to administrative services,professional fees and financing costs. At the end of the eight-month periodended November 30th, 2002 Resimon had a negative cash flow ofBs 398 million (USD -300,000). Resimon has a strong sales season betweenOctober 15th and December 15th, and collectionsfrom these sales take place during the month of January, thus the negativebalance of the cash flow is offset with these collections.

 

During the fiscal yearended March 31st, 2002 Resimon, C.A. generated operating cashflow of Bs 30,387 million (USD 28,155,000), which was comprised 35% of revenuefrom sales to Corimon Pinturas, C.A., 57% of revenue from sales to unaffiliatedparties in Venezuela, and 8% of export revenue. Cash flow operating outlaysreached Bs 28,217 million (USD 26,256,000), of which 88% was represented by rawmaterial costs, freight, customs duties and payroll expenses. Non-operatingoutlays added up to USD 2,348,000, 90% of which relates to administrativeservices, professional fees and financing costs. The negative net cash flow atthe end of 2002 was Bs 396 million (USD -450,000). Resimon’s sales andcollection cycle also apply in this case to compensate for the negative cashflow.

 

Finally, during fiscalyear 2001 Resimon, C.A. generated operating cash flow of Bs 24,902 million (USD29,273,000), which was comprised 36% of revenue from sales to Corimon Pinturas,C.A., 56% of revenue from sales to unaffiliated parties in Venezuela, and 8% ofexport revenue. Non-operating cash flow from corporate financing reached atotal of Bs 2,056 million. Cash flow operating outlays were Bs 24,901 million(USD 29,390,000), of which 87% was represented by raw material costs, freight,customs duties and payroll expenses.

 

Research and Development:

 

The quality, research anddevelopment policies of Resimon, C.A. are based on the following strategies:

 

1.     Productinnovation and improvement in order to meet the market’s changing needs.

2.     Assuranceprovided to clients as to the product being of top quality.

3.     Technicalassistance to clients in respect of product application.

 

38

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4.     Improvementof the production procedures in order to guarantee an optimal cost/valuerelationship.

 

Resimon has not have anymajor Research and Development activity during the last three fiscal periods.

 

Trend Information:

 

For fiscal year 2003Resimon’s production is expected to be approximately 9,500 metric tons andsales estimates are near the 7,905 metric tons and a reduction of 11% in salesdenominated in bolivars compared to the same period ending on November 30th,2002, this reduction is caused by the market contraction and the reduction indemand. Costs and expenses policies, specially related to reductions in payrolland public services such as electricity, gas and nitrogen, will be implemented.Forecasts indicate that operating income is expected to increase significantlycompared to the same period ending on November 30th, 2002, mainlyoriginated by a price adjustment and keeping our costs controlled.

 

***Cerdex, C.A.***

 

Cerdex, C.A. is a stockcompany (“Compañía Anónima”) incorporated on August 7, 1962 underVenezuelan Law, with a life term that expires on August 7, 2012. Its domicile is Av. Hans Neumann,Urb. Industrial El Bosque, Valencia, Edo. Carabobo, Venezuela.

 

During the eight-monthperiod ended November 30th, 2002 in an effort to reduce costsand achieve better results through synergy, Cerdex, C.A. and Resimon, C.A.’sAdministrative Departments were combined. Also the Sales Department wasseparated from the storage and distribution of finished products.

 

CapitalExpenditures:

 

Capital expenditures duringthe eight-month period ended November 30th totaled Bs 16million (USD 12,000). With this investment Cerdex, C.A. was able to build moldsfor the elaboration of brush handles for a new product line . This also allowedCerdex, C.A. allocated funds to increasing its production levels. Capitalexpenditures for the fiscal years ended March 31st, 2002 andMarch 31st, 2001, were Bs 234 million and Bs 79 million,respectively. Investment in capital expenditure that took place in 2001 and2002 were entirely related to improvements in machinery and equipment.

 

Business Overview:

 

Cerdex, C.A. is engagedin manufacturing and selling paint tools and has three manufacturing lines:brushes, roller covers and circular and manual brushes. Its other activitiesinclude selling Cerdex’s registered brands of products such as spray paints,enamels and gum elastic (under the Deco brand), sandpaper and decorative ribbon(under the Flash brand). During the fiscal year ended March 31st,2002 the illumination line was added to Cerdex’s commercialization activities,which involves the selling and distribution

 

39

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of various types of lamps that the Company had in storage fromConstrucentro’s remaining inventory.

 

Sales, Productsand Markets:

 

Cerdex, C.A. providesproduct primarily to the construction and remodeling markets. Sales of thedifferent product lines during the last three fiscal years are shown in thechart below:

 
|                                                                   |   | **At  March 31st,** |       | **At  November 30th,**              |       |
|------------------------------------------------------------------------|--------|--------------------------|------------|------------------------------------------|------------|
| **In thousand of USD**                                                 |   | **Year**                 |       | **For  8-month period ended  Nov. 30th** |       |
| **Products**                                                           |   | **2001**                 |       | **2002**                                 |       | **2001** |   | **2002** |   |
| Brushes                                                                |   | 2,559                    |       | 2,830                                    |       | 2,288 |   | 1,132 |   |
| Roller covers                                                          |   | 1,001                    |       | 1,265                                    |       | 1,033 |   | 470 |   |
| Circular and manual  brushes                                           |   | 190                      |       | 181                                      |       | 119 |   | 61 |   |
| Other                                                                  |   | 1,488                    |       | 1,746                                    |       | 1,623 |   | 1,066 |   |
| **TOTAL IN THOUSAND OF USD**                                           |   | **5,238**                | ** ** | **6,022**                                | ** ** | **5,063** | ** ** | **2,732** | ** ** |
| **TOTAL  IN MILLION OF CONSTANT BOLIVARS AT NOVEMBER 30th, 2002** |   | **4,204**                | ** ** | **4,544**                                | ** ** | **4,972** | ** ** | **3,870** | ** ** |

 

National sales weregeographically distributed as follows:

•    Central region: 40%

•    Occidental region: 30%

•    Oriental region: 30%

 

Seasonality:

 

Cerdex’s products aredirected at the paints and related products market; therefore, sales peak inSeptember, October and November, as during these months 45% to 50% oftotal sales are registered. This seasonality occurs because of factors similarto those explained for seasonality as regards Corimon Pinturas.

 

Raw materials:

 

Raw materials are derived50% from local sources and 50% from imports, with the main suppliers at anational level being: Industrias Trasplaven, Técnica Monte Blanco, UnitedChemical, and Colomural de Venezuela. Ninety percent of imported raw materialsare sourced from Asia and 10% from the United States with the main suppliersbeing Desco Deshulthes, Delbanco Meyer and Paul Marsh. Price volatility ofnational supplies is influenced by depreciation of the local currency.

 

Marketing Channels

 

Cerdex’s marketingchannels are direct sales, merchandisers and franchises licensed by TiendasMontana (a subsidiary of Corimon). Merchandisers account for more than 7,000points of sale, direct sales account for over 1,000 points of sale and TiendasMontana for about 80 points of sale.

 

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Market Share:

 

During its 46 yearsCerdex, C.A. has been a leader in the Venezuelan market for manufacturing andselling paint tools. At present, the Venezuelan market for brushes isdistributed as follows: 42% to Cerdex, C.A., 35% to Cebra, C.A., and 10% toFanabro.

 

The market share ofCerdex, C.A. is based on data obtained from the Sales and Marketing Departmentand through surveys made by Tecnica Monte Blanco which is a sole supplier inVenezuela of metallic parts for brushes.

 

Cerdex, C.A. is notdependent on patents or licenses, industrial, commercial or financial contracts.

 

Property, Plantand Equipment: 

 

Cerdex, C.A. owns a plantof 3000 m2 located on land of 10,000 m2 in Valencia,Estado Carabobo, Venezuela. The plant production capacity is 3,300,000 unitsannually, distributed along three production lines: brushes, roller covers, andcircular and manual brushes. The plant was utilized at 80% of its installedcapacity.

 

The brushes product linehas a production capacity of 2,000,000 units for its 35 product lines. Thisline includes operating equipment such as automatic head-assembly machines, anepoxy resin pump, brush head cutter, combing and cleaning/flirting machine,automatic trimming and handle assembly mailing machine.

 

The roller covers linehas a production capacity of 1,100,000 units a year. It has thermal-fusionequipment that is unique in the country, as well as winder machines, fabricstrips cutting machines and sewing and assembly machines. The circular andmanual brushes line has a production capacity of 200,000 units and comprisesautomatic insert machines and cutting machines among others.

 

Cerdex, C.A. also haswarehouses for raw materials and finished products, a dispatch area andadministrative offices.

 

Operating andfinancial review and prospects:

 

Operating results:

 

For the eight-monthperiod ended November 30th, 2002 Cerdex, C.A.’s total saleswere 2.302 thousand units, yielding Bs 3,870 million (USD 2,732,000) comparedto 3.082 units sold, which represented Bs 4,972 million (USD 6,023,000) for thesame period in 2001. Operating income was Bs 316 million, compared to Bs 1,026million for the eight-month period ended November 30th, 2001, caused by theVenezuelan political and economic situation and a 50% contraction in theconstruction segment cut demand for paint related products such as brushes androllovers directly affecting the company’s sales.

 

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Liquidity and CapitalResources:

 

During the eight-monthperiod ended November 30, 2002 and the fiscal years ended March 31,2002 and March 31, 2001, all financing sources were internal and Cerdex’sworking capital has been sufficient to maintain its operations. Liquidityrequirements have been fully financed by internally generated funds.

 

a)              Cash Flow:

During the eight-monthperiod ended November 30th, 2002 Cerdex, C.A. generated operating cashinflow of Bs 4,910 million (USD 3,706,000) that was comprised of mostly salesof brushes and rollovers (60% of total sales). Cash flow operating outlaysreached Bs 4.111 million (USD 3,103,000), of which 45% was represented by rawmaterial costs and 27% payroll expenses, non-operating cash outlays were Bs 721million (USD 544,000) 16% of which relates to administrative services paid toCorimon, C.A., professional fees, principal payments and financing costs.

 

Trend Information:

 

For fiscal year 2003Cerdex, C.A. forecasts a material decrease in both production and sales due tocountry related factors and the forecasted economic recession that will lead toa contraction in the paint-related products market. (See section 5D formore information regarding trends).

 

***Tiendas Montana, C.A.***

 

Tiendas Montana, C.A. isa stock company (“Compañía Anónima”) incorporated on December 19, 1968under Venezuelan Law, with a renewable life term that expires onDecember 19, 2008. Its domicile is Calle Hans Neumann, Edif. Corimon PH,Los Cortijos de Lourdes, Caracas, Venezuela.

 

Business Overview:

 

Tiendas Montana, C.A.acts as franchisor for a chain of retail stores that sells paints and relatedproducts and decorative accessories. The Tiendas Montana stores not only marketthe leading paint brands “Montana” and “Pinco” but also offer specialtechnological services and support to help clients make their selection. As ofNovember 2002 Tiendas Montana had more than 80 franchised stores all overthe country and this number is constantly growing since the franchised storeshave been proved to be a profitable business for the franchises that requireslow investment.

 

Some of the major termsincluded in the franchise agreement are: the use of the name “Tiendas Montana”and the operation, promotion and advertising of the store under such name,which can’t be changed. It also implies the right to use the Tiendas Montanabrand name and any other brand that could get incorporated by the Company aspart of the franchise system. This agreement states a specific location wherethe franchisee can operate under the guidelines provided by the Company throughconstant counseling. Included in these guidelines are: sales prices, productsand services offered, personnel training, customer service and advertising.Franchisees pay a fee that is calculated based on the amount of paint theyacquire from Corimon Pinturas.

 

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Sales, Productsand Markets:

 

Tiendas Montana’sprincipal markets are architectural, industrial, wood and third party products(painting and decorative related products). The architectural market representsapproximately 80% of income for each store, the industrial market represents10%, the wood market represents 5% and finally, third party products representthe other 5%.

 

Products for thearchitectural market are indoor and outdoor paints of the Montana and Pincobrands, while those for the industrial market are directed at the industrialand construction segments. Wood market products are specially made for theprotection and decoration of wood surfaces. The third party market products aremainly of the Cerdex, C.A. brand and include sandpaper, painting accessories,decorative ribbons and other. The stores are contractually obligated to sellexclusively Corimon’s products.

 

The principal income ofTiendas Montana C.A. is an initial fee of $5,000 and a 3% monthly fee over thetotal sales that every franchisee pays. The initial $5,000 fee is assigned tothe local store’s standardization, which requires pre-established expenses thatare fully covered by this fee. The other 3% fee over the total sales, oncereceived by Tiendas Montana, is distributed as follows: 1.5% for advertisingexpenses and 1.5% for operating expenses. In addition, Tiendas Montana, C.A.earns a commission of 1.5% on purchases made by the stores from CorimonPinturas.

 

Seasonality:

 

The seasonality ofTiendas Montana, C.A. is similar to that of Corimon Pinturas where sales peakin August through December each year.

 

Marketing channels:

 

The marketing channel forTiendas Montana, C.A. is through direct sales to customers. The strategy is tocover all the national territory and make people aware of the advantages andproducts that the Tiendas Montana stores offer to their clients. As ofNovember 2003 Tiendas Montana, C.A. had more than 80 franchised storescovering 90% of the Venezuelan territory. There is a high demand for TiendasMontana franchise stores and, therefore, the number of stores over the countryis constantly increasing.

 

Market Share:

 

Market share of TiendasMontana, C.A. is calculated over the total sales of Corimon Pinturas. TiendasMontana represents 25% of total sales of Corimon Pinturas. Additionally, marketshare for Tiendas Montana as a percentage of market coverage is approximately24%, based on the total number of similar stores nationwide.

 

Tiendas Montana isdependent on the franchise agreements with its franchisees, and is nototherwise dependent on patents or licenses, or any industrial, commercial orfinancial contracts.

 

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Property, Plantand Equipment:

 

Among its assets, TiendasMontana, C.A. has 5 commercial locations used for the marketing and distributionof paints and related products. All of these sites are rented by franchiseesand are shown in the chart below:

 
| **Place**       |   | **Location**   |   | **Area**  |   |
|-----------------|--------|----------------|--------|-----------|--------|
| Los  Teques     |   | Miranda State  |   | 275 m2    |   |
| Guacara         |   | Carabobo State |   | 161.65 m2 |   |
| Ciudad  Bolivar |   | Bolivar State  |   | 170.36 m2 |   |
| Indio  Mara     |   | Zulia State    |   | 200 m2    |   |
| La  Limpia      |   | Zulia State    |   | 182 m2    |   |

 

Operating andfinancial review and prospects

 

Operating loss for theeight-month period ended November 30th, 2002 was Bs 8 million,compared to an operating loss of Bs 142 million for the same period endedNovember 30th, 2001; this improvement was caused by a reductionof Bs 60 million in advertising expenses, Bs 20 million in repair andmaintenance, Bs 19 million in rent  andBs 25 million in professional fees. Operating expenses were Bs 342 million,mainly represented by payroll and advertising expenses which amounted to Bs 194million and Bs 76 million respectively; compared to a total of Bs 537 million,composed of payroll (Bs 199 million) and advertising (Bs 136 million) for theeight-month period ended November 30th, 2001. By March 31st2002, all Tiendas Montana stores were franchised, in contrast to prior periodswhen Tiendas Montana, C.A. owned and managed some of the stores.

 

Trend Information:

 

By the end of the 2003 calendaryear, Tiendas Montana, C.A. estimates it will buy from Corimon Pinturas Bs15,000 million in paints, and franchisees will pay Tiendas Montana, C.A. apercentage of their total purchases, which we project will generate income ofapproximately Bs 480 million (USD 300,000) for such calendar year.

 

Among the new projectsfor 2003 is the launching of the Pinco chain of stores (trademark of CorimonPinturas, C.A.) by Tiendas Montana, C.A. The proven success for the franchiseesof the Tiendas Montana, C.A. franchises, which sell the Montana products, hasled Tiendas Montana, C.A. to implement the same business model for the otherbrand of Corimon Pinturas, C.A. (Pinco).

 

By fiscal year 2003Tiendas Montana expects to open 20 new stores, 8 of which will distribute Pincoproducts and the remainder Montana products.

 

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**4B. 2) Packaging and Ink:**

 

***Montana Gráfica-Convepal, C.A.***

 

Montana Gráfica-Convepal,C.A. is a stock company (“Compañía Anónima”) incorporated on July 15, 1959under Venezuelan Law, with a life term that expires on July 13, 2009. Itsdomicile is Carretera Nacional-Mariara, Edo. Carabobo.

 

The most relevant eventduring the eight-month period ended November 30, 2002 was the consummationof a commercial agreement with our strategic supplier E.I. Dupont de Nemours& Co. to manage the supply of polyester, one of our main raw materials,under a consignment contract. According to this agreement DuPont, would placebetween 40 and 60 tons of raw material in the Montana Gráfica-Convepal’swarehouse and the Company would pay for it as it was used, with a 90 dayspayment period. This agreement ended on February 2003 and DuPont did notrenew it due to the Foreign Currency Exchange Control enacted by the Venezuelangovernment on February 5th, 2003.  Even though payments under the agreement were made in bolivars,DuPont acquired the raw material overseas and it was no longer profitable forthem to continue carrying on a contract denominated in bolivars at the pricelevels contemplated in the agreement. The termination of this contract has nothad a relatively significant impact on the Company’s ability to obtainpolyester because the Company has continued to acquire sufficient quantities ofpolyester from DuPont, albeit at a higher cost than that which applied underthe contract.

 

During this period,Montana Gráfica-Convepal, C.A. achieved a strong position as the main supplierfor clients like Biggott (American British Tobacco), Nestle, Panamco, Parmalat,all of them leaders in their own Venezuelan markets. These clients constantlyevaluate their suppliers and Montana-Grafica Convepal has been evaluated as“Approved” and “Qualified”, which are credentials only given to their main andbest suppliers.

 

Capital Expenditures:

 

During the eight-monthperiod ended November 30th, 2002 Montana Gráfica-Convepal, C.A.acquired a plotter (high resolution printer) to support the Design, Fotolitoand Pre-Press departments. This equipment goes in line with the cylinderengraving system so it will help save time and costs by automating the process.This equipment was purchased for Bs 25 million (USD 18,868).

 

Another major capitalexpenditure was the moving of the lithography machine to the flexible plant.With this Bs 50 million (USD 37,736) investment, Montana Gráfica-Convepal wasable to gather all its operations in the same area. In addition, approximatelyBs 40 million (USD 30,189) were designated to repair and maintenance expenses.

 

For the fiscal year endedMarch 31st, 2002, capital expenditures were Bs 31 million (USD18,113), and Bs 323 million (USD 186,416) of capital expenditure were incurredduring fiscal year 2001. Investment in capital expenditure that took place in2001 and 2002 were entirely related to improvements in machinery and equipment.

 

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Business Overview:

 

Sales, Productsand Markets:

 

Montana Gráfica-Convepal,C.A. manufactures a wide range of consumer products and industrial packing forthe flexible and pliable markets. It also offers designing and pre-pressservices for the graphic arts industries.

 

Packing manufacturing isdone following client specifications, and the Design and Pre-Press departmentshave state-of-the-art technology like the BARCO system (a particular hardwarespecially conceived for graphics design), which places the company as a leaderin the Latin American market. In order to develop new products, theTechnological Department is constantly participating in seminars andconferences related to the packing market and therefore has access to newtechnologies that allows it to analyze trends and its applications.

 

Montana Gráfica-Convepal,C.A. has not had any major Research and Development activity during the lastthree fiscal periods.

 

Sales for fiscal year2001, 2002 and the eight-month period ended November 30th, 2002 were Bs19,455 million (US$ 18.8 million), Bs 19,515 million (US$ 19.2 million) and Bs16,615 million (US$ 12.5 million) respectively. The market segments for whichMontana Gráfica-Convepal, C.A. manufactures flexible packing are shown in thechart below:

 

 
|                         |   | **At  March 31st,** |   | **At  November 30th,**              |   |
|------------------------------|--------|--------------------------|--------|------------------------------------------|--------|
|                         |   | **Year**                 |   | **For  8-month period  ended Nov. 30th** |   |
| **Market segment**           |   | **2001**                 |   | **2002**                                 |   | **2001** |   | **2002** |   |
| Food  and beverages industry |   | 44                       | %      | 39                                       | %      | 39 | % | 47 | % |
| Tobacco  industry            |   | 23                       | %      | 37                                       | %      | 37 | % | 36 | % |
| Detergent  industry          |   | 12                       | %      | 2                                        | %      | 2 | % | 2 | % |
| Other                        |   | 21                       | %      | 22                                       | %      | 22 | % | 15 | % |

 

National sales weregeographically distributed as follows:

•    Central region: 88%

•    Occidental region: 12%

 

Principal export marketsfor the eight-month period ended November 30th, 2002 include DominicanRepublic (60%) , Ecuador (10%), Trinidad & Tobago and Barbados (30%). Forthe eight-month period ended November 30th, 2002, nationalsales represented 96% of total sales (Bs 15,871 million) and exports 4% (Bs 744million).

 

Seasonality:

 

Montana Gráfica hashistorically experienced constant sales over the year since its clients aremostly consumer product manufacturers. Montana Gráfica-Convepal, C.A. sellsdirectly to its clients, mainly to: Nestlé de Venezuela, Owens Illinois,Cigarrera Bigott

 

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(B.A.T.), Phillip Morris, Colgate Palmolive, Coca Cola de Venezuela(Panamco), Pepsi-Cola de Venezuela and Industria Láctea Venezolana (Parmalat).

 

Raw Materials:

 

Local raw materialsrepresent 46% of our supply and are provided by recognized and reliablesuppliers in the Venezuelan market such as: Holanda de Venezuela; Teleplastic;Venepal; Grafis, Sunchemical; Alucasa; Mampa, Owens Illinois and Polimeros delLago.

 

Imported raw materialsrepresent the other 54% with the main suppliers being: Rohm & Hass; Dupont;Alunasa and Bopp del Ecuador. Prices for imported raw materials are based oninternational references and follow worldwide trends but are also influenced bythe Venezuelan bolivar/dollar exchange rate.

 

Marketing Channels:

 

Montana Gráfica-Convepal,C.A. manufactures products against orders placed by its clients and, therefore,uses the direct sales method.

 

Market Share:

 

Montana Gráfica-Convepal,C.A. has a market share of 33% in the Rotogravure market, and its second toRotoven, C.A. which has a 40% market share. Montana Grafica-Convepal alsoparticipates in the flexible packing market, but it has only a smallparticipation of the market, in which it has about 1% of market share. MontanaGráfica-Convepal, C.A. measures its market share through surveys made byclients and the distribution observed in the different markets where productsare packed with flexible and pliable packing.

 

Montana Gráfica-Convepal,C.A. is not dependent on patents or licenses, industrial, commercial orfinancial.

 

Property, Plantand Equipment:

 

Montana Gráfica-Convepal,C.A. owns a developed parcel of land of 139,237.11 m2  located in Mariara. This land is utilized asfollows:

 

1)     Raw material storage area

2)     Production area: where the different printing processes takeplace

3)     Ink storage area

4)     General warehouse for raw material

5)     Service and maintenance area

6)     Physics and chemical laboratories area

7)     Workshop

8)     Electric energy booth, water, gas, waste management and otherservices

9)     Sporting area

 

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The manufacturingequipment comprises BARCO graphics, cylinder engraving machines, rotogravureprinting machines, flexogravure printing machines, solvent based laminationmachines, solvent-less machines, coating extrusion machines, coating waxmachines, monolayer extruder machines, multilayer coextruders machine,two-layer coextruders, five-layer coextruders, slitters, rewinders, pouches andbag shaping machines, sheeters, embossing machines, labels slitting machine,guillotines, four colours roland printing machines, stamping molding  machines, moth guillotine machines andperforating machines.

 

The plant’s installedcapacity is shown in the chart below:

 
| **Division**                                   |   | **Installed  capacity (monthly)** |   | **Used  capacity** |   |
|------------------------------------------------|--------|-----------------------------------|--------|--------------------|--------|
| Flexogravure  and rotogravure printing systems |   | 10 million  lineal meters         |   | 80                 | %      |
| Lamination                                     |   | 10 million  lineal meters         |   | 60                 | %      |
| Extrusion  and coextrusion                     |   | 150 metric tons                   |   | 80                 | %      |
| Metalization                                   |   | 150 metric tons                   |   | 20                 | %      |
| Slitting  and finishing process                |   | 750 metric tons                   |   | 80                 | %      |
| Folding  boxes                                 |   | 200 metric tons                   |   | 80                 | %      |

 

Operating andFinancial Review and Prospects:

 

Operating results:

 

For the eight-monthperiod ended November 30th, 2002 sales of MontanaGráfica-Convepal, C.A. amounted to Bs 16,615 million (USD 12,527,000) comparedto Bs 13,886 million (USD 14,036,000) for the eight-month period endedNovember 30th, 2001. This increase in sales was mainly causedby an aggressive strategy of price reductions that allowed the Company toincrease its market share levels.

 

Montana Gráfica’sproduction activity is 70% oriented towards a consumer products market, whichallows it to maintain a constant production rhythm that is affected only by fluctuationsin the client’s products sales. Tobacco industry represents 30% of MontanaGráfica’s net sales. Other clients of the Company include manufacturers ofcertain food products such as drinks, milk and dehydrated soups.

 

Liquidity, CapitalResources and Cash Flows:

 

Montana Gráfica-Convepal,C.A. operates with internal working capital generated from both national andimport revenue sources without any need of external financing. The main sourceof internal cash flow is national sales, which constitutes 90% of total income.Accounts receivable represent 42 days of sales and even though working capitalis sometimes insufficient, the good rotation of accounts receivable tends torevert this flaw.

 

Export sales tointernational clients such as Colgate Palmolive, Royal, Helados Bon are anadditional source of cash flow.  Theprincipal geographic markets for exports are the Dominican Republic, Ecuador,Trinidad & Tobago and Barbados.

 

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a)              Cash Flow:

During the eight-monthperiod ended November 30th, 2002 Montana Gráfica-Convepal, C.A. generatedoperating cash inflow of Bs 16,002 million (USD 12,077,000), compared to Bs17,086 million (USD 19,106,51) and Bs 14,090 million (USD 21,029,850) forfiscal years ended March 2002 and 2001, that was comprised of mostly salesto the food, beverage and tobacco industry (83%). Cash flow operating outlaysreached Bs 15.030 million (USD 11,343,000), compared to Bs 16,330 million (USD18,261,112) and Bs 14,629 million (USD 21,834,328) for fiscal years endedMarch 2002 and 2001, of which 65% was represented by raw material costsand 15% payroll expenses, non-operating cash outlays were Bs 1,533 million (USD1,157,000), compared to Bs 1,671 million (USD 1,868,604) and Bs 1,092 million(USD 1,629,850) for fiscal years ended March 2002 and 2001, 88% of whichrelates to professional fees, principal payments and financing costs.

 

For the eight-monthperiod ended November 30th, 2002 cash flow reached anequilibrated closing balance of Bs 89 million.

 

Trend Information:

 

Montana Gráfica-Convepal,C.A. further positioned itself as a reliable supplier to its clients during theeight-month period ended November 30th, 2002, because theCompany believes it has demonstrated its ability to provide clients with goodquality products in an efficient manner. The packing market shows a trendtowards lighter structures, which translates into less printed yardage.

 

Production and saleslevel have been negatively affected by the Venezuelan political and economicalcrisis, especially the high inflation levels that have eroded consumer spendingpower and the strong devaluation of the local currency that has impacted ouraccess to raw materials, but profitability margins have risen due to priceadjustments. For the next fiscal year, Montana Gráfica-Convepal, C.A. expects a15% decrease in sales, as measured by tons sold, but nevertheless projects a56%  increase in bolivars sold, due toprice adjustments. It  also plans tomaintain the achieved inventory conversion cycle in 45 days. (Seesection 5D for more information regarding trends ).

 

***Grafis, C.A.***

 

Grafis, C.A. is a stockcompany (“Compañía Anónima”) incorporated on March 27, 1981 under theVenezuelan Law, with a life term that expires on April 1, 2020. Itsdomicile is Carretera Nacional- Mariara, Edo. Carabobo.

 

During the eight-monthperiod ended November 30, 2002 Grafis, C.A. created new formulas for itsRotogravure line., The most important such formula is Refal, which wasconceived for Montana Gráfica-Convepal in response to its need for a moreconcentrated ink that yielded a better quality vs. cost ratio.

 

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Business Overview:

 

Grafis, C.A. is a leaderin the Venezuelan market for in inks for graphic arts manufacturing, marketingand distribution. It transforms raw material into finished products forapplications in graphic designs printing on flexible packaging for food,beverages, and other home products. The main product lines that Grafis, C.A.sells are Flexogravure and Rotogravure and printing inks.

 

Sales, Productsand Markets:

 

For the past three fiscalyears Grafis C.A generated total sales were of Bs 3,788 million (USD 3,660,000)for the fiscal year ended March 31st, 2001, Bs 3,022 million(USD 2,969,000) for fiscal 2002 and Bs 2,468 million (USD 1,830,000) for theeight-month period ended November 30th, 2002. Sales compositionfor the last three years have been as follows:

 
|               |   | **At  March 31st,** |   | **At  November 30th,**              |   |
|--------------------|--------|--------------------------|--------|------------------------------------------|--------|
|               |   | **Year**                 |   | **For  8-month period ended  Nov. 30th** |   |
| **Market segment** |   | **2001**                 |   | **2002**                                 |   | **2001** |   | **2002** |   |
| Rotogravure        |   | 69                       | %      | 75                                       | %      | 75 | % | 75 | % |
| Flexogravure       |   | 31                       | %      | 20                                       | %      | 20 | % | 20 | % |
| Lithography        |   | —                   |   | 4                                        | %      | 4 | % | 4 | % |
| Other              |   | —                   |   | 1                                        | %      | 1 | % | 1 | % |

 

Grafis’ clients targetthe consumer goods market primarily, which generally allows for Grafis, C.A. tohave a constant level of sales throughout the year. Grafis’ main clients are:Montana Gráfica-Convepal, Rotoven, Inflevenca, Pavema Gráfica, Moore andColumural.

 

Seasonality:

 

Grafis, C.A. presentssimilar seasonality to Montana Gráfica-Convepal, C.A. as explained above, whichhas historically experienced constant sales over the year since its clients aremostly consumer product manufacturers

 

Raw Materials:

 

Most raw materials(approximately 90%) are imported and distributed by local suppliers andapproximately 4% are bought directly from foreign suppliers. Our main suppliersare: Counter Trade, Distribuidora Prosequim, Holanda de Venezuela, Mapriquim,Centro Quimico, Quibarca, Lawter, Sun Chemicals, Akzo Nobel, Rohm & Hassand Sissons Paints Limited. Approximately 6% of raw materials are sourcedlocally and distributed by local suppliers; however invoices are charged inU.S. dollars. Therefore, exchange rates and international trends affect rawmaterial costs (see section 10D for more information).

 

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Marketing Channels:

 

Grafis, C.A. operatesunder a direct sales system for distributing and selling its products.

 

Market Share:

 

Grafis’ market share forthe eight-month period ended November 30th, 2002 was as followsbased on surveys and feedback from its clients:

 

In the Rotogravure lineof production, Grafis’ market share reached 42% during fiscal year 2001 and 38%for fiscal years 2002 and the eight-month period ended November 30, 2002.Its main competitors in this line include Barnivenca and Colquim. With regardto the Flexo-solvent line, the market share for Grafis has been maintained at12% since fiscal year 2001, and its principal competitors are Sun-Chemical,Barnivenca, Colquim and Quimitec.

 

This reduction in marketshare for Rotogravure was caused by the high price competition that took placeduring the period.

 

The chart below showsGrafis’ market share within the overall Venezuelan ink market as ofNovember 30th, 2002:

 
| **Company**          |   | **Market  share(2)** |   |
|----------------------|--------|----------------------|--------|
| Sun-Chemical         |   | 19                   | %      |
| Barnivenca           |   | 17                   | %      |
| **Grafis,C.A.  (1)** |   | **15**               | **%**  |
| Olin                 |   | 11                   | %      |
| Qumitex              |   | 8                    | %      |
| Colquim              |   | 7                    | %      |
| Others               |   | 23                   | %      |

 

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(1)          Subsidiary

(2)          Source: Client andsupplier surveys.

 

Grafis, C.A. is notdependent on patents or licenses, industrial, commercial or financialcontracts.

 

Grafis, C.A. has not haveany major Research and Development activity during the last three fiscalperiods.

 

Property, Plantand Equipment:

 

As of May 2001,Grafis, C.A. moved its operations to Montana Grafica-Convepal, C.A.’sfacilities, where it rents a total of 640m2 and it utilizes 62% ofits installed capacity, which is 100 metric tons per month. The facility isdivided into the following areas:

 

*Production Area*:The different ink manufacturing procedures are executed in this area, which issubdivided into flexogravure, rotogravure and oil. The equipment and machineryin this area comprises mills and mixers.

 

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*Raw Material Storage Area:*Products such as pigments, chemical products, fillings, resins, waxes andcellulose acids are stored in a warehouse. There are other warehouses for thestorage of finished products and a maintenance workshop.

 

*Physical and Chemical Laboratories:*Theequipment in this area comprises cameras, ovens, analytic balances, electronicbalances, inkometers, scatters, slide-testers, croma sensors, rub-testers,viscometers, phmeters, duxes and reftactometers.

 

Grafis’ property onMaracay, Estado Aragua still holds the industrial structure, the maintenancearea, the parts warehouse and the administrative office. This structure islocated in a land parcel (also owned by the Company) that covers an area of11,935 square meters.

 

*Administrative office area:*covers 692.5 m2 and is conditioned with industrial furniture.

 

Operating andFinancial Review and Prospects:

 

During the eight-monthperiod ended November 30th, 2002, Grafis continued to beaffected by factors that had a negative impact in prior periods, namely: a) thereorganization of the client portfolio in order to focus sales on those clientswith better payment capacity, which allowed for an improvement on accountsreceivable collection (123 days), but led to a reduction in the number ofclients, causing a total sales decrease with respect to previous year, asmeasured by tons sold; b) the presence of international firms operating in themarket with better payment options and lower prices and; c) the tardiness inpayment showed by Montana Gráfica-Convepal, C.A. which also affected Grafis’commitments with third parties, because the scarce raw materials obtained byGrafis were allocated to meet Montana Gráfica-Convepal’s demand.

 

For the eight-monthperiod ended November 30th, 2002, sales reached Bs 2,468million compared to Bs 2,104 million for the eight-month period endedNovember 30th, 2001, this increase was originated by priceadjustments. Gross profit was Bs 357 million, compared to Bs 168 million forthe eight-month period ended November 30th, 2001, mainly causedby price adjustments and keeping our costs controlled. Operating income was Bs42 million, compared to an operating loss of Bs 182 million for the eight-monthperiod ended November 30th, 2001. Improved results wereachieved through an aggressive sales price increases that helped overcome thenegative factors described in the preceding paragraph.

 

Liquidity, CapitalResources and Cash Flows:

 

Revenues from nationalsales are the main source of liquidity for Grafis, C.A.. For the eight-monthperiod ended November 30th, 2002 the cash flow closing balancereached the negative amount of Bs 86 million.

 

a)    Cash Flow:

During the eight-monthperiod ended November 30th, 2002 Grafis, C.A. generated operating cashinflow of Bs 2,081 million (USD 1,571,000) that was comprised of mostly salesto Montana Gráfica-Convepal (76% of total sales). Cash flow operating outlaysreached Bs 2,147 million (USD 1,620,000), of which 70% was represented by rawmaterial

 

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costs and 13% payroll expenses, non-operating cash outlays were Bs 98million (USD 74,000) 94% of which relates professional fees, principal paymentsand financing costs.

 

Trend Information:

 

During the eight-monthperiod ended November 30th, 2002 Grafis, C.A. consolidated itscommercial alliance with Montana Gráfica-Convepal, C.A. and became its sole inksupplier, which guarantees sales and a cost reduction in distribution. Forfiscal year 2003 Grafis expects to increase client portfolio and develop newformulas to meet the demand of a lighter structure in the packaging market,with regards to this matter Grafis has already signed exclusive contracts withsome clients, and also by restructuring its sales department. (Seesection 5D for more information regarding trends).

 

***4B.3.Affiliated Companies***

 

Productora de AlcoholesHidratados, C.A. (Pralca) 

 

Pralcahas a plant located in Zulia State, Venezuela, which produces ethylene oxideand ethylene glycol.

 

 In January 1999, the Company hadacquired shares representing a 10% interest pursuant to its obligations to theInternational Finance Corporation (IFC) under a put option agreement. Suchshares were acquired at a total price of US$15,425,008; the effects of whichwere reported up to March 2001 as investments with the related obligationrecorded under Loans and other debt. Corimon does not currently have anyownership participation in Pralca.

 

AtMarch 31st, 2001, the Company’s equity in Pralca, including theput option amount and Pralca’s cash requirements for 2000 of approximatelyBs 2,879 million, amounted to approximately Bs 58,249 million. As aresult of the agreement entered into by the shareholders of Pralca in 1990,until July 1997 the Company provided Pralca with cash of US$9,224,000(Bs 4,402 million in historical amounts at their date of contribution) inthe form of subordinated loans, of which no amount remains outstanding.

 

In the past, the Companyset aside a provision for the full amount of its 16% share in Pralca’s capitalstock and for the balance of its loans receivable (subordinated loans),including cash contribution amounts made to Pralca in 1998 and 1999 ofapproximately Bs 1,415 million (approximately US$1,400,000).

 

In1997 the Company initiated conversations with Pequiven (shareholder of Pralca)to terminate the Company’s role as a shareholder of Pralca. Up to 2001 itsprincipal shareholders were Petroquímica de Venezuela, S.A. (Pequiven) with a49% interest, Olin Corporation with 25% and the Company with a 16% interest. InOctober 2001 Pralca, the Company, Pequiven, Olin Corporation and IFCentered into agreements, which among other things, ended the sponsorshipagreement and the put option and exchanged settlements of each and everyobligation derived or derivable from agreements entered into with IFC. Based onthese agreements, in October 2001 Corimon transferred fixed assets to IFCof approximately Bs 18,460 million and liabilities of approximately Bs24,387 million and paid IFC US$ 2,000,000 (equivalent to approximately Bs 1,606million). Corimon’s

 

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share ownership was transferred to Pequiven as a result of theseagreements. These transactions gave rise to a net gain of approximatelyBs 3,978 million in constant amounts at November 30th,2002, which is reflected in the financial statements under “other income(expense), net.”

 

Duringthe eight-month period ended November 30, 2002, the Company  paid fees of approximately Bs 152 million(US$ 100,000) related to financial and administrative assistance received bythe Company with regard to the transactions explained above; such amount isreflected in the financial statements under “selling, general andadministrative expenses”.

 

***4B.4. Discontinued Operations***

 

Until the year 2000Tiendas Montana, C.A. was dedicated to the sale of paints and home decoration.At that time, Tiendas Montana established a franchise system in which ittransferred to independent franchisees the administration and sale rights forproducts manufactured by the paint and related products division of Corimon. AtNovember 30, 2002, there were 81 franchise shops.

 

In February 2000 theBoard of Directors of Corimon approved the sale of all assets owned by thesubsidiary Construcentro CRO, C.A. and in June 2000 the Company enteredinto an agreement to deliver assets of the subsidiary amounting toapproximately US$39,500,000 to settle liabilities. The Company retainedtrademark ownership. The sale, finalized in September 2000, was eventuallysettled for US$33,500,000 since real estate included in the agreement was notsold, thereby causing a reduction of US$6,000,000 in the amount of the sale.The effects of this transaction on the statement of income are included underLoss from discontinued operations, net of taxes and minority interests. Thesubsidiary Construcentro CRO, C.A. continued commercial operations untilAugust 2000 and administrative operations until March 2001.

 

Up to 2000 thesubsidiaries Tiendas Montana, C.A. (engaged in marketing activities) andConstrucentro CRO, C.A. together constituted the hypermarket division.Accordingly, management considered that the operations described aboverepresented the disposal of a segment. A summary of the financial informationof the hypermarket division for the year 2001 is presented in the chart below(see Note 1 to the consolidated financial statements):

 

 
|                       |   | **Fiscal  year ended March 31st, 2001**                     |   |
|----------------------------|--------|------------------------------------------------------------------|--------|
|                       |   | **(Million  of constant bolivars  at November 30th, 2002)** |   |
| Statement  of income data: |   |                                                             |   |
| Net  sales                 |   | 15,933                                                           |   |
| Gross  profit              |   | 2,480                                                            |   |
| Operating  loss            |   | (6,315                                                           | )      |
| Net  loss                  |   | (9,221                                                           | )      |

 

**Governmental Regulation: **There is no governmentalregulation, other than those disclosed in this Report regarding the exchangecontrol and taxes, that could be expected to affect significantly the Companyor its ADR holders.

 

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***4C. Organizational Structure:***

 

| **The Company**   |   | **The  subsidiaries***                   |   | **Corimon’s  interest  %** |
|-------------------|--------|------------------------------------------|--------|---------------------------------|
|              |   |                                     |   |                            |
|              |   | **Corimon  Pinturas, C.A.**              |   | **100**                         |
|              |   | **Sissons  Paints Limited**              |   | **100**                         |
|              |   | **Resimon,  C.A.**                       |   | **90**                          |
| **Corimon, C.A.** |   | **Cerdex,  C.A.**                        |   | **100**                         |
|              |   | **Tiendas  Montana, C.A.**               |   | **100**                         |
|              |   | **Montana  Gráfica-Convepal, C.A.** |   | **65**                          |
|              |   | **Grafis,  C.A.**                        |   | **100**                         |

 

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*All subsidiaries areincorporated and located in Venezuela except for Sissons Paints Limited, whichis incorporated in Trinidad & Tobago and has operations in Trinidad &Tobago and Grenada.

 

Corimon International Holdings Limited, anon-operating subsidiary of the Company, issued promissory notes inSeptember 2001 in the aggregate principal amount of US$6,960,000, with amaturity date of April 2003 and bearing interest at 12.75% percent perannum. On maturity, promissory notes in an aggregate principal amount ofUS$6,505,000 were renewed for an additional year at an interest rate of 11%percent per annum, and the remaining notes were paid in full.  See Item 10C for further information.

 

As part of the issuanceof these promissory notes, the Company hired an external advisory firm toassess the market and study, design and implement the most convenient scenariofor issuing and placing the aforementioned securities.  The Company paid fees of approximatelyBs 181 million (equivalent to US$150,000) in this connection as approvedat a Board of Directors’ Meeting held on June 29, 2002.  Also, in October 2002, the Board ofDirectors approved hiring the aforementioned firm at a fee of approximatelyBs 199 million (equivalent to US$150,000) in connection with the renewalprocess of these  promissory notesmaturing in April 2004.  Fees paidin this connection are shown under Administrative and general expenses.

 

Another subsidiary of the Company, Corimon FinancialLimited, issued eurobond debt of approximately US$28,700,000 in 1993, this debtwas rescheduled in 1996 and at November 30th, 2002, theoutstanding balance was US$1.64 million (equivalent to approximately Bs 2,180million) shown at short-term (a period of a year or less).These bonds have aninterest rate of 4% and had August 2002 as maturity date. In May 2002the Company proposed the Eurobonds creditors a schedule for payment of thelast installment of US$1.7 million in quarterly payments beginningAugust 2002 and maturing in February

 

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2004. At present, the Company is in the process of negotiations withthe creditors for the restructuring of its payment obligations.

 

During the eight-month period ended November 30th,2002, the Company recorded expenses of approximately Bs 504 million(equivalent to US$340,000) in respect of payment of commercial europapersubmitted by the holders of the original securities and issued by the Companyin September 1995.  This paymentwas approved by the Board of Directors and is shown under Interest expense,net.

 

**4D.Property, Plant and Equipment:**

 

In addition to the property, plant and equipmentdescribed in Sections 4B.1 and 4B.2, Productos Quimicos Adin, C.A., anon-operating subsidiary of the Company, owns five franchised stores of TiendasMontana, C.A., located in the following Venezuelan cities: Caracas (two storesof 122 and 253 square meters respectively), Maracay (one store of 614 square meters)and Valencia (two stores of 433 and 480 square meters respectively).

 

**Item 5****. Operatingand Financial Review and Prospects**

 

**5A. O*peratingResults***

 

***Eight-month period ended November 30****th****, 2002 compared with Eight-month period endedNovember 30****th****, 2001***

 

The results for the eight-month period endedNovember 30, 2002 have been negatively affected by the political andeconomic described in the “Risk Factors” section of this document (Seeitem 3-D). Consolidated sales for such period decreased 8% compared to the sameperiod in the previous fiscal year (from Bs 80,176 million to Bs 73,949million) mainly due to the high inflation levels and the devaluationexperienced during the eight-month period ended November 30th,2002.

 

Gross margin (gross profit as a percentage of netsales) for the eight-month period ended November 30, 2002 represented 26%of sales, which constitutes an increase of 1 percent compared to the sameperiod in 2001, this was achieved through the adjustment of sales prices.

 

Operating expenses (comprised of selling expenses andadministrative and general expenses) increased by 9% compared to theeight-month period ended November 30th, 2001, mainly as aresult of banking taxes and professional services fees. In addition, during theeight-month period ended November 30th, 2002, the Board ofDirectors approved payment of approximately Bs 1,225 million (equivalentto US$876,400) in respect of special bonuses for the Company’s executives,shown under Administrative and general expenses.

 

For the eight-month period ended November 30th,2002 the Company incurred an operating loss of Bs 708 million, compared tooperating income of Bs 1,248 million for the eight-month period endedNovember 30th, 2001. This loss increase resulted from a

 

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contraction of demand due to the political and economic conflict  as well as the increase in professional feesand banking taxes, as explained in the previous paragraph.

 

Additionally, since the February 2002 devaluationthat took place after the introduction of a new floating exchange rate systemthat eliminated the maximum and minimum exchange rate bands in effect up tothat date. The Company’s cost of sales and financial expenses were negativelyaffected because significant percentages of the Company’s raw material andequipment are priced in US dollars.

 

Full financing expense for the eight-month periodended November 30th, 2002 was Bs 4,644 million as compared toBs 1,934 million for the eight-month period ended November 30th,2001. This increase was due mainly to [the increase on financing interests byBs 1,714 million (interest rates increase) and to  exchange losses of Bs 4,133 million as a consequence of thedevaluation that took effect in February 2002.

 

During the eight-month period ended November 30th,2002 there was no loss from discontinued operations as all such transactionsoccurred in prior periods..

 

During the eight-month period ended November 30th,2002 other income (net) amounted to Bs 49 million compared to a other income(net) of Bs 2.008 million in November, 2001, attributable to income from debtrestructuring in 2002 (see Notes 5 and 8 to the consolidated financialstatements).

 

For the eight-month period ended November 30th,2002, the Company and its Venezuelan subsidiaries paid business assets taxesand income taxes of Bs 154 million compared to Bs 525 million for businessassets taxes it paid during fiscal year 2002. This difference is basically due to the fact that during the eight-monthperiod ended November 30th, 2002 the Company had more taxretentions that it had in the previous fiscal period. The Sissons Paintssubsidiary (located in Trinidad and Tobago) paid income taxes of Bs 29 million(net of deferred taxes).

 

Finally, net loss in the eight-month period endedNovember 30th, 2002 was Bs 4,991 million compared to a netincome of Bs 1,220 million for the same period in the prior year. This wasmainly due to the income originated from the sale of the Company’sparticipation in Pralca during 2001, a decrease in sales levels, an increase inoperating expenses, costs of debt, and the devaluation of the Bolivar.

 

Value added tax

 

In May 1999 the Venezuelan government enacted theValue Added Tax Law. This tax is based on a tax credit system and applies tothe different stages of production and sales. It is payable based on the valueadded at each stage. The VAT rate is set annually in the Venezuelan Budget Lawand until August 2002 was 14.5% and, as from September 2002, 16%.

 

During the eight-month period ended November 30th,2002, differences between value added tax declared and amounts that should havebeen declared in this connection were identified for the Venezuelansubsidiaries Corimon Pinturas, C.A.; Montana Gráfica-Convepal, C.A.; Resimon,C.A., and Grafis, C.A., resulting in taxes payable of Bs 2,321

 

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million.  At November 30th,2002, this situation gave rise to overdue interest and fines of 1% (Bs 373million) of the tax amount, in respect of which the companies set aside aprovision of approximately Bs 373 million, shown under Interest and otheraccruals.

 

In May 2003 the subsidiaries Grafis, C.A. andResimon, C.A. filed with SENIAT (the Venezuelan fiscal authorities) substitutevalue added tax returns for Bs 451 million, which gave rise to overdueinterest and fines of approximately Bs 226 million.  Payments of approximately Bs 499million were made in this connection. The outstanding balance of approximately Bs 178 million is inrespect of the subsidiary Resimon, C.A. Substitute value added tax returns for Corimon Pinturas, C.A. andMontana Gráfica-Convepal, C.A. were also filed.

 

A request to pay by installments the VAT difference inrespect of Corimon Pinturas, C.A. and Montana Gráfica-Convepal, C.A., as wellas the outstanding balance of Resimon, C.A. was also submitted inMay 2003, together with a similar request in respect of the debt resultingfrom fines and overdue interest, in accordance with current legal provisions.  This request provides for full payment ofdebt over 24 months.  In July 2003SENIAT informed the subsidiaries of its decision to accept the terms proposedfor the payment of the debt. As of October 23rd, the agreementwas finally signed and payments have already begun.

 

In order to compensate for the high levels ofinflation experienced during the eight-month period ended November 30th,2002, the Company adjusted its sales prices in every market to make up forincreased cost, which was ultimately achieved.

 

***Fiscal Year ended March 31st, 2002 compared with FiscalYear ended March 31st, 2001***

 

The results for fiscal year 2002 have been negativelyaffected by the political and economical situation explained at the beginningof this document (See item 3-D), more specifically the strong devaluation thattook place in February 2002. For fiscal year 2002, the consolidated salesin bolivars decreased 5% with respect to the same period in the previous fiscalyear (from Bs 107,803 million to Bs 102,878 million).

 

The gross margin (gross profit as a percentage of netsales) for fiscal year 2002 represented 23% of sales, constituting an increaseof 1 percent compared to fiscal year 2001. This gross margin was maintainedbecause raw material costs were decreased as well as sales. The market andcompetition did not allow for increasing the sales prices of the Company’sproducts.

 

Operating expenses (comprised of selling expenses andadministrative and general expenses) increased by 13% with respect to fiscalyear 2001 mainly as a result of driving up the advertising budget by 98% inorder to impulse sales.

 

For fiscal year 2002 operating loss reached Bs 5,691million against an operating loss of Bs 1,716 million for fiscal year 2001.This abrupt loss increase resulted from the contraction of the products demanddue to the political and economic conflict and to the advertising expensesincrease.

 

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Despite the fact that during the eight-month periodended November 30th, 2002 exchange loss increased by 54%, fullfinancing expense for 2002 decreased 5% compared with 2001 mainly due to a gainof 40% in the Company’s monetary position.

 

During fiscal year 2002 there was no loss fromdiscontinuing operations. However, loss from discontinuing operations forfiscal year 2001 relates to: a) the results of the commercial operations ofConstrucentro up to August 2000 and administrative operations up toMarch 2001, and b) the results of the commercial operations of TiendasMontana up to August 2000. Loss from discontinued operations for 2000relates to commercial operations of Construcentro and Tiendas Montana duringthe whole year.

 

During fiscal year 2002, other income (net) amountedto Bs 2,373 million compared to a net expense of Bs 6,802 million in 2001,mainly attributable to income from debt restructuring in 2002 (see Notes 5 and8 to the consolidated financial statements).

 

For fiscal year 2002, the Company and its Venezuelansubsidiaries paid business assets taxes of Bs 636 million compared to Bs 978million for the fiscal year ended March 31st, 2001; due mainlyto the decrease of Corimon Pinturas’ business assets taxes. The Sissons Paintssubsidiary paid income taxes of Bs 332 million (net of deferred taxes) comparedto Bs 264 million for the fiscal year ended March 31st, 2001,this increase is caused by higher levels of income.

 

Finally, net loss in fiscal year 2002 was Bs 6,280million compared to a net loss for fiscal year 2001 of Bs 19,399 million,representing a 68% decrease. This was mainly due to the effects of discontinuedoperations in fiscal year 2001 as explained above.

 

Business segment data:

 

Intersegmentsales and transfers are, for the most part, recorded at commercial prices.Corporate assets consist mostly of cash and cash equivalents, notes andaccounts receivable and investments. Export sales account for less than 10% ofnet consolidated sales for each of the three years reported. The Company doesnot have any customer to which it makes 10% or more of its sales:

 

 
|                               |   | **Year ended March 31st,**                                 |   | **Eight-month period ended November 30th,** |   |
|------------------------------------|--------|-----------------------------------------------------------------|--------|--------------------------------------------------|--------|
|                               |   | **2001**                                                        |   | **2002**                                         |   | **2001** |   | **2002** |   |
|                               |   | **(Million of constant bolivars at November 30th,  2002)** |   |
| Net sales from ongoing operations: |   |                                                            |   |                                             |   |   |   |   |   |
| Paints and related products        |   | 86,614                                                          |   | 82,509                                           |   | 65,681 |   | 56,980 |   |
| Packaging and inks                 |   | 21,189                                                          |   | 20,369                                           |   | 14,495 |   | 16,969 |   |
|                               |   | 107,803                                                         |   | 102,878                                          |   | 80,176 |   | 73,949 |   |
|                               |   |                                                            |   |                                             |   |   |   |   |   |
| Operating income (loss):           |   |                                                            |   |                                             |   |   |   |   |   |
| Paints and related products        |   | 6,264                                                           |   | 3,342                                            |   | 5,510 |   | 4,695 |   |
| Packaging and inks                 |   | (3,458                                                          | )      | (3,605                                           | )      | (1,502 | ) | (342 | ) |
| Corporate                          |   | (4,522                                                          | )      | (5,428                                           | )      | (2,760 | ) | (5,061 | ) |
|                               |   | (1,716                                                          | )      | (5,691                                           | )      | 1,248 |   | (708 | ) |

 

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**Paintsand related products division**

 

***Eight-month period ended November 30th,2002 compared with Eight-month period ended November 30th,2001***

 

For the eight-month period ended November 30th,2002, consolidated net sales decreased by 13% compared to the same period inthe prior year. All subsidiaries in this division experienced a decrease insales mainly due to the political and economical Venezuelan situation (See Item4). Sissons Paints was the only subsidiary that experienced higher sales(recording an increase of 57%), mainly due to the fact that it was not affectedby the Venezuelan political and economic crisis because it is not located inVenezuela and its transaction are conducted primarily in US dollars above, andalso by the fact that during this period, Sissons Paints started itsinternational market expansion. Sissons Paints increased in sales volume due tothe market geographic expansion that took place during this period. Thissituation together with the Bolivar depreciation from February 2002explained above, originated an operating income for the paints division of Bs4,695 million the eight-month period ended November 30th, 2002 compared toan income of Bs 5,511 million in the eight-month period ended November 30th,2001.

 

# ***FiscalYear ended March 31st, 2002 compared with Fiscal Year ended March 31st,2001***

 

Consolidated net salesdecreased by 5%. All subsidiaries in this division experienced a decrease insales mainly due to the political and economical Venezuelan situation (See Item4). Cerdex was the only subsidiary that experienced an increase in sales of 15%mainly due to the launching of new products, which were very well placed amongCerdex’s clients. This situation together with the Bolivar depreciation fromFebruary 2002 explained above, originated an operating income of Bs 3,342million for fiscal year 2002 compared to an income of Bs 6,264 million forfiscal year 2001, a decrease in operating income for the paints division of 47%from fiscal year 2002 to fiscal year 2001.

 

**Packagingand inks division**

 

***Eight-month period ended November 30th,2002 compared with Eight-month period ended November 30th,2001***

 

This division experiencedsales growth of 17% due to Montana Grafica-Convepal’s sales increase of 19%,which resulted primarily from an increase in sales prices.

 

Operating loss decreased77% mainly because of the relocating of Grafi’s plant to Montana Gráfica’sfacilities in order to achieve synergies which increased savings and reducedcosts. In addition, the Montana Grafica-Convepal, C.A. restructuringprocess  was completed. Thisrestructuring process includes the fact that Grafis’ operations were moved toMontana Grafica-Convepal, C.A.’s plant.

 

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# ***Fiscal Year ended March 31st,2002 compared with Fiscal Year ended March 31st, 2001***

# ** **

This division experienced a sales decrease of 4% dueto the Venezuelan economic recession. Operating loss increased 20% mainlybecause of new banking taxes imposed by the Government and the restructuring ofthe Other income and expenses account.

 

***5B. Liquidity and Capital Resources***

 

As ofNovember 30th, 2002, the Company’s total current assetsaccounted for Bs 50,825 million, compared to Bs 44,385 million as ofMarch 31st, 2002 and Bs 69,626 million as of March 31st,2001. The Company’s current liabilities amounted to Bs 52,624 million atNovember 30th, 2002 (Bs 45,692 million and Bs 67,180 million as ofMarch 31st, 2002 and 2001, respectively). As a result, theCompany’s current ratio was 0.96 as of November 30th, 2002. Asof November 30, 2002 approximately 34% of the Company’s total assetsconsisted of cash or cash equivalents that are a potential source of liquidity.

 

During the eight-monthperiod ended November 30, 2002 the Company ́s principal sources ofliquidity were net cash provided by financing (promissory notes and loans) andoperating activities.

 

Based on the Company’sactual levels of working capital, management currently anticipates that to meetfiscal year 2003 requirements, additionally to the Company’s current levels ofworking capital, it could probably commit to Bs 2,000 million in payable notes,raise about Bs 2,500 million in advance payments from strategic clients,leverage about Bs 2,000 million with specific suppliers, as well as trade theNational Debt Bonds the Company has at the moment.

 

By the end of theeight-month period ended November 30th, 2002, working capitalwas consistent with the Company’s requirements, as well as it was by the end ofAugust, 2003. Working capital is currently sufficient for the Company’s requirements, although during theCompany’s peak sales period of August through December short-termfinancing measures may be required to meet increased cash flow needs, asindicated in the preceding paragraph.

 
|                               |   | **Fiscal  year ended March 31st**                          |   | **Eight-month  period ended  November 30th** |   |
|------------------------------------|--------|-----------------------------------------------------------------|--------|---------------------------------------------------|--------|
|                               |   | **(Million  of constant bolivars at November 30th, 2002)** |   |
|                               |   | **2001**                                                        |   | **2002**                                          |   | **2002** |   |
| Net  cash at the end of the period |   | 4,251                                                           |   | 2,368                                             |   | 4,497 |   |

 

As of November 30th,2002, the Company’s outstanding debt amounted to Bs 28,810 million, of which Bs10,413 million is short-term debt, compared to total debt of Bs 24,547 millionas of March 31st, 2002 and Bs 35,451 million as ofMarch 31st, 2001, with Bs 6,078 million classified asshort-term at March 31st, 2002 and Bs 23,469 million as ofMarch 31st, 2001. This difference is mainly caused by the strongdevaluation that Venezuela has experienced since February 2002.

 

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The table below showsmore details regarding the outstanding debt, such as maturity; currency andinterest rate and the  extent to whichborrowings are fixed or variable  rate.

 
|                       |   |               |       | **In million constant bolivars at  November 30****th****,** |       |
|----------------------------|--------|--------------------|------------|------------------------------------------------------------------|------------|
| **DEBT  OBLIGATIONS**      |   | **Interest  Rate** |       | **2002  Outstanding  Balance**                                   |       | **2003  Maturity** |   | **2004  Maturity** |   | **2005  Maturity** |   | **2006  Maturity** |   | **2007  Maturity** |   | **2008  Maturity** |   |
| **U.S. DOLLARS (1)**       |   |               |       |                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Fixed Rate                 |   |               |       |                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| *Bank Loans*               |   | 9.40               | %          | 19,070                                                           |       | 2,030 |   | 17,040 |   | 0 |   | 0 |   | 0 |   | 0 |   |
| *New Eurobonds*            |   | 4.00               | %          | 2,173                                                            |       | 2,173 |   | 0 |   | 0 |   | 0 |   | 0 |   | 0 |   |
| *Leases*                   |   |               |       | 389                                                              |       | 78 |   | 78 |   | 78 |   | 78 |   | 78 |   | 78 |   |
| **TOTAL U.S**              |   |               |       | **21,632**                                                       | ** ** | **4,281** | ** ** | **17,118** | ** ** | **78** | ** ** | **78** | ** ** | **78** | ** ** | **78** | ** ** |
|                       |   |               | ** ** |                                                             | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |
| **BOLIVARS**               |   |               | ** ** |                                                             | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |
| Variable Rate              |   |               |       |                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| *Bank Loans*               |   | 49.09              | %(2)       | 7,567                                                            |       | 6,210 |   | 540 |   | 173 |   | 281 |   | 363 |   | 0 |   |
| **TOTAL BOLIVARS**         |   |               | ** ** | **7,567**                                                        | ** ** | **6,210** | ** ** | **540** | ** ** | **173** | ** ** | **281** | ** ** | **363** | ** ** | **0** | ** ** |
|                       |   |               | ** ** |                                                             | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |
| **TOTAL DEBT OBLIGATIONS** |   |               | ** ** | **29,199**                                                       | ** ** | **10,491** | ** ** | **17,658** | ** ** | **251** | ** ** | **359** | ** ** | **441** | ** ** | **78** | ** ** |

 

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(1) The conversion exchange rate used was 894.50 bolivars perdollar.

(2) Average interest rate******of bank loans in Bolivars.

 

Cash and cash equivalentsare held in bolivars and treasury activities are controlled by tightlymonitoring the Company’s bank account statements and movements, and by managingweekly cash flow statements.

 

The Company does notreceive any payment from the subsidiaries in the form of dividends, they pay amonthly fee calculated as a percentage (3.5%) of  their sales.

 

The operating cash flowfor the eight-month period ended November 30th, 2002 was Bs 624million compared with a negative cash flow of Bs 198 million for the same periodin the prior year, due to the settlement of the Pralca debt. For the fiscalyear ended March 31st, 2002 the Company had a negativeoperating cash flow of  Bs -198 millionand for fiscal year ended March 31st, 2001 operating cash flowwas Bs 2,022 million.

 

The financial cash flowfor the eight-month period ended November 30th, 2002 was Bs1,516 million compared with Bs 2,869 million for fiscal year 2002 and anegative cash flow of Bs -1,715 million for fiscal year 2001. This reduction incash flow has its basis in the fact that during the eight-month period endedNovember 30th, 2002 the Company incurred in only Bs 2,530million in new debt, compared with Bs 12,632 million in new debt for the fiscalyear ended March 31st, 2002 and Bs 3,210 million for the fiscalyear ended March 31st, 2001. The main reason for thisdifference rests in the fact that during fiscal year 2002 the Company’s levelof new debt incurred was higher than usual due to the subscription of the Bancaracas International BankingCorporation loan for US$6,955,000 and the issuance of Corimon InternationalHoldings Limited’s promissory

 

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notes for US$6,960,000. Issuance of these promissory notes is relatedto debt settlement with CAF and IFC (see Notes 5 and 8 to the consolidatedfinancial statements).

 

Investment and Development

 

During the eight-monthperiod ended November 30th, 2002, capital investments for atotal of about Bs 900 million were made by the Company’s subsidiaries toimprove and/or maintain the conditions of their buildings, machinery andequipment. All fixed capital investments to be made in the next several yearswill be limited to those considered necessary to guarantee the normal operationof the Company’s plants and equipment. These investments would be analyzed assoon as an improvement in any of the Company’s plants and equipment isidentified and/or required.

 

Critical Accounting Policies

 

Oursignificant accounting policies are more fully described in notes 2 and 19 to theconsolidated financial statements. The preparation of our consolidatedfinancial statements and its notes in conformity with the accounting rules setforth by the Comisión Nacional de Valores CNV (National Commodities Commission)requires that we make estimates and assumptions that affect the reportedamounts of assets and liabilities and the disclosure of contingent assets andliabilities at the date of the consolidated financial statements, and thereported amounts of income and expenses for the reporting period. Actualamounts may differ from those estimates. Our significant accounting policiesinclude:

 

AccountsReceivable: The Company evaluates the monthly credit risk ofits commercial portfolio and determines the provisions for possible dubious accountsreceivable based on such risk; it also assesses the aging of its portfolio andrecords the general provisions for those balances older than 90 days.

 

Inventories:Our provision for obsolescence of inventories is determined based on 100% ofthe total amount of obsolete inventories. We evaluate inventories rotation and,according to our internal policies, those inventories with aging of over sixmonths are included in our provisions.

 

Concentrationof credit risk: The instruments which may imply a potentialconcentration of credit risk for our Company consist primarily of short-termcash investments and trade accounts receivable. Corimon places short-terminvestments in banks with acceptable creditworthiness and, as a policy, limitsthe amount of credit risk in any financial institution. The concentration ofcredit risk from trade accounts receivable is limited due to the large numberof clients which make up our client portfolio and their industrial andgeographical diversification, with the exception of accounts receivable fromInversora Neuco, C.A. described in Note 7 of our financial statements. As ofNovember 30th, 2002 and March 31st, 2002,except for these accounts receivable, the Company does not have significantconcentrations of credit risk.

 

Fair value offinancial instruments: The carrying value of cash and cashequivalents, trade accounts receivable and accounts payable approximates theirfair market value due to

 

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the short-term maturities of these instruments. Since the majority ofthe loans, commercial paper and other debt of our Company and its subsidiarieshave variable interest rates, management considers their carrying amounts toapproximate fair market value.

 

Recently issued accounting standards under US GAAP:

 

In June 2001 theFASB issued SFAS No. 141 (SFAS 14) “Business Combinations” and SFAS No. 142(SFAS 142) “Goodwill and Other Intangible Assets.” SFAS 141 supersedesAccounting Principles Board Opinion No. 16 (APB 16) “Business Combinations.”The most significant changes made by SFAS 141 are (1) requiring that thepurchase method of accounting be used for all business combinations initiatedafter June 30, 2001; (2) establishing specific criteria for therecognition of intangible assets separately from goodwill and; (3) requiringunallocated negative goodwill to be written off immediately as an extraordinarygain instead of being deferred and amortized. The adoption of SFAS 141 did nothave any effect on the result of operations or financial position of theCompany.

 

SFAS 142 supersedes APBNo. 17 (APB 17) “Intangible Assets.” SFAS 142 primarily addresses accountingfor goodwill and intangible assets subsequent to their acquisition and itsprovisions are effective for fiscal years beginning after December 15,2001. The most significant changes made by SFAS 142 are that: (1) goodwill andindefinite-lived intangible assets will no longer be amortized; (2) goodwillwill be tested for impairment at least annually at the reporting unit level;(3) intangible assets deemed to have an indefinite life will be tested forimpairment at least annually and; (4) the amortization period of intangibleassets with finite lives will no longer be limited to 40 years. The adoption ofSFAS 142 did not have a significant effect on the financial statements otherthan the fact that goodwill is no longer amortized.

 

The FASB also recentlyissued SFAS No. 143 (SFAS 143) “Accounting for Obligations Associated with theRetirement of Long-Lived Assets.” The objectives of SFAS 143 are to establishaccounting standards for the recognition and measurement of a tangiblelong-lived asset retirement obligation and its associated asset retirementcost. SFAS 143 is effective for fiscal years beginning after June 30, 2002.The Company is evaluating the possible effect, if any, of future adoption ofthis Statement.

 

In August 2001 theFASB issued SFAS No. 144 (SFAS 144) “Accounting for the Impairment or ofDisposal of Long-Lived Assets.” It supersedes SFAS No. 121 (SFAS 121) “Accountingfor the Impairment of Long-Lived Assets and for Long-Lived Assets to BeDisposed of,” but retains the fundamental provisions of that statement. SFAS144 is effective for financial statements issued for fiscal years beginningafter December 15, 2001. The adoption of SFAS 144 did not have any effecton the result of operations or financial position of the Company.

 

In April 2002 TheFASB issued SFAS No. 145 (SFAS 145) “Rescission of FASB Statements No. 4, 44and 64, Amendment of FASB Statements No. 13 and Technical Corrections.” Themost significant provision of this Statement is the rescission of FASBStatement No. 4 (FASB 4)”Reporting Gains and Losses from Extinguishment ofDebt,” which required that gains and losses from extinguishment of debt be aggregatedand, if material, classified as an extraordinary item, net of related incometax effect. The

 

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provisions of this Statement related to the rescission of Statement No.4 shall be applied in fiscal years beginning after May 15, 2002. Any gainor loss on extinguishment of debt that was classified as an extraordinary itemin prior periods presented that does not meet the criteria in APB Opinion No.30 for classification as an extraordinary item shall be reclassified. TheCompany considers that the adoption of this Statement will not have asignificant effect on the results of its operations or its financial position.

 

In June 2002 theFASB issued SFAS No. 146 (SFAS 146) “Accounting for Costs Associated with Exitor Disposal Activities.” SFAS 146 addresses significant issues relating to therecognition, measurement, and reporting of costs associated with exit anddisposal activities, including restructuring activities, and nullifies theguidance in Emerging Issues Task Force Issue No. 94-3 (EITF 94-3) “LiabilityRecognition for Certain Employee Termination Benefits and Other Costs to Exitan Activity (including Certain Costs Incurred in a Restructuring).” Theprovisions of this Statement are effective for exit or disposal activities thatare initiated after December 31, 2002. The Company considers that theadoption of this Statement will not have a significant effect on the result ofits operations or financial position.

 

In December 2002 theFASB issued SFAS No. 148 (SFAS 148) “Accounting for Stock-Based Compensation -Transition and Disclosure,” which amended SFAS No. 123 (SFAS 123) “Accountingfor Stock-Based Compensation.” SFAS 148 is effective for years ending afterDecember 15, 2002 and provides three methods for transition to the fairvalue method of accounting for stock options for those companies that elect touse the fair value method under SFAS 123. The Company considers that theadoption of this Statement will not have an impact on the results of itsoperations or financial position.

 

SFAS 149 Amendments toSFAS No. 133 (SFAS 133) on “Derivative Instruments and Hedging Activities” wasissued in April 2003 and is applicable for contracts entered into ormodified after June 30, 2003. The requirements of SFAS 133, as amended bySFAS 149 requires all derivative instruments to be recognized as either assetsor liabilities on the balance sheet, measured at fair values. The statementpermits special hedge accounting for fair value, cash flow and foreign currencyhedges providing specific criteria are met. Certain aspects of the requiredhedge criteria do not allow portfolio hedging. The Company considers that theadoption of this Statement will not have an impact on the results of itsoperations or financial position.

 

In May 2003 the FASBissued Statement of Financial Accounting Standard No. 150 (SFAS 150)“Accounting for Certain Financial Instruments with Characteristics of bothLiabilities and Equity.” SFAS 150 improves the accounting for certain financialinstruments that, under previous guidance, issuers could account for as equity.SFAS 150 requires that those instruments be classified as liabilities in thestatements of financial position. SFAS 150 is applicable for all financialinstruments entered into or modified after 31 May 2003 and is otherwiseapplicable for our fiscal year ending November 30, 2004. The Company is inthe process of evaluating the effect, if any, that the adoption of thisStatement may have on the financial statements.

 

In November 2002 theFinancial Standards Board (FASB) issued FASB Interpretation No. 45 (FIN 45)“Guarantor’s Accounting and Disclosure Requirements for Guarantees, IncludingIndirect Guarantees of Indebtedness of Others,” which requires a 

 

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company to record as a liability the fair value of certain guaranteesinitiated by the company. The offsetting entry is dependent on the nature ofthe guarantee, with an asset generally being recorded, such as the considerationreceived for providing a letter of credit or prepaid rent for a residual valueguarantee in an operating lease. The liability recorded will typically bereduced by a credit to the results of operations as the guarantee lapses, whichgenerally will occur on a systematic basis over the term of the guarantee or atsettlement of the guarantee. The initial measurement and recognition provisionsof FIN 45 are effective for applicable guarantees written or modified afterDecember 31, 2002 with the disclosure requirements applicable to us forthe year ended November 30, 2003. The Company is evaluating the effect, ifany, that the adoption of this Statement may have on the financial statements.

 

In January 2003 theFASB issued FIN 46, “Consolidation of Variable Interest Entities”, which isapplicable immediately to all variable interest entities (VIEs) created afterJanuary 31, 2003, and to VIEs in which an enterprise obtains an interestafter that date. For VIEs created prior to February 1, 2003 it applies tothe Company for the reporting period beginning December 1, 2003. FIN 45clarifies the application of Accounting Research Bulletin No. 51, “ConsolidatedFinancial Statements”, to certain entities in which equity investors do nothave the characteristics of a controlling financial interest or do not havesufficient equity at risk for the entity to finance its activities withoutadditional subordinated financial support from other parties. These types ofentities are referred to as VIEs. The Company is in the process of evaluatingthe effect, if any, that the adoption of this Statement may have on thefinancial statements.

 

***5C. Research and Development, Patents andLicenses***

 

See Item 4B for anexplanation of the research and development activities, patents and licenses ofthe Company’s operating subsidiaries.

 

***5D.Trend Information***

 

The Company’s managementdevised a strategic plan to mitigate the adverse effects the Company could facedue to the current political and economic situation. This plan includes priceadjustments to offset the high levels of inflation while maintaining a profitmargin that will at least allow recovery of operating costs; the implementationof cost and expense reductions that contemplate a reduction of working hoursfor the subsidiaries in the paint and related products division and personnelreductions in the packaging and inks division; the rationalization ofproduction consumables; the replacement of certain foreign suppliers; and thenegotiation of payment terms and conditions with suppliers and financialcreditors.

 

The Company’s operationshave been, are, and will be affected by the country’s economic environment. TheVenezuelan political and economical situation appears to be quite volatile atthe moment; every likely scenario for the near future indicates that theConsumer Price Index (CPI) increase together with political factors such as theexchange control will continue to affect the results of the Company’soperations in the same manner it has in the past. For this reason, the Companybelieves it would be able to offset this volatility by implementing the sameplans it has executed in the past, such as price

 

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adjustments and cost reduction policies to keep production, inventoryand costs at current or manageable levels.

 

If the inability toobtain currency persists the Company would maintain its strategy of obtainingnational raw material and processing Foreign Currency Administration Commission- CADIVI’s requirement for imports.

 

The Company foreseescosts and raw material prices to maintain their tendency to increase year afteryear and prepares its yearly budget accordingly.

 

However, the Companyplans to increase sales (measured by bolivars) by adjusting sales prices inevery market, as well as emphasizing on raising sales volume for class “A”products to increase profitability. (See Item 4B for more information thetrends affecting the Company’s operating subsidiaries).

 

***5E. Off Balance Sheet Arrangements.***

Not applicable.

 

***5F.  Tabular Disclosure of Contractual Obligations***

 

Our contractualobligations are as follows, expressed in million of constant bolivars as ofNovember 30th, 2002.

 
|                        |   | **Payments  Due by Period**     |   |
|-----------------------------|--------|---------------------------------|--------|
| **Contractual Obligations** |   | **Total  Outstanding  Balance** |   | **Less than  1  year** |   | **1-3 years** |   | **4 - 5  years** |   | **After 5  years** |   |
| **Long-Term  Debt**         |   | 28,810                          |   | 10,413 |   | 17,753 |   | 644 |   | — |   |
| **Leases**                  |   | 389                             |   | 78 |   | 233 |   | 78 |   |   |   |

 

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**Item 6****. Directors,Senior Management and Employees**

 

**6A. *Directorsand Senior Management***

**Board of Directors:**

** **
| **Name**                        |   | **Birth date**            |   | **Position  in Corimon**    |   | **Positions  held – Other than at Corimon**                                                                                                                                                                  |
|---------------------------------|--------|---------------------------|--------|-----------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Carlos Gill Ramírez        |   | July 13,  1956       |   | Chairman of the  Board      |   | President of the  Mercedes Benz concession in Venezuela. CEO of Banco Canarias de Venezuela. Principal  Director of Seguros Bancentro, which is a nationwide insurance company.                                   |
| Eduardo Gómez Sigala       |   | July 17,  1954       |   | Vicepresident of  the Board |   | President of  Remavenca (Empresas Polar), which is a corn transforming company. Director of  Central Banco Universal. Director of El Informador, a regional newspaper.                                            |
| Fernando Volante Z.             |   | April 19,  1955      |   | Director                    |   | Partner of the  law firm Wallis, Mendez, Volante, Bazo, Nemirovsky & Perrotta.                                                                                                                                |
| Omar Pernía                |   | March 11,  1956      |   | Director                    |   | Director of  Grupo Seguros Bancentro, which is a nationwide insurance company. Executive  Vicepresident of Banco Canarias de Venezuela.                                                                           |
| Werner Braschi                  |   | November 11,  1953   |   | Director                    |   | Director of Banco Canarias de Venezuela. Director  of Uniauto, a chain of car dealerships.                                                                                                                        |
| Alejandro Alfonzo  Larrain      |   | October 12,  1938    |   | Director                    |   | President of  Terminales Maracaibo, which is a transportation company. President of Becton  Dickinson de Venezuela. International Partner of the law firm Baker &  McKenzie.                                  |
| Octavio Lara                    |   | August 02,  1955     |   | Director                    |   | Executive  Vicepresident of Aceites Diana, which is a cooking-oil manufacturing company.                                                                                                                          |
| Manuel Sucre                    |   | September 29,  1955  |   | Director                    |   | CEO of C.A. Editora El Nacional. Newspaper  with national distribution.                                                                                                                                           |
| Alberto Sosa                    |   | March 14,  1958      |   | Director                    |   | President of  Seguros La Seguridad, which is a nationwide insurance company.                                                                                                                                      |
| Nelson Ortiz                    |   | July 30,  1956       |   | Director                    |   | President of the  Caracas Stock Exchange.                                                                                                                                                                         |
| Neil Malloy                     |   | August 23,  1946     |   | Director                    |   | General  Corporate Director of SIVENSA, an aluminum extraction transforming company.                                                                                                                              |
| Pedro Mezquita                  |   | April 15,  1963      |   | Alternate  Director         |   | Partner of the  law firm Nevett & Mezquita, Abogados. Director of Vencred, S.A, which is  a brokerage firm (Soficrédito). Director of Banco de Inversión e Inversiones  AEFEVE (Holding Corpalmar). |
| Jose R. Velásquez          |   | October 22,  1955    |   | Alternate  Director         |   | Independent  Business. He manages a 5-store chain that commercializes principally building  materials.                                                                                                            |
| Andrés Lapadula            |   | March 30,  1963 |   | Alternate  Director         |   | Partner of the  law firm Nevett & Mezquita, Abogados. Director of Central Banco  Universal, which is a nationwide bank. Director of Petrolatin.com Inc.                                                       |
| Guillermo Hernández  Roura |   | June 22,  1932       |   | Alternate  Director         |   | Director of Pretensados Venezolanos, C.A. Director  of Convecar. Director of Venepal.                                                                                                                             |

 

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**CorporateManagement:**

** **
| **Name**                     |   | **Date of  Birth**       |   | **Position  in Corimon, C.A**                                                                                                                                                                                            |
|------------------------------|--------|--------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Bernardo Vera                |   | November 27,  1955  |   | Chief Executive  Officer                                                                                                                                                                                                 |
| Laura Emperador              |   | October 27,  1966   |   | Chief Financial  Officer, vice President of Finance.                                                                                                                                                                     |
| Santos Cohen                 |   | June 6,  1945       |   | Manufacturing  Vice-president. This vice-presidency is responsible for the regular operation  of all manufacturing facilities of the company, as well as reaching the  highest operating cost efficiency.                |
| José Ramos              |   | September 18,  1964 |   | Commercial  Vice-president. This vice-presidency is responsible for developing marketing  and selling strategies to optimize the company’s performance within the  market.                                          |
| María Graziella Scovino |   | June 23,  1968      |   | Financial and Shareholders  Corporate Manager. Responsible for the day-to-day operations of the corporate  finance department and of the shareholders and investors relations.                                           |
| Aurora Muiño            |   | January 19,  1967   |   | Comptroller and  Processes Corporate Manager. Responsible for auditing and policy enforcement.                                                                                                                           |
| Amarilis De Paola            |   | January 9,  1964    |   | Internal  Auditing Corporate Manager.                                                                                                                                                                                    |
| Gisela Aguirre               |   | July 10,  1968      |   | Marketing  Corporate Manager. Responsible for creating marketing strategies and to  report to the Commercial Vice-president of the outcome of current marketing  strategies.                                             |
| María Elvira Brett      |   | March 27,  1971     |   | Systems  Corporate Manager. Responsible for the continuous operations of the company’s  electronic data systems and computing information systems. Actualization of  software and hardware as it becomes necessary. |
| Felix Carrasquero            |   | April 14,  1963     |   | Security  Corporate Manager. Responsible for the security of all the company’s  structural assets, its workers and accessories.                                                                                     |

 

Set forth below isadditional professional information concerning the Company’s directors andexecutive officers:

 

**Carlos Gill Ramírez:**He is the President of Mercedes Benz-Venezuela and Chief Executive Officer ofBanco Canarias de Venezuela. He has also been the President and PrincipalDirector of Seguros Bancentro, which is a nationwide insurance company, as wellas Director of Seguros Cordillera. He has an extensive experience in thefinancial, industrial and commercial arena, more specifically in restructuringprocess, strategic planning, financial analysis and mergers.  He is the brother-in-law of Mr. EduardoGómez Sigala . His term as Director of the Company expires July 2006.

 

**Eduardo Gómez Sigala:**He is the President of Remavenca (Empresas Polar), which is a corn transformingcompany. He is also member of the Board of Directors of Central Banco Universaland El Informador, a regional newspaper. He served as the First Secretary ofthe United Nations in New York. He is the brother-in-law of Mr. Carlos GillRamírez. His term as Director of the Company expires July 2006.

 

**Fernando Volante Z.:**Partner of the law firm Wallis, Mendez, Volante, Bazo, Nemirovsky &Perrotta. He has extensive legal experience in the Corporate, Civil andCommercial area, as well as in real state legal affairs. His term as Directorof the Company expires July 2006.

 

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**Omar Pernía:**Director of Grupo Seguros Bancentro, which is a nationwide insurance company.Executive Vicepresident of Banco Canarias de Venezuela. He has been President andDirector of Uniauto, a chain of car dealerships, Executive President andDirector of Interbank and Banco Hipotecario Venezolano. His term as Director ofthe Company expires July 2006.

 

**Werner Braschi:**Director and Vice-President of Institutional Relations of Banco Canarias deVenezuela since May 2003. He has been Vice-President of Uniauto, a chainof car dealerships since 1997. He was President and Director of BancoInternacional’s brokerage firm between 1992 and 1997. His term as Director ofthe Company expires July 2005.

 

**Alejandro Alfonzo Larrain:**President of Terminales Maracaibo, which is a transportation company. He hasextensive legal experience, he is the President of Becton Dickinson deVenezuela. He has been International Partner of the law firm Baker &McKenzie since 1969. His term as Director of the Company expiresJuly 2005.

 

**Octavio Lara:**Executive Vicepresident of Aceites Diana, which is a cooking-oil manufacturingcompany. President of FUNDESOL, a foundation that promotes the development ofoleaginous plants. Member of the Board of Directors of the VenezuelanIndustrial Chamber, the Organización Diana and the Banco HipotecarioVenezolano. His term as Director of the Company expires July 2005.

 

**Manuel Sucre:** CEOof C.A. Editora El Nacional, a newspaper with national distribution. He servedas Financial and Strategic Vice-President and Financial and AdministrativeVice-President of Mavesa, a major food company in Venezuela, where he began histenure in 1984 as a Financial Analyst, being then promoted to Logistics andMaterials Manager and Financial Manager. He also served as a member of theExecutive Committee of Mavesa. He is an active member of theVenezuelan-American Chamber of Commerce, VENAMCHAM. His term as Director of theCompany expires July 2005.

 

**Alberto Sosa:**President of Seguros La Seguridad, which is a nationwide insurance company andthe national Insurance Council. He has been member of the Board of BancoMercantil, Ceramicas Carabobo and Avensa. His term as Director of the Company expiresJuly 2004.

 

**Nelson Ortiz:**President of the Caracas Stock Exchange. He is currently a member of the Boardof Diario El Nacional, a newspaper with national distribution, Banco Fivenez,IESA Foundation and Universidad Metropolitana Foundation. He is the Presidentof the FEDECAMARAS Economics Commission. He held various positions in his16-year tenure at the Venezuelan Central Bank, being Assistant to its Presidentfor the last four years he worked at that institution. His term as Director ofthe Company expires July 2004.

 

**Neil Malloy:**General Corporate Director of SIVENSA, an aluminum extraction transformingcompany, in which he has served as Corporate Financial Director, CorporateFinancial Planning Director and Corporate Treasurer. President of InternationalBriquettes Holding. He has been also Director of Otepi, Banco capital andVenalum. His term as Director of the Company expires July 2004.

 

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**Pedro Mezquita:**Partner of the law firm Nevett & Mezquita since 1991. He was a lawyer andAssistant to the President of the Banco Venezolano de Credito between 1984 and1987. Director of Vencred, S.A, which is a brokerage firm (Soficrédito).Director of Banco de Inversión e Inversiones AEFEVE (Holding Corpalmar).Ad-honorem counselor to the Venezuelan Senate’s Culture Commission   His term as Director of the Company expiresJuly 2006.

 

**José Rafael Velásquez:**Independent Business. He has experience in the real state development area,both public and private. He has been President of the National Institute ofHousing, the National Fund for Urban Development and General Director of theVenezuelan Department of Housing. He manages a 5-store chain thatcommercializes principally building materials. His term as Director of theCompany expires July 2006.

 

**Andrés Lapadula:**Partner of the law firm Nevett & Mezquita. He served as the Advisor to theDirector General of Public Finance at the Finance Ministry of the Republic ofVenezuela and also as the Counsel for PDVSA’s International Legal Department.He is a member of the Board of Directors of Central Banco Universal, which is anationwide bank, Petrolatin.com Inc. and the Micro-Finance VenezuelanInstitute. His term as Director of the Company expires July 2005.

 

**Guillermo Hernández Roura:**He is member of the Board of Director of Pretensados Venezolanos, C.A.,Convecar and Venepal. He has a wide experience in the real state developmentarea. His term as Director of the Company expires July 2004.

 

**Bernardo Vera:**Chief Executive Officer. Between 2002 and 2003, he performed as Vice-presidentof Banco Canarias de Venezuela. He has been involved with the Company since1999, when he was appointed as Construcentro’s Administrative and Financial Manager, later on he became Director forSpecial Projects at Corimon, C.A. Mr. Vera has a broad management experience inthe food and retail industry.

 

**Laura Emperador:**Chief Financial Officer, vice President of Finance. She began her professionalcareer as an External Auditor at KPMG, later on she performed as AdministrativeManager at Cargill, C.A., a manufacturer of a broad range of foodingredients.  In 1991 she took up theposition of Financial Analyst in the Company’s Comptroller Department, and aftera few years, she was appointed as Corimon’s Comptroller in 1998.

 

**Santos Cohen:**Manufacturing Vice-president. Mr. Cohen has always been related to the chemicalindustry and has been a member of the Company since 1976, when he directed theSales, Research & Development Department. He performed as General Managerfor several subsidiaries until 1997 when he was appointed as Vice-president ofthe Group’s Resins Division. He is an active member of ASOQUIM, the VenezuelanChemical Association , and the Venezuelan-American Chamber of Commerce, VENAMCHAM.

 

**José Ramos:**Commercial Vice-president. Mr. Ramos is an accountant with wide experience inaccounting as well as finance. He was an external semi-senior auditor at KPMGbetween 1992 and 1995, when he started his career at Corimon in the auditingdepartment. In 1996 he was appointed as Cerdex’s Administrative Manager andlater on as

 

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Operations and Financial Manager, position he held until 2001 when hewas designated Corporate Commercial Vice-President.

 

**María Graziella Scovino:**Financial and Shareholders Corporate Manager. Has been working in Corimon, C.A.since 1992. First she performed as Administrative Assistant and then as anAccountant Coordinator. In 2000 she was appointed as Tiendas Montana’sAdministrative Manager, and finally in 2003 she took up  the Financial and Shareholders CorporateManager.

 

**Aurora Muiño:**Comptroller and Processes Corporate Manager. In 1991 she served at Espiñeira,Sheldon & Associates (Member of PricewaterhouseCoopers) as an Assistant andcontinued her professional career until 1994 when she was appointed Semi-SeniorAuditor. In 1995 she began working at Corimon as a Financial Analyst and lateron in 1999 she was appointed Financial Analysis Coordinator and Comptroller andProcesses Corporate Manager in 2003.

 

**Amarilis De Paola:**Internal Auditing Corporate Manager. In 1990 she entered Espiñeira, Sheldon& Associates (Member of PricewaterhouseCoopers) as an Assistant andcontinued her professional career until 1998 when she was appointed AuditingManager. That year she began working at Corimon as Corporate Auditing Manager,position she has held since then, with a brief recess during 2003 when shetemporarily served as Comptroller. She has extensive experience in overseeingauditing control processes and internal audit policies.

 

**Gisela Aguirre:**Marketing Corporate Manager. With extensive experience in Marketing and PublicRelations, Mrs. Aguirre joined the Corimon Group in 1998 as Marketing Chief andlater on as Marketing Manager and Marketing Corporate Manager. She has alsoserved as Press and Public Relations Manager for two industrial Chambers.

 

**María Elvira Brett:**Systems Corporate Manager. She began her professional career atPricewaterhouseCoopers as Senior Officer of the Systems Audit Division in 1993,where she acted as an External Systems Auditor in Manufacturing, Services andBanking companies. In 1997 she entered the Corimon Group as a Project Leader inCorimon Pinturas, later on she served as a Systems Coordinator in 1998. Herexperience in the area lead to her promotion in 2001 to Systems Manager andthen to Systems Corporate Manager in 2003.

 

**Felix Carrasquero:**Security Corporate Manager. Mr. Carrasquero has been involved throughout hiscareer in the Corporate Security field, in which he has gained extensiveexpertise. He served as a Security Manager for Makro, a hypermarket chain, andsince 1997 he has been the Internal Security Corporate Manager. He adds hisknowledge in Business Administration to his working experience.

 

As of August 2003, Mr. Bernardo Vera was appointedas the new Chief Executive Officer (CEO) for Corimon, C.A’s, Ms. LauraEmperador took charge of the Vice-presidency of Finance as the Company’s newCFO, and Ms. Aurora Muiño was named Corimon’s Comptroller and ProcessesCorporate Manager.

 

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***6B. Remuneration***

 

The total number of directors, corporate managers andsubsidiary managers is 53. During the eight-month period endingNovember 30th, 2002, the Company paid to the directors, corporate managers andsubsidiary managers salaries and cash bonuses which amount to approximately US$1,645,017 (total annual remuneration). There is no amount set aside or accruedby the Company for pension, retirement or similar benefits.

 

During the eight-monthperiod ended November 30th, 2002, the Board of Directorsapproved payment of approximately Bs 1,225 million (equivalent toUS$876,400) in respect of special bonuses for the Company’s executives, shownunder Administrative and general expenses.

 

***6C. Board Practices***

 

Corimon’s Board ofDirectors, corporate managers and managers of all the group’s subsidiaries workunder a contract of unspecified duration, which has an issuance date and noexpiry date. There are no benefits payable upon termination of such contracts.The remaining personnel that work in Corimon and its subsidiaries can bedivided into administrative personnel and operating personnel. The workcontract for administrative personnel is also an open contract while theoperating personnel work under collective contracts in each of the differentsubsidiaries.

 

Corimon’s Directors areappointed for periods of three, two and one year. In the Annual Shareholders’Meeting held on July 18th, 2003, Carlos Gill Ramírez, EduardoGómez Sigala, Fernando Volante Z., Omar Pernía, Pedro Mezquita and José RafaelVelásquez were designated for a period of three years; Werner Braschi,Alejandro Alfonzo-Larrain, Ocatvio Lara, Manuel Sucre and Andrés Lapadula, fortwo years, and finally, Alberto Sosa, Nelson Ortiz, Neil Malloy and GuillermoHernández Roura will serve for a one-year period.

 

The Company’s Board ofDirectors has created an Audit Committee; an independent entity whose mainobjective is to oversee the Company’s internal control systems. This committeeis composed by 4 independent members of the Board with no decision-making poweror authority to intervene in the Company’s administrative management. Itsmembers must have management and financial knowledge that is appropriate totheir responsibilities.

 

The Audit Committeesupports the Board of Directors in its vigilance duties. It is ruled by certainstatutes that mandate certain aspects related to the committee’s operation suchas the periodicity of meetings, the election of members and President andresponsibilities. Among other obligations, the Committee reviews the processthe Company follows to create its financial statements and audit reports;determines if the suggestions made by both the internal and external auditorshave been executed; guards the Company’s compliance with all applicable laws,statutes and/or rules and determines, before they are published, if thefinancial statements are comprehensive and relevant to the information gatheredby them. Furthermore, it reviews the efficiency of the internal and externalauditing processes and the external auditors’ performance.

 

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The current members ofthe Audit Committee are Messrs. Manuel Sucre, Neil Malloy, Omar Pernia andOctavio Lara. They do not receive any additional payment for their services onthis committee. The Company has appointed Mr. Neil Malloy as the financialexpert of this committee; The Board of Directors has determined that Mr. Malloyqualifies as an audit committee financial expert.under the Sarbanes-Oxley Actof 2002.

 

***6D. Employees***

 

As of November 30th,2002, Corimon had 1,217 employees (compared to 1,055 at June 2003)distributed among Corimon and its subsidiaries, as compared to 1,204 employeeson March 31st, 2002, and 1,244 on March 31st,2001.

 

The paint and relatedproduct segment had 800 employees as of November 30th, 2002,821 employees on March 31st, 2002 and 840 employees onMarch 31st, 2001. The packaging and inks segment had 344 employeesas of November 30th, 2002, 312 employees on March 31st,2002 and 327 employees on March 31st, 2001. Corporate employeeswere 73 at November 30th, 2002, 71 at March 31st,2001 and 77 at March 31st, 2001

 

A labor union operates ineach of the Company’s subsidiaries, with which managers maintain close and goodlabor relations. As a part of the legitimization of labor union authorities, inSeptember 2001 Corimon’s labor union board members were elected for athree-year period (see “country-related factors” for more information)

 

***6E. Share Ownership.***

 

As of September 30th,2003, the Company’s major shareholders (shareholders that are the beneficialowners of more than 5% of the total outstanding shares of Corimon C.A.) were asfollows:

 
| **Shareholder**                  |   | **Number of  shares owned** |       | **Percentage** |   |
|----------------------------------|--------|-----------------------------|------------|----------------|--------|
| Moxley  & Co.                |   | 185,296,575                 |       | 24.59          | %      |
| Caja  Venezolana de Valores      |   | 157,506,944                 |       | 20.90          | %      |
| Carlos  Gill Group               |   | 149,603,185                 |       | 19.85          | %      |
| Eduardo  Gómez Sigala Group |   | 143,950,379                 |       | 19.10          | %      |
| Others                           |   | 117,326,465                 |       | 15.57          | %      |
| **TOTAL  OUTSTANDING SHARES**    |   | **753,683,548**             | ** ** | **100**        | **%**  |

 

Within both Carlos GillGroup and Eduardo Gomez Sigala Group the total common shares held indirectly byaffiliates owned by them are included. No officer or Director has stock optionsor other rights to acquire shares.

 

Moxley & Co,represents those shares which were converted into American Depositary Receipts(ADRs). Both Moxley & Co and Caja Venezolana de Valores are nominees. Thereare no other shareholders holding more than 5% of total shares.

 

As of September 30th,2003, out of the total of Corimon’s outstanding shares, 445,147,575 shares havebeen converted into 890,295 ADRs with an ADR to common share ratio of 1:500.This means that 59.06% of Corimon securities are held in ADR form. In the abovechart the number of shares owned by Mr. Carlos Gill and Mr. Eduardo

 

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Gómez-Sigala’s groups include their ADRs participation. Approximately430 US Residents are Corimon’s ADRs owners.

 

##### ***Item 7***.Major Shareholders and Related Party Transactions

##### *** ***

***7A*. *Major Shareholders***

See Item 6E

 

***7B. Related Party Transactions***

See Item 10C for more information on certain promissory notes issued bythe subsidiary Corimon International Holdings Limited for US$6,960,000. Thisissue was subscribed, among others, by some of the Company’s directors andexecutives.

 

##### ***7C. Interests of Experts and Counsel***

Not Applicable.

 

***Item 8******. Financial Information***

 

***8A. Consolidated Statements and OtherFinancial Information.***

 

*Taxes and other - “Economic Unit”principle*

 

SENIAT’s National andRegional Tax Administration for Special Taxpayers of the Capital Regionnotified the Company on August 16, 1996 and July 14, 1997 that itsincome tax and business assets tax returns should not have been filed on aconsolidated basis and, consequently, the Company’s final income tax andbusiness assets tax returns for fiscal years ended March 31, 1996 and 1997would be deemed null and void. Consequently, subsidiaries that are part of aneconomic group and have been classified by the Tax Administration as specialtaxpayers of the Capital Region are required to file separate income tax andbusiness assets tax returns with the Regional Tax Administration and pay theirrespective taxes in addition to related fines and any applicable additionalassessments.

 

At November 30,2002, the effect of not having filed separate final income tax and businessassets tax returns would be approximately Bs 9,934 million andBs 3,387 million for the years ended March 31, 1997 and 1996,respectively. These amounts, in addition to taxes, include the applicablefines.

 

On September 26,1996 and September 1, 1997, the Company filed appeals with SENIAT inrespect of the consolidation issue for 1996 and 1997. The Company has appliedthe economic unit principle for calculating consolidated taxable income from1996 to 2000. The Company’s management and its external tax advisors considerthat the Company exerts direct or indirect shareholding control over all itssubsidiaries, as well as administrative control over all decisions made by thecompanies of the Group, as evidenced during the appeals process.  Accordingly, based on existing legalprovisions, the Company’s management and its external tax advisors believe thatif current circumstances persist applicability of the economic unit principleuntil 2000 (effective date covered by law) would be well grounded in law forcomputation of consolidated taxable income and, therefore, the outcome of theappeals filed would be favorable. The Company considers

 

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that the likelihood of any material loss regarding this matter isremote and, therefore, has not set aside any provision in this connection.

 

*Wholesale and luxury tax*

 

In October 1998 thesubsidiary Construcentro received additional tax assessments in respect ofwholesale and luxury tax for the fiscal periods between January 1996 andFebruary 1998. These tax assessments alleged the omission of tax debits,disallowed tax credits and gave rise to a claim for additional taxes ofapproximately Bs 504 million. The Company filed an appeal which is stillpending decision by the Court.  Based onthis appeal the Company has set aside a provision to cover any possiblecontingencies.

 

In April 2000Construcentro Caracas (currently merged with Construcentro) was notified of taxassessments in respect of wholesale and luxury tax for the fiscal periodsbetween May and December 1997. These tax assessments disallowed taxcredits without supporting documentation and demanded additional taxes ofapproximately Bs 838 million and the applicable fine.  In June 2001 the Company filed an appeal requesting a reviewof the documents supporting the rejected credits.

 

The Company’s managementand its internal legal counsel believe that the maximum risk exposure inrespect of these additional assessments is not significant, since there aresufficient grounds to appeal them. The Company considers the likelihood of anymaterial loss in this connection to be remote and, therefore, has not set asidean additional provision in this connection.

 

*Income tax*

 

The Venezuelan taxauthorities have reviewed the income tax returns of several of the Company’ssubsidiaries for fiscal years 1982 to 1989 and disallowed deduction of certaincosts and expenses as well as tax-exempt income for approximately Bs 314million, including fines and interest. The main objections, which representapproximately 97% of the assessments, are in respect of tax credits forinvestments in anti-pollution projects and intercompany charges considered asprofessional fees. The Company has successfully defended its tax treatmentagainst all objections in the court of appeals in the case of one subsidiary;the decision of this court would create a precedent if the tax administrationwere to continue with the tax assessments. The Company has also appealed theremaining 3% of the assessments, which are in respect of the treatment of taxcredits and doubtful debts, among other matters.

 

*Other claims*

 

There are other claims bythe tax and municipal authorities, INCE (National Apprenticeship TrainingProgram) - settled as of June 2003-, and former employees against theCompany and some of its subsidiaries, mainly related to benefits demanded byformer employees. This group of employees does not include neither any employeeat the upper management level nor a Director of the Company. These claims arebeing satisfactorily contested and the Company’s management and its externallegal counsel believe that the final outcome will be favorable to the Companyand its subsidiaries.

 

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*Sissons Paints Limited*

 

There are certain legalactions some former employees have pending against the subsidiary, in relationwith labor benefits they are demanding. In the opinion of the subsidiary’smanagement and legal counsel, the provision set aside of approximatelyUS$112,000 (TT$692,000) is sufficient to cover any contingencies in thisconnection.

 

The Company distributesdividends to its shareholders in the case event it ends a fiscal year with netprofit and there are no accumulated losses from previous years.

 

***8B.***There have notbeen any significant changes since Nov. 30, 2002, except as otherwise disclosedin this Report.

 

**Item 9****. *The Offerand Listing***

 

**9*A*.*Offer andListing Details***

 

On March 23, 1993,Corimon became the first Venezuelan company to list its common shares on theNew York Stock Exchange in the form of ADSs under the ticker symbol CRM. TheADSs are evidenced by American Depository Receipts (“ADRs”) issued pursuant toa Deposit Agreement, dated November 14, 1991, as amended and restated onMarch 15, 1993, and amended on July 28, 1997 by and among Corimon,Morgan Guaranty Trust Company of New York, (now known as JPMorgan Chase Bank)and the owners from time to time of ADRs issued thereunder.

 

In May 8th, 2003,Corimon ADRs were suspended from trading on the New York Stock Exchange. TheNYSE reached its decision in light of the fact that the Company fell below theNYSE’s continued listing criteria for (1) average global market capitalizationover a consecutive 30 trading-day period, and (2) total stockholders’ equity.Following this suspension, Corimon’s ADRs are being traded only in theOver-the-Counter Bulletin Board (the “OTCBB”), which is an inter-dealer securitiesmarket not conducted through a formal exchange. This market providessignificantly less liquidity than the NYSE and our ADRs have been thinly tradedsince being quoted on the OTCBB. Therefore ADR holders may have difficulty selling their securities onfavorable terms, or at all.

 

The Deposit Agreementsubscribed between Corimon, C.A. and Morgan Guaranty Trust Company of New Yorkhas not been altered.

 

The Company’s commonshares are traded in Venezuela on the Caracas Stock Exchange. Corimon shareswere suspended from trading from February 16 until October 28, 1996by the Venezuelan Securities and Exchange Commission (“CNV”). This decisionhalted the Corimon shares from trading in Caracas, Maracaibo and on ElectronicStock Exchanges (together, the “Venezuelan Exchanges”) in Venezuela and haltedthe ADRs from trading on the NYSE. The suspension by the CNV was removed inOctober 1996, and both the common shares and preferred shares were tradedafter such date on the Venezuelan Exchanges.

 

On July 28, 1997,trading of the preferred shares on the Venezuelan Exchanges ceased inconnection with the conversion of such shares to common shares. Trading of the

 

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Company’s ADRs on the New York Stock Exchange resumed onAugust 31, 1998. On July 6, 2000, Corimon changed its ADR ratio to5000:1; the former ratio was 1:250.

 

At the AnnualShareholders Meeting of Corimon held on July 27, 2001, shareholdersapproved a one-for-ten reverse stock split and redenomination of the Corimoncommon shares of par value 10.00 Bolivars into common shares of par value100.00 Bolivars. Trading in new 100.00 Bolivars par value common shares inVenezuela was effective on January 22, 2002. This increase of par valuelead to an ADR ratio change from 1:5000 to 1:500 which was also effective onJanuary 22, 2002. According to the Company Bylaws (See Item 10.B) onJuly 29, 2002 the preferred shares were converted into common shares. Asof September 30th, 2003, there was a total of 7,358 recordedholders of the Company’s shares and the total outstanding shares were753,683,548.

 

The table below setsforth the historical quarterly high and low trading prices for the Company’scommon shares in Bolivars as traded on the Caracas Stock Exchange fromApril 1, 1997 to October 31, 2003 and for the Company’s ADSs in U.S.dollars as traded on the New York Stock Exchange from April 1, 1996through May 8, 2003:

 
|                      |   | **PER COMMON  SHARE (1)** |   | **PER ADS(2)**         |   |
|---------------------------|--------|---------------------------|--------|------------------------|--------|
| **FISCAL YEARS**          |   | **HIGH  HISTORICAL Bs**   |   | **LOW  HISTORICAL Bs** |   | **HIGH  US$** |   | **LOW  US$** |   |
| Fiscal  Year 1997(2)(3)   |   | 18.10                     |   | 7.10                   |   | — |   | — |   |
| Fiscal  Year 1998         |   | 20.50                     |   | 7.10                   |   | 20.20 |   | 6.80 |   |
| Fiscal  Year 1999         |   | 8.00                      |   | 1.40                   |   | 8.00 |   | 1.36 |   |
| Fiscal  Year 2000         |   | 3.40                      |   | 1.70                   |   | 3.12 |   | 1.24 |   |
| Fiscal  Year 2001 (Q1)    |   | 2.31                      |   | 1.58                   |   |   |   |   |   |
| Fiscal  Year 2001(Q2)     |   | 2.80                      |   | 2.14                   |   | 20.13 |   | 14.75 |   |
| Fiscal  Year 2001(Q3)     |   | 2.40                      |   | 1.85                   |   | 17.38 |   | 13.31 |   |
| Fiscal  Year 2001(Q4)     |   | 6.30                      |   | 2.00                   |   | 47.75 |   | 14.00 |   |
| Fiscal  Year 2002(Q1)     |   | 4.75                      |   | 3.75                   |   | 34.00 |   | 27.40 |   |
| Fiscal  Year 2002(Q2)     |   | 4.36                      |   | 2.60                   |   | 30.00 |   | 15.95 |   |
| Fiscal  Year 2002(Q3)     |   | 3.60                      |   | 2.50                   |   | 24.75 |   | 15.90 |   |
| Fiscal  Year 2002 (4)(Q4) |   | 26.00                     |   | 2.60                   |   | 18.30 |   | 10.50 |   |
| Fiscal  Year 2002(2) (Q1) |   | 21.00                     |   | 18.75                  |   | 16.50 |   | 8.80 |   |
| Fiscal  Year 2002(2) (Q2) |   | 20.00                     |   | 15.75                  |   | 8.60 |   | 5.75 |   |
| Fiscal  Year 2002(2)(5)   |   | 33.00                     |   | 20.00                  |   | 5.95 |   | 5.78 |   |
| **Fiscal  Year 2003**     |   |                      |   |                   |   |   |   |   |   |
| December,  2002(6)        |   | —                    |   | —                 |   | 6.25 |   | 5.90 |   |
| January,  2003(6)         |   | —                    |   | —                 |   | 6.10 |   | 5.90 |   |
| February,  2003           |   | 18.00                     |   | 14.50                  |   | 10.30 |   | 6.00 |   |
| March,  2003              |   | 17.50                     |   | 16.45                  |   | 10.26 |   | 8.25 |   |
| April,  2003              |   | 16.50                     |   | 15.00                  |   | 9.20 |   | 7.50 |   |
| May,  2003                |   | 16.00                     |   | 13.50                  |   | 7.10 |   | 5.26 | (7) |
| June,  2003               |   | 24.00                     |   | 16.50                  |   | — |   | — |   |
| July,  2003               |   | 25.00                     |   | 23.00                  |   | — |   | — |   |
| August,  2003             |   | 25.00                     |   | 19.50                  |   | — |   | — |   |
| September,  2003          |   | 27.00                     |   | 20.00                  |   | — |   | — |   |
| October,  2003            |   | 33.00                     |   | 26.00                  |   | — |   | — |   |

 

Source: www.NYSEnet.com

 

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1)              As adjusted toreflect stock splits and stocks dividends.

2)              Each ADS represents500 common shares of Corimon.

3)              The Class A andClass B shares resumed trading on the Venezuelan Exchanges on October 28and 29, 1996, respectively.

4)              Par value changefrom 10.00 Bolivars to 100.00 Bolivars was effective on January 22, 2002

5)              Months ofOctober and November 2002.

6)              The Caracas StockExchange was closed during the nationwide strike of  December 2002-February 2003.

7)              ThroughMay 8th, 2003.

 

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The Company has not declared any dividends payments since 1994.

 

***9B. Plan of Distribution***

Not applicable.

 

***9C. Markets***

 

The Company’s common shares trade in Venezuela on the Caracas StockExchange and its ADRs are quoted in the United States on the Over-the-CounterBulletin Board.

 

# **The Venezuelan Securities Markets**

# ** **

There is currently onlyone operating stock exchange in Venezuela, the Caracas Stock Exchange. Equitysecurities account for substantially all of the trading activity on the CaracasStock Exchange. However, bonds and medium-term notes are also listed on theexchange. There is currently a limited amount of off-exchange trading of listedVenezuelan securities. Although the regulations of the Caracas Stock Exchangerequire that settlement of trades occur within 48 hours, a large number oftrades are not settled within the prescribed period. On August 1, 1996,the Venezuelan government approved the formation of a settlement and clearinghouse (Caja Venezolana de Valores) for the settlement of trades on the CaracasStock Exchange.

 

The Caracas StockExchange posts trading information with respect to price, volume and listedtransaction activity for listed securities during trading hours, and publishesa daily bulletin that provides information on each listed security, includingthe lowest, highest and average prices at which trades take place, the numberof shares traded and any dividends declared or distributed.

 

The Caracas StockExchange has in the past experienced substantial fluctuations in the marketprice of listed securities. Factors contributing to such fluctuations mayinclude changes in the overall state of the national economy, adverse politicaldevelopments and the relatively small size of the Caracas Stock Exchange. TheCaracas Stock Exchange has the power to suspend dealing in any listed securityif the prices of the security vary by 20% or more from the opening price of thesecurity for that session. The duration of any such suspension period isdetermined by the Caracas Stock Exchange. Suspension periods in effect at theclose of trading generally are not carried over to the next trading day.

 

**MarketRegulation**

 

The Venezuelan CapitalMarkets Law and the rules issued thereunder by the Ministry of Finance(Ministerio de Hacienda) and the Venezuelan Securities and Exchange Commission(Comisión Nacional de Valores) (CNV) provide the regulatory framework for theVenezuelan securities industry. In addition to setting standards for brokers,it empowers the CNV to regulate the public offering and trading of securities.

 

All companies mustreceive the authorization of the CNV before offering to the public equity ordebt securities in Venezuela. All issued shares of such companies must also beregistered with the CNV. In order to offer securities to the public inVenezuela, an issuer must meet certain CNV requirements regarding assets,operating history,

 

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management and other matters. Only securities for which an applicationfor listing has been approved by the CNV may be listed on the Venezuelan StockExchange. In addition, foreign companies that wish to be listed on the CaracasStock Exchange must obtain the prior approval of the Ministry of Finance.Issuers of listed securities are required to file unaudited quarterly financialstatements and audited annual financial statements presented in bolivars andprepared in accordance with Venezuelan GAAP with the CNV and the stock exchangeon which the securities are traded.

 

In October 1998 theVenezuelan Congress approved a new Capital Markets Law, which became effectivein April 1999. The new law modernized the regulatory framework for manyaspects of the Venezuelan capital markets. The new law is intended to clarifythe regulation of certain issues, such as insider trading. It also modified theexisting regulations or imposed new regulations regarding various issues,including the following:  (i) the newlaw specifically regulates tender offers, takeovers and mergers of publiccompanies; (ii) it requires shareholders owning more than 10% of a company tonotify the CNV; (iii) it regulates the repurchase of stock by an issuer and thesale of treasury stock; (iv) it restricts reciprocal ownership of shares bypublic companies; and (v) it modifies and expands certain financial and otherreporting requirements for public companies. The new law also establishespenalties for violations and contemplates the CNV self-financing throughtariffs in connections with the offering of securities.

 

***9D. Selling Shareholders***

Not applicable.

 

***9E. Dilution***

Not applicable.

 

***9F. Expenses of the Issue.***

Not applicable.

 

**Item 10****. AdditionalInformation**

 

***10A. Share Capital***

Not applicable.

 

***10B. Memorandum and articles of association***

 

The following summarizesthe Company’s Articles of Incorporation and Bylaws, including amendments to thebylaws of the Company issued at the Annual Shareholders’ meeting held onJuly 29, 2002.

 

ARTICLES OF INCORPORATION- BYLAWS OF CORIMON, C.A.

 

**Article 2.-**The Company is mainly engaged in purchasing and selling shares, conductingsurveys, selecting, promoting and conducting capital investment projects inexisting or new companies, both in the country and abroad, financing andmonitoring the development of its subsidiaries by introducing new differentservices, as well as conducting commercial activities of any type, whichaccording to the Board of Directors are suitable to the Company’s interests.

 

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**Article 5.-**The Company’s  nominal capital amountsto ninety-seven thousand, nine hundred seventy-three million, three hundredtwenty-two thousand, eight hundred bolivars (Bs 97,973,322,800.oo). TheCompany’s subscribed and paid-in capital stock amounts to seventy-fivethousand, three hundred sixty-eight million, three hundred fifty-four thousand,eight hundred bolivars (Bs 75,368,354,800.oo), represented by seven hundredfifty-three million, six hundred eighty three thousand, five hundredforty-eight (753.683.548) common shares, with a par value of one hundredbolivars (Bs 100,oo) each.

 

REGARDING SHARES

# ** **

**Article 6.-**Shares grant equal rights to their holders and each represents a vote at theShareholders’ meeting. The Company only acknowledges shares and shareholdersrecorded in the Company’s Shareholders book.

 

**Article 7.-**If a share or a group of shares were to be owned by two or more individuals,only one of them will exercise its representation at Shareholders’ meetings.

 

REGARDING THESHAREHOLDERS’ MEETINGS

# ** **

**Article 9.-**Shareholders’ meetings shall be responsible of the overall management, thedecisions of which shall be mandatory to shareholders, although they have notattended the Meetings. Shareholders may be represented at the Meetings by thetheir attorneys or by any other person, provided that they send a letter to theChairman of the Board of Directors, indicating the person or persons that shallrepresent them.

 

This provision differs from US law, which generally requires notices ofmeetings to be delivered individually to all shareholders.

 

**Article 10.-**Shareholders’ meetings shall be held in Caracas, with prior notice published ina newspaper of general circulation in the country, which shall also include themeeting’s agenda, at the latest fifteen (15) continuous days in advance.

 

This provision differs from US law, which generally requires notices ofmeetings to be delivered individually to all shareholders.

 

**Article 11.-**The Regular General Meeting shall be held annually between April the first(1st) and July the thirty-first (31st). SpecialMeetings may be held any time in response to the Company’s interests, at thediscretion of the Board of Directors, or when requested by the number ofshareholders stipulated in the Code of Commerce.

 

**Article 12.-**Shareholders’ meetings shall:

 

a) Approve or disallow the annual balance sheet and review the reportof statutory auditors.

b) Elect all members of the Board of Directors.

c) Elect the Chairman and the Vice-Chairman of the Board of Directors.

d) Select the firm of independent accountants that shall issue anopinion on the Company’s annual financial statements.

e) Appoint the main statutory auditors and their alternates, and fixtheir professional fees.

f) Determine the method to cover likely losses, if any.

g) Analyze and solve any matter upon request.

 

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**Article 13.-**A meeting shall be valid if at least sixty-five percent (65%) of the Company’scapital stock is represented. Decisions shall be valid if they are approved byat least the simple majority of all shares represented at the Meeting. Thisprovision is also applicable to decisions referred to in article 280 ofthe Code of Commerce. In the event the first notice does not meet the requiredquorum, based on the provisions above, the Meeting shall be held on the third(3rd) following day, at the same place and time, with no further notice needed;if at that moment the Meeting still does not have the required quorum, a secondnotice shall be published as set forth in article 276 of the Code ofCommerce. However, to be valid, all decisions related to the amendment of theCompany’s articles of incorporation and bylaws have to be approved by at leastsixty-five percent (65%) of the Company’s capital stock, yet if the first orsecond notice has not congregated the minimum required quorum to consider theMeeting as valid.

 

The foregoing provisions differ from US law to the extent they imposesupermajority quorum and voting requirements. US law generally requires thepresence of only a majority of the shares at a meeting to establish a quorum,and requires only a majority of the shares to approve amendments to thecertificate of incorporation.

 

**Article 15.-**The Company’s management and administration shall be vested in its Board ofDirectors, which shall comprise eleven (11) main directors and four (4)alternates.

Directors shall be elected and dismissed at the Shareholders’ meetingswith the affirmative vote of at least fifty-five percent (55%) of the capitalstock shares, as follows:

Four (4) main directors and two (2) alternates shall be elected for aperiod of three years; four (4) main directors and one (1) alternate shall beelected for a period of two years; and three (3) main directors and one (1)alternate shall be elected for a period of one years.

 

The foregoing provisions differ from US law to the extent they requirea supermajority vote to elect directors. US law generally provides thatdirectors may be elected by a plurality of the votes present at a meeting.

 

**Article 18.-**Each director shall exercise his functions up to substitution and shall depositor have a share (1) deposited in the Company’s cash fund, for the purposes setforth in the Code of Commerce.

The elected alternate of the absent director shall serve the partialabsence of any main director. In the event of total absence or lack of analternate, the Board of Directors shall decide if the alternate director shallattend the Meeting.

 

This provision differs from US law, under which directors generally arenot required to own any shares as a condition of holding office.

 

**Article 19.-**All members of the Board of Directors shall have the right to receive an annualCompany stake  equivalent to two and ahalf percent (2.5%) of liquid profits collected each fiscal year, afterdetermining the provision for income tax, in addition to diets. This Companystake shall be distributed in cash or shares of the Company at the discretionof the Board of Directors.

 

This provision differs from US law, which generally does not providefor directors to receive any economic interest in a company’s profits.

 

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REGARDING THE CHAIRMANAND VICE-CHAIRMAN OF THE BOARD OF DIRECTORS

 

**Article 20.-**The Company’s Board of Directors shall have a Chairman and a Vice-Chairmanwhose term in office shall be three (3) years, and shall be elected from thedirectors of the Shareholders’ meetings, with the affirmative vote of at leastsixty-five percent (65%) of the Company’s capital stock.

The Chairman of the Board of Directors shall:

1) Preside the meeting and convene and preside the Board of Directors’meetings;

2) Supervise and represent all the Company’s businesses;

3) Monitor compliance with the decisions taken by the Board ofDirectors;

4) Serve the total or partial absences of the Vice-Chairman of theBoard of Directors until the Meeting elects a surrogate, in the event of totalabsence;

5) Conduct any other activity requested by the Shareholders’ meeting orthe Board of Directors.

The Vice-Chairman of the Board of Directors shall:

1) Preside the meeting and convene and preside the Board of Directors’meetings in case of total or partial absences of the Chairman of the Board ofDirectors;

2) Supervise all the Company’s businesses;

3) Monitor compliance with the decisions taken by the Board ofDirectors;

4) Serve the total or partial absences of the Chairman of the Board ofDirectors until the Meeting elects a surrogate, in the event of total absence;

5) Conduct any other activity requested by the Shareholders’ meeting orthe Board of Directors.

 

First paragraph: In the event of definitive and total absence of eitherthe Chairman or Vice-Chairman of the Board of Directors, the remaining membershall assume the functions of the absent member, including the power set forthin the second paragraph of this article, until the Shareholders’ meeting electsa surrogate.

Second paragraph: The Chairman and the Vice-Chairman of the Board ofDirectors, by acting jointly, shall have the right to object to decisions takenby the Board of Directors.

 

**Article 21.-**The Company shall have an Executive Chairman elected by the Board of Directors,who shall be in office three (3) years and shall:

a) Sign documents and protocols related to the normal and ordinarymanagement of the Company’s businesses. If documents or protocols related toall type of guarantees or businesses exceed the normal and ordinary management,the Executive Chairman shall request authorization from the Board of Directors.

b) Manage the Company’s operations, including appointment and paymentof professional fees, and coordinate operations with subsidiaries, affiliatesor associated companies.

c) Conduct any activity needed, on behalf of the Company’s interests,for management and administration of businesses, including the segregation ofits duties.

d) Conduct any other activity set forth by these bylaws, theShareholders’ meetings or the Board of Directors.

Both the Chairman of the Board of Directors and the Executive Chairmanmay be represented by a single person. This provision is also applicable to theVice-Chairman of the Board of Directors.

 

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REGARDING THE LEGAL REPRESENTATIVE

 

**Article 22.-**The Company shall have a Legal Representative, who may have an alternate. TheLegal Representative and his alternate, if any, shall be elected by the Boardof Directors and shall be in office until they resign or are dismissed.

The Legal Representative shall represent the Company with norestrictions under any circumstances and shall be the only officer who maylegally accept subpoena or notice on behalf of the Company. He shall beentitled to file and reply lawsuits, make sworn statements, execute trialsinvolving all procedures, instances and appeals, both regular and special,compromise, receive money and grant the related settlements, place bids inauctions, thereby being authorized to grant powers to attorneys to representthe Company, thereby keeping the right to exercise such powers. To compromise,agree upon, wave and engage before civil or legal arbitrators the Legalrepresentative shall request prior approval from the Board of Directors.

The Legal Representative and his alternate shall be in charge of theirfunctions once the Mercantile Registry is duly notified and their powers shallbe revoked upon repealing and when the related notice is issued.

 

# **REGARDING  SECRETARY**

# ** **

**Article 23.-**The Company shall have a Secretary, who may have an alternate. Both theSecretary and his alternate, if any, shall be elected by the Board of Directorsand shall be in office until they resign or are dismissed. The Secretary shall:

a) Attend the Shareholders’ meetings and meetings of the Board ofDirectors and prepare the related minutes, thereby being able to certify andauthenticate such minutes of meetings.

a)              Ensure the Books ofMinutes of the Company are properly kept.

 

# **REGARDINGTHE STATUTORY AUDITOR**

# ** **

**Article 24.-**The Company shall have two (2) main statutory auditors and their alternates,who shall be in office for a year. They may be reelected and shall exercise thefunctions stipulated in the Code of Commerce. The secondary statutory auditorshall serve for the absence of the main statutory auditors.

 

FINALPROVISIONS

 

**Article 25.-**The Company’s fiscal year begins on December the first (1st)and ends on November the thirtieth (30th) of the next year. Atyear-end the Company shall prepare an inventory, a statement of profit and lossand an annual balance sheet, in conformity with the Code of Commerce and thegenerally accepted accounting principles, which shall be consistently applied.

 

**Article 26.-**At least a five percent (5%)  portion ofthe Company’s liquid profits shall be set aside every year at the RegularGeneral Meeting for creating a reserve fund aimed at covering losses reportedin the financial statements, and at complying with the company liabilities.This reserve fund shall be accumulated until it reaches ten percent (10%) ofthe capital stock.

 

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There are no limitations on the right to own securities imposed byVenezuelan law or by the Articles of Incorporation or Bylaws of the Company.

 

***10C. Material Contracts***.

 

The most important loansand financial obligations, fully detailed in Note 8 to the consolidatedfinancial statements, are as follows:

 

a)              BancaracasInternational Banking Corporation: In October 2001 Corimon enteredinto a loan agreement with Bancaracas International Banking Corporation forUS$6,955,000 (equivalent to approximately Bs 9,215 million), at a 12.75%annual fixed interest rate payable quarterly. Loan principal was to be repaidin one sum in April 2003. This loan is secured by a deposit in the samebank for US$6,955,000 at a fixed interest rate of 11.75%, maturing inApril 2003. In May 2003, the Company paid down US$ 450,000 with partof this deposit and the remaining balance of the promissory note and the depositwere renewed, with maturity in April 2004, at a fixed interest rate of 11%and 10% respectively.

 

b)             Banesco BancoUniversal (formerly Unibanca Banco Universal): In June 2000 CorimonPinturas, C.A. issued promissory notes for approximately Bs 3,500 millionwith maturity in three years. These promissory notes were issued with a 50%discount with a variable interest rate adjusted quarterly, based on marketrates. At November 30th, 2002, the annual interest rate was35.15% (27.27% on March 31st, 2002). The discount will beamortized over the term of the promissory notes.

 

At November 30th, 2002, the balance of this debt, netof the unamortized discount is approximately Bs 3,098 million (Bs 3,366million at March 31st, 2002), which represents the net facevalue of the negotiable promissory notes. The Company is currently negotiatingwith the bank new maturity dates and principal amortization. These debts wereissued with the following guarantees:

 

1.               An investment,administrative and guarantee trust fund agreement set up in two fiduciarysubaccounts: one for payment of interest coupons and the other for payment ofprincipal or face value of the negotiable promissory notes. In the firstfiduciary subaccount, the subsidiary must maintain the necessary amount tocover the prepaid interest coupons and it should deposit at least Bs 30 millionduring the first 45 days of the quarter in which this coupon was issued. Thesubsidiary further agrees to make monthly payments to the fiduciary subaccountfor the payment of the principal or face value of promissory notes.

 

2.               First mortgage onreal property of the Company’s subsidiaries: Productos Químicos Adín(subsidiary of Corimon, C.A.); Inversiones Materra (subsidiary of CorimonPinturas, C.A) and Inversiones Peña Mayor (subsidiary of Grafis, C.A), whichwill not surpass the amount of Bs 4,500 million.

 

3.               Guarantee ofinventories up to Bs 2,000 million.

 

4.               Guarantee of theentire debt and a security bond granted by the Company.

 

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c)              Promissory Notes:In September 2001 the subsidiary Corimon International Holdings Limitedissued promissory notes amounting to US$6,960,000 (equivalent to Bs 9,222million) for an 18-month term as from the date of issue, which are due in asingle payment at maturity in April 2003. Interest is calculated and paidon a quarterly basis at a 12.75% fixed annual rate. In April 2003, theCompany paid in cash US$605,000 and issued new promissory notes forUS$6,355,000 with maturity in April 2003, at 11% annual fixed rate.

 

Thisissue was subscribed, among others, by some of the Company’s directors andexecutives and is secured by a guarantee from Corimon, C.A. and a trust fund onbehalf of holders of paper in respect of all shares of the subsidiary SissonsPaint Limited in Trinidad. Issuance of these promissory notes is related todebt settlement with CAF and IFC (see Notes 5 and 8 to the consolidatedfinancial statements).

 

Thecompany’s directors and executives who, directly or indirectly,  purchase these promissory notes are:

 
| **Company’s Directors and Executives** |   | **Amount subscribed  In USD** |       |
|---------------------------------------------|--------|-------------------------------|------------|
| Carlos Gill Ramírez                    |   | 1,000,000                     |       |
| Eduardo Gómez Sigala                   |   | 900,000                       |       |
| Alejandro Alfonzo Larrain                   |   | 300,000                       |       |
| José Rafael Velásquez             |   | 100,000                       |       |
| Laura Emperador                             |   | 50,000                        |       |
| Santos Cohen                                |   | 50,000                        |       |
| Octavio Lara                                |   | 25,000                        |       |
| **TOTAL**                                   |   | **2,425,000**                 | ** ** |

 

For further discussion ofcontractual obligations and commercial commitments as required by the SEC,please see Note 8 to the consolidated financial statements.

 

In addition to the above,the Company has a line of credit for USD 0.3 million to satisfy any shortfallin working capital needs, this credit has not yet been used.

 

***10D. Exchange Controls***

 

Under the provisions ofthe foreign exchange regime established in July 1994 in effect untilApril 1996, the Company and its subsidiaries received advances in foreigncurrency to pay debt and import raw materials and other supplies secured byperformance bonds issued by the Company and bank guarantees, of whichapproximately US$825,000 and US$3 million, respectively, are pending release bythe Foreign Exchange Study Unit (UNEC) of the Ministry of Finance atNovember 30th, 2002.

 

In May 1995 theauthorities accepted the Company and its exporting subsidiaries into theSpecial Optional System for Exporters (REFE). This system allowed foreign currency from exports to be kept abroad andused for payments stipulated in this system. Any foreign currency not required for exporting activities was requiredto be sold to the Banco Central de Venezuela (BCV).  The Company used approximately US$1,540,000

 

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from export collections to partially settle its net foreign debt, whichwas in the process of being registered with the tax authorities.  The UNEC requested the Company to providecertain supporting documentation in respect of the use of the net balance offoreign currency due at April 21, 1996 not sold to BCV.

 

More recently, onJanuary 22nd, 2003 the Venezuelan Central Bank (BCV) suspendedforeign exchange trading and announced it would implement an exchange controlthat was ultimately presented on February 5th. It set the bolivar’s valueat Bs 1,596 a dollar for sales and Bs 1,600 for purchases.

 

The primary reason forthis exchange control was the shortage of foreign exchange caused by the factthat the government had almost no income from the oil industry during thenationwide strike that took place between December 2002 andFebruary 2003.

 

The system is managed byVenezuela’s Central Bank (Banco Central de Venezuela, BCV) and the recentlycreated Commission for the Administration of Foreign Exchange (Comision deAdministracion de Divisas, CADIVI). The BCV has to determine the amounts offoreign funds that will be available to the public and its official exchange rate,and CADIVI will allocate foreign currency in accordance with some newregulations set for this regime. The new currency system provides no legalparallel market, forcing individuals and organizations in need foreign currencyto obtain it from the government.

 

In order to receiveforeign currency, importers and businessmen must make a petition through theirbanks, which in turn would apply to CADIVI for a decision as to whether and howmuch foreign exchange will be allotted. This approval can take up to 30 days;and no import orders can be placed without such approval. Once issued,approvals are valid for a period of 120 days.

 

CAVIDI issued a list ofimported products for which foreign currency should be made freely available.CADIVI also released a list of the requirements that must be met in order torequest foreign currency for commercial transactions, medical treatment,educational purposes, etc. The documentation required for registration, whichincludes a range of clearances from central and municipal tax authorities, hasproven extremely difficult and time consuming to obtain.

 

As of January 22th,2003 the Company had almost USD 5.9 million in debt; and out of it, Corimonrequested from CADIVI approximately about USD 4.7 million in the period betweenAugust and October 2003. As of the day this report was submitted,none of this request had been neither approved nor delivered.

 
| **Subsidiary**     |   | **Total Debt  January 22th, 2003** |       | **$ amount  requested** |       |
|--------------------|--------|-----------------------------------------|------------|-------------------------|------------|
| Corimon  Pinturas  |   | 3.813.426,57                            |       | 3.260.779,00            |       |
| Resimon            |   | 393.023,63                              |       | 109.956,55              |       |
| Montana  Grafica   |   | 1.017.124,27                            |       | 806.784,74              |       |
| Cerdex             |   | 205.973,64                              |       | 142.871,94              |       |
| Grafis             |   | 478.023,36                              |       | 412.256,36              |       |
| **Grupo  Corimon** |   | **5.907.571,47**                        | ** ** | **4.732.648,59**        | ** ** |

 

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As of July 2003 theCompany had requested from CADIVI approximately $2,251,482 to pay for rawmaterial. Approval was granted for an allocation of $460,005 had been approved,but only $91,930 had actually been furnished. The following table gives asnapshot of the Company’s position with regards to CADIVI:

 
| **Subsidiary**           |   | **$ amount  requested** |       | **$ amount  approved** |       | **%**     |   | **$ amount  delivered** |       | **%**     |   |
|--------------------------|--------|-------------------------|------------|------------------------|------------|-----------|--------|-------------------------|------------|-----------|--------|
| Corimon Pinturas         |   | 877.492,03              |       | 147.262,00             |       | 16,78     | %      | 34.462,00               |       | 23,40     | %      |
| Resimon                  |   | 163.210,00              |       | 34.800,00              |       | 21,32     | %      | 0,00                    |       | 0,00      | %      |
| Montana Grafica-Convepal |   | 1.024.945,45            |       | 92.107,79              |       | 8,99      | %      | 0,00                    |       | 0,00      | %      |
| Cerdex                   |   | 185.834,95              |       | 185.834,95             |       | 100,00    | %      | 57.467,50               |       | 30,92     | %      |
| Grafis                   |   | 0,00                    |       | 0,00                   |       | 0,00      | %      | 0,00                    |       | 0,00      | %      |
| **Grupo****Corimon**     |   | **2.251.482,43**        | ** ** | **460.004,74**         | ** ** | **20,43** | **%**  | **91.929,50**           | ** ** | **19,98** | **%**  |

 

As of September 15th,2003 the Company had requested from CADIVI approximately $3,994,000 to pay forraw material, $3,650,000. Approval was granted for an allocation of $382,483had actually been furnished. This situation makes it difficult for the Companyto acquire its supplies and therefore meet its production and sales objectives.Additionally, an inability to obtain foreign currency could adversely affectthe Company’s commercial relationships both with its suppliers and its clientsbecause of the risk of not complying with previously settled commitments.

 

The following table givesa snapshot of the Company’s position with regards to CADIVI:

 
| **Subsidiary**           |   | **$ amount  requested** |       | **$ amount  approved** |       | **%**     |   | **$ amount  delivered** |       | **%**    |   |
|--------------------------|--------|-------------------------|------------|------------------------|------------|-----------|--------|-------------------------|------------|----------|--------|
| Corimon Pinturas         |   | 1.761.104,67            |       | 1.582.662,04           |       | 89,87     | %      | 313.605,93              |       | 17,81    | %      |
| Resimon                  |   | 475.115,00              |       | 442.565,00             |       | 93,15     | %      | 11.410,00               |       | 2,40     | %      |
| Montana Grafica-Convepal |   | 1.569.593,37            |       | 1.439.663,01           |       | 91,72     | %      | 0,00                    |       | 0,00     | %      |
| Cerdex                   |   | 185.834,95              |       | 185.834,95             |       | 100,00    | %      | 57.467,50               |       | 30,92    | %      |
| Grafis                   |   | 2.700,00                |       | 0,00                   |       | 0,00      | %      | 0,00                    |       | 0,00     | %      |
| **Grupo****Corimon**     |   | **3.994.347,99**        | ** ** | **3.650.725,00**       | ** ** | **91,40** | **%**  | **382.483,43**          | ** ** | **9,58** | **%**  |

 

Aditionally, inAugust 2003, Corimon, C.A. requested about USD 7 million to CADIVI inorder to pay the financial debt it has with Banacaracas International BankingCorporation. This amount includes both principal (USD 6,505,000) and interest,and it is expected to be furnished as payments mature. This request has not yetbeen approved by CADIVI.

 

Capital repatriation ofdividends, interests and other earnings is allowed after registering with theVenezuelan Superintendent of Foreign Investment (Superintendencia deInversiones Extranjeras) and upon authorization from that office.

 

***10E. Taxation***

 

The following summarizesthe principal Venezuelan tax consequences under Venezuelan law of the purchase,ownership and disposition of Corimon’s ADSs and shares and receipt of dividendstherefrom by persons (including corporations) who are

 

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non-residents of Venezuela. This summary is based on current Venezuelantax law and is for general information only.

 

As used herein, the termVenezuelan “non-resident” refers to an individual whose physical presence inVenezuela does not exceed more than 180 days during a calendar year or theimmediately preceding calendar year; whereas the term “non-domiciled” refers toa legal entity which is neither domiciled nor organized in Venezuela or norconducting business through a permanent establishment within the country. If anon-domiciled entity creates a permanent establishment in Venezuela, suchpermanent establishment will be considered a Venezuelan domiciled taxpayersubject to Venezuelan taxation on worldwide income only in respect of thoseitems of income that are attributable thereto.

 

In general, and asdiscussed below, all income derived from an investment in ADSs is consideredVenezuelan foreign-source income, as such being imposed only on residentindividuals and domiciled entities that are taxed in Venezuela on worldwideincome, whereas non-resident individuals and non-domiciled entities are notsubject to taxation in Venezuela. Income derived from Corimon shares isconsidered Venezuelan local-source income, taxable to any taxpayer, regardlessof its residence or domicile, except as otherwise provided by applicabletreaty.

 

As for dividend taxation,there is a new system covering taxation of dividends introduced in the 1999Venezuelan Income Tax Law. For the purposes of the Venezuelan Income Tax Law,dividend is to be understood as the portion that corresponds to each share inthe profits of a stock company and other taxpayers under this category,including those profits resulting from stakes in limited liabilities companies.

 

The law stipulates aproportional tax equivalent to 34% levied on the amount of dividends paid orcredited to account and originated in the taxpayers’ net income that exceedstheir net fiscal taxed income. In this regard, net income is to be consideredthat which is approved at the shareholders’ meeting based on financialstatements prepared pursuant to Accounting Principles Generally Accepted in theBolivarian Republic of Venezuela, and is taken as the base for the distributionof dividends. Likewise, net fiscal taxed income is understood to be that whichis subject to the tariffs and proportional rates set forth in the Law.

 

Dividend income receivedwith respect to Corimon shares is not subject to Venezuelan income tax norwithholding tax with respect to distributions arising out of earnings andprofits for periods commencing on or prior to December 31, 2000. Alldividends arising out of either accrued or current earnings and profits forperiods commencing on or after January 1, 2001 and which are paid in cashor kind with respect to Corimon shares are considered Venezuelan local-sourceincome.

 

As such, the dividendthat is paid in cash will be subject to a withholding tax at the rate of 34% atthe time of payment, as well as filing obligations for the shareholder,regardless of its residence or domicile. In the case of non- Venezuelanpersons, the 34% withholding rate may be further reduced or even eliminated byapplicable treaty. Subject to the applicable treaty, stock dividends paid withrespect to Corimon shares will be subject to an income tax withholding at therate of 34% at the time that such stock is disposed of by the shareholder. Inthe case of dividends paid with shares issued by the paying company,

 

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the proportional tax will be subject to an advance payment equivalentto 1% of the total value of the distributed dividend, which will be credited tothe resulting proportional tax payable.

 

Income derived from either accrued or current earningsand profits for periods closing after January 1, 2001 with respect to theADSs (whether in cash or in stock) will be treated as Venezuelan foreign-sourceincome, taxable only for resident individuals and domiciled entities who aretaxed on worldwide income, whereas non-resident individuals and non-domiciledentities are not subject to any taxation in Venezuela with respect to the ADSs.

 

Capital gains from thesale or other disposition of ADSs including exchanges of ADSs for Corimonshares are considered Venezuelan foreign-source income, taxable only for residentindividuals and domiciled entities who are taxed on a worldwide income basis;whereas non-resident individuals and non-domiciled entities are not subject totaxation in Venezuela regardless of the location where such transactions takeplace. As described below, however, a disposition of Corimon shares effectedregardless of residence or domicile, through a Venezuelan stock exchange (whichwould include a disposition by a broker/agent on behalf of an ADS holder) willbe subject to a 1% proportional tax on the gross amount realized from the sale.

 

Capital gains obtainedfrom the sale or other disposition (other than through a Venezuelan stockexchange) of Corimon shares (or rights to subscribe for Corimon shares) will beconsidered Venezuelan local source income, and subject to income taxwithholding, unless otherwise provided by an applicable treaty, at the rate of3% in the case of resident individuals, 34% in the case of non-residentindividuals and 5% in the case of entities, regardless of their domicilecondition. Capital gains obtained by a resident individual or a domiciledentity will be subject to Venezuelan income taxes on a net basis and accordingto progressive rates, whereas (unless otherwise provided by applicable treaty)capital gains obtained by a non-resident individual or by a non-domiciledentity, from the sale or other disposition (other than through a Venezuelanstock exchange) of Corimon shares (or rights to subscribe for Corimon shares)will be subject to Venezuelan income taxes at the maximum flat rate of 34% overgross proceeds, or at applicable corporate rates, respectively. Taxpayers aresubject to year-end return filing obligations, regardless of the shareholder’sresidence or domicile.

 

Sales or otherdispositions made through a domestic stock market are subject to a 1%proportional tax on the gross proceeds.

 

The amount of gain fromthe sale or other disposition of Corimon shares (or rights to subscribe forCorimon shares) other than through a Venezuelan stock exchange, is representedby the excess of the amount realized by the shareholder over its own tax basisin such Corimon shares (or rights to subscribe for Corimon shares) sold orotherwise disposed of. In general, a shareholder’s tax basis in a Corimon sharewill be represented by its cost of acquisition, whereas, a holder’s basis in ashare received upon exercise of a right to subscribe for a Corimon share wouldbe represented by the sum of the exercise price paid and the tax basis in suchright. If a Corimon share were to be received as a stock dividend afterJanuary 1, 2000, the tax basis for such share would be zero.

 

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The eventual distributionby Corimon of dividend indebtedness vouchers and the payment by Corimon of theprincipal amount of such vouchers will not be subject to Venezuelan income taxor withholdings with respect to dividends arising out of either accrued orcurrent earnings or profits for periods commencing prior to December 31,2000. However, the eventual distribution by Corimon of dividend indebtednessvouchers with respect to dividends arising out of either accrued or currentearnings or profits for periods commencing on or after January 1, 2001with respect to Corimon shares will be taxable to the recipient. Under theVenezuelan Income Tax Law dividends are taxed as at the moment Corimon pays orcredits to account the dividend that will become subject to the tax analysisreferred to previously relating to the distribution of dividends.

 

Moreover, interest paidby Corimon on the vouchers with respect to Corimon shares will be treated aslocal source income and thus taxable in Venezuela for all individuals andentities regardless of domicile, subject to applicable treaty coveringnon-resident individuals or non-domiciled entities. The payment of interestwill be subject to, unless otherwise provided by applicable treaty, income taxwithholding at the effective rate of 32.3% in the case of non-residentVenezuelan persons and subject to applicable treaty and at the rate of 3% and5% in the case of resident individuals and domiciled entities, respectively.

 

Capital gains from thesale or other disposition of a voucher with respect to Corimon shares will beconsidered Venezuelan local-source income, although not subject to income taxwithholding. Capital gains, calculated as the excess of the proceeds of thesale over the principal amount of the voucher, obtained by a residentindividual or a domiciled entity will be subject to Venezuelan income tax on anet basis and according to progressive rates, whereas and unless otherwiseprovided by an applicable treaty, capital gains obtained by a non-residentindividual or non-resident entity, from the sale or other disposition of avoucher with respect to Corimon shares will be subject to Venezuelan income taxat the maximum flat rate of 34% over gross proceeds, or the applicablecorporate rates, respectively.

 

Subject to applicabletreaty, non-resident individuals and non-domiciled entities receiving interestor realizing gains from the sale or other disposition of vouchers are generallyrequired to comply with the ordinary annual filing requirements for residents.

 

The acquisition of ADSsthrough inheritance or gift by either a resident or non-resident from anon-resident is not subject to Venezuelan estate, inheritance or gift tax. Theacquisition of ADSs through bequest or gift from a resident of Venezuela aresubject to Venezuelan estate and gift tax. Venezuelan estate and gift tax ratesare progressive and vary according to the kindred degree of relationshipbetween the recipient and between the decedent or the donor; as the case maybe.

 

The acquisition ofCorimon shares (or rights to acquire Corimon shares) through bequest or gift issubject to Venezuelan estate and gift tax, regardless of the residence of thedecedent or of the donor. The rate of Venezuelan estate or gift tax imposed ona transfer generally depends on the value of the bequest or gift and on thekindred degree of relationship between the beneficiary and the decedent or thedonor, as the case may be. The beneficiary of a bequest or gift is responsibleand liable for the payment of the estate or gift

 

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tax. In addition, the donor and the donee are jointly and severallyresponsible for the payment of the gift tax.

 

Other Taxes

 

There are no Venezuelanstamp, issue, registration or similar taxes or duties payable by holders ofADSs or Corimon shares (or rights to subscribe for Corimon shares). Other thanthe taxes discussed above, no other Venezuelan transfer taxes are applicable tothe transfer of ADSs or Corimon shares (or rights to subscribe for Corimonshares), including deposits and withdrawals of Corimon shares to or from theADR facility.

 

United States Federal Income Taxation

 

The following is asummary of the principal United States federal income tax considerations underpresent law of an investment in ADSs or in Corimon shares. This summary appliesonly to investors that hold the ADSs or Corimon shares as capital assets andthat have the U.S. dollar as their functional currency. The summary is notintended as tax advice to any particular investor, some of which (investors,such as banks, insurance companies, dealers, traders who elect to mark to market,tax-exempt entities, persons holding an ADS or Corimon shares as part of astraddle, hedging, conversion or constructive sale transaction and holders of10% or more of the voting shares of Corimon), may be subject to special taxtreatment. The Company believes, and the discussion therefore, assumes that itis not and will not become a passive foreign investment company for UnitedStates federal income tax purposes.

 

As used here, the term“U.S. holder” means a beneficial owner of ADSs or Corimon shares that is (i) aUnited States citizen or resident, (ii) a domestic corporation or partnership,(iii) a trust subject to the control of a U.S. person and the primarysupervision of a U.S. court or (iv) an estate the income from which is subjectto United States federal income taxation regardless of its source. The term“non-U.S. holder” refers to any other holder of ADSs or Corimon shares. Holdersof ADSs (or ADRs evidencing ADSs) generally will be treated as the owners ofthe Corimon shares represented by those ADSs (or ADRs evidencing ADSs).

 

U.S.-Venezuela Income Tax Treaty

 

The United States andVenezuela have concluded an income tax treaty, which entered into force onJanuary 1, 2000. U.S. holders who are eligible for the benefits of thisincome tax treaty will generally be subject to Venezuelan source withholdingtax on dividends at a maximum rate of 15% (or a lower rate in the case ofcertain persons that own more than 10% of the Company’s voting stock) and willgenerally not be subject to Venezuelan income or withholding tax on gains fromthe disposition of Corimon shares or ADSs. However, the determination as towhether a U.S. person is eligible for the benefits of the income tax treaty isvery complex. In particular, a U.S. person that owns Corimon shares and who isnot subject to income tax in the United States (such as a partnership or otherpass-through entity) or that has, or is deemed to have, a permanentestablishment in Venezuela also may not be eligible for the benefits of thetreaty in respect of taxes on income or proceeds from the sale or ADSs andCorimon shares. U.S. holders are urged to 

 

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consult their own tax advisors about eligibility for benefits under theU.S.-Venezuela income tax treaty.

 

Dividends and Other Distributions

 

Dividends paid withrespect to the ADSs or Corimon shares generally will be included in the grossincome of a U.S. holder as ordinary income (to the extent of the amount paidout of current or accrued earnings and profits, as determined under U.S.federal income tax principles) when the dividends are received by theDepositary. The dividends generally considered to be foreign source income. Thedividends will not be eligible for the dividends-received deduction allowed tocorporations. Dividends paid in Venezuelan bolivars will be included in incomeas a U.S. dollar amount based on the exchange rate in effect on the date ofreceipt (which, in the case of ADSs, will be the date of receipt by theDepositary). A U.S. holder will have a basis in the bolivars received equal totheir U.S. dollar value on the date of receipt. Any gain or loss recognized ona subsequent sale or conversion of the bolivars for a different amountgenerally will be United States source ordinary income or loss. The US hasrecently reduced the maximum tax rate on certain dividends to 15%, but there isuncertainty as to whether the reduced rate applies to ADRs that tradeover-the-counter.

 

Distributions to U.S.holders of additional Corimon shares or rights to subscribe for Corimon sharesgenerally should not be subject to federal income tax. However, suchdistributions could be taxable depending on the nature of a particulardistribution. A U.S. holder’s tax basis in Corimon shares or rights that are notsubject to U.S. federal income tax when received is determined by allocatingthe U.S. holder’s basis in its ADSs between the ADSs and the Corimon shares orrights on the basis of the relative fair market values of each, except that inthe case of rights whose fair market value is less than 15% of the fair marketvalue of the Corimon shares with respect to which the rights are distributed,the basis of the rights is zero unless the shareholder elects to make such anallocation.

 

A non-U.S. holdergenerally will not be subject to United States federal income tax on dividendspaid by Corimon with respect to the ADSs or Corimon shares unless such incomeis effectively connected with the participation by the non-U.S. holder in atrade operation or business in the United States.

 

Capital Gains

 

U.S. holders willrecognize capital gain or loss upon the sale or other disposition of ADSs orCorimon shares (or rights to subscribe for Corimon shares) held by the U.S.holder or the Depositary in an amount equal to the difference between such U.S.holder’s basis in the ADSs, Corimon shares or rights, as the case may be, andthe amount realized on such sale or other disposition. Gain and loss recognizedby a U.S. holder generally will be treated as United States source income.Consequently, in the case of a disposition of Corimon shares or ADSs that ineither case is subject to Venezuelan tax, the U.S. holder may not be able touse the foreign tax credit for Venezuelan tax imposed on the gain unless it canapply the credit against U.S. tax due on other income from foreign sources inthe appropriate foreign tax credit category or, alternatively, it may use adeduction for Venezuelan tax purposes.

 

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U.S. holders will not recognizea gain or loss on deposits or withdrawals of Corimon shares in exchange forADSs or on the exercise of subscription rights. If subscription rights expireunexercised, a U.S. holder that has an allocated basis to such rights receivedas a dividend will not recognize a loss but must reallocate such basis to theremaining ADSs or Corimon shares held.

 

A non-U.S. holder of ADSsor Corimon shares will not be subject to United States federal income tax ongain from the sale or other disposition of ADSs or Corimon shares unless (i)such gain is effectively connected with participation in a trade or businesswithin the United States; or (ii) the non-U.S. holder is an individual who ispresent in the United States for at least 183 days during the taxable year ofthe disposition, and certain other conditions are met.

 

Dividend Indebtedness Vouchers

 

Depending upon theirterms when issued, dividend indebtedness vouchers issued by Corimon should betreated as debt instruments for United States federal income tax purposes. AU.S. holder likely will be required to include in gross income, as a dividend,the fair market value of a dividend indebtedness voucher distributed withrespect to the Corimon shares when the voucher is received (which, in the caseof ADSs, will be the date of receipt by the Depositary). The amount includedand the holder’s initial tax basis in the voucher will be the U.S. dollarmarket value of the voucher on the date of receipt.

 

The voucher may betreated as issued with original issue discount (“OID”) in an amount equal tothe difference between the total bolivar payments to be received on the voucherand the bolivar market value of the voucher when received. A U.S. holder willbe required to include such OID in gross income on a constant yield to maturitybasis during the period from the receipt of the voucher to the stated maturitydate of the voucher, even though no cash distributions will be received duringthat period. A U.S. holder’s basis in the voucher will be increased byundistributed OID included in income. A U.S. holder may recognize foreigncurrency gain or loss upon the retirement of the voucher or the sale or otherdisposition of the voucher and on any subsequent sale or conversion of thebolivars received. Such gain or loss generally will be United States sourceordinary income or loss. Gain or loss on the sale or other disposition of thevoucher in excess of foreign currency gain or loss generally will be consideredas a capital gain or loss.

 

U.S. holders shouldconsult their tax advisors concerning the United States federal income taxconsequences of the receipt, ownership and disposition of dividend indebtednessvouchers.

 

Information Reporting and Backup Withholding

 

Dividends in respect ofthe ADSs or Corimon shares paid to non-corporate U.S. holders and the proceedsfrom the sale, exchange or redemption of the ADSs or Corimon shares paid tonon-corporate U.S. holders may be reported to the United States InternalRevenue Service. A 31% backup withholding tax also may apply to amounts paid tosuch holders unless they provide an accurate taxpayer identification number orotherwise establish a basis for exemption. Payments of dividends and theproceeds from the sale or other disposition of ADSs or Corimon shares madeoutside the United States to non-U.S.

 

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holders generally are not subject to information reporting and backupwithholding, provided that, in the case of proceeds from a sale or disposition,the broker through which such payments are received fulfills certainrequirements. In addition, non-U.S. holders may be required to providecertification of foreign status. The amount of any backup withholding from apayment to a holder will be allowed as a credit against the holder’s UnitedStates federal income tax liability.

 

***10F. Dividends and Paying Agents***

 

The Venezuelan CapitalMarkets Law provides that dividends must be declared in a shareholders’ meetingduring which the shareholders must determine the amount, form and frequency ofthe dividend payment, and that dividend policies must be stated in thecompany’s by-laws.

 

The Venezuelan Code ofCommerce establishes that dividends must be paid solely out of “liquid andcollected earnings,” and the Capital Markets Law sets forth that the Companyshould distribute every year among its shareholders not less than 50% of itsnet annual income, assessed on a non-consolidated basis and without reflectingits share in the net income of its subsidiaries. Likewise, the Capital MarketsLaw provides that at least 25% of this 50% shall be paid to shareholders incash dividends. However, should the Company have accumulated losses, any netincome shall initially be applied to offset such deficit. According to CNVregulations, inflation-adjusted net income is the sole basis for thecalculation of dividend payments. The CNV cannot exempt a company with publiclytraded securities from paying the minimum dividends required by the CapitalMarkets Law.

 

***10G. Statement by experts***

Not applicable.

 

***10H. Documents on display***

 

Corimon is subject to therequirements of the Securities Exchange Information Act of 1934, as amended. Inaccordance with these requirements, Corimon files an annual report and otherinformation with the Securities and Exchange Commission (the “Commission”).These materials, including this Form 20-F and the exhibits thereto, may beinspected and copied at the Commission’s Public Reference Room at 450 FifthStreet, N.W., Washington, D.C. 20549 and at the Commission’s regional offices at500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of thematerials may be obtained from the Public Reference Room of the Commission at450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The publicmay obtain information on the operation of the Commission’s Public ReferenceRoom by calling the Commission in the United States at 1-800-SEC-0330. Thisreport and subsequent public filings with the Commission will also be availableon the website maintained by the Commission at http://www.sec.gov.

 

***10I. Subsidiary Information***

Not applicable.

 

95

----

 

**Item 11****.Quantitative and Qualitative Disclosures About Market Risk**

***(a)(1)(i)(A) Tabular presentation ofinformation related to market risk sensitive instruments:***

 
|                       |   |               |       | **In million constant bolivars at  November 30****th****,** |       |
|----------------------------|--------|--------------------|------------|------------------------------------------------------------------|------------|
| **DEBT  OBLIGATIONS**      |   | **Interest  Rate** |       | **2002  Outstanding  Balance**                                   |       | **2003  Maturity** |   | **2004  Maturity** |   | **2005  Maturity** |   | **2006  Maturity** |   | **2007  Maturity** |   | **2008  Maturity** |   |
|                       |   |               |       |                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **U.S. DOLLARS (1)**       |   |               |       |                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Fixed Rate                 |   |               |       |                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| *Bank Loans*               |   | 9.40               | %          | 19,070                                                           |       | 2,030 |   | 17,040 |   | 0 |   | 0 |   | 0 |   | 0 |   |
| *New Eurobonds*            |   | 4.00               | %          | 2,173                                                            |       | 2,173 |   | 0 |   | 0 |   | 0 |   | 0 |   | 0 |   |
| *Leases*                   |   |               |       | 389                                                              |       | 78 |   | 78 |   | 78 |   | 78 |   | 78 |   | 78 |   |
| **TOTAL U.S**              |   |               |       | **21,632**                                                       | ** ** | **4,281** | ** ** | **17,118** | ** ** | **78** | ** ** | **78** | ** ** | **78** | ** ** | **78** | ** ** |
|                       |   |               | ** ** |                                                             | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |
| **BOLIVARS**               |   |               | ** ** |                                                             | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |
| Variable Rate              |   |               |       |                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| *Bank Loans*               |   | 49.09              | %(2)       | 7,567                                                            |       | 6,210 |   | 540 |   | 173 |   | 281 |   | 363 |   | 0 |   |
| **TOTAL BOLIVARS**         |   |               |       | **7,567**                                                        | ** ** | **6,210** | ** ** | **540** | ** ** | **173** | ** ** | **281** | ** ** | **363** | ** ** | **0** | ** ** |
|                       |   |               | ** ** |                                                             | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |
| **TOTAL DEBT OBLIGATIONS** |   |               |       | **29,199**                                                       | ** ** | **10,491** | ** ** | **17,658** | ** ** | **251** | ** ** | **359** | ** ** | **441** | ** ** | **78** | ** ** |

 

----

(1) The conversion exchange rate used was 1,325.00 Bolivars per dollar.

(2)  Average interestrate******of bank loans in Bolivars.

 

There is some interestand currency risk related to these obligations, mainly because of the currentVenezuelan political and economic situation, which could cause bank interestrates to increase. Additionally, there is an Exchange Control been executed atthis moment, which once lifted could make exchange rates very volatile; any ofthese situations could make it difficult for the Company to meet its financialobligations.

 

The Company does notcurrently utilize derivative instruments designed to hedge any market riskrelating to interest rate.

 

**Item 12****.Description of Securities Other than Equity Securities**

Not applicable.

 

96

----

 

**PART II**

###### ** **

**Item 13****. Defaults,Dividend Arrears and Delinquencies**

Not applicable.

 

**Item 14****. MaterialModifications to the Rights of Security Holders and Use of Proceeds**

Not applicable.

 

##### ***Item15***. Controls andProcedures

 

As of November 30th,2002, an evaluation was carried out under the supervision and with theparticipation of our management, including our Chief Executive Officer andChief Financial Officer, of the effectiveness of the design and operation ofour disclosure controls and procedures (as defined in Rule 13a-14(c) under theU.S. Securities Exchange Act of 1934). Based upon that evaluation, the ChiefExecutive Officer and Chief Financial Officer concluded that the design andoperation of these disclosure and control procedures were effective. Nosignificant changes were made in our internal controls or in other factors thatcould significantly affect these controls subsequent to the date of theirevaluation.

 

##### ***Item16***. Reserved.

##### *** ***

##### ***Item 16A. Audit Committee Financial Expert***

Not Applicable.

 

##### ***Item 16B. Code of Ethics***

Not Applicable.

 

##### ***Item 16C. Principal Accountant Fees and Services***

Not Applicable.

 

##### ***Item 16D. Exemptions from Listing Standards for AuditCommittees***

Not Applicable.

 

97

----

 

**PART III**

###### ** **

**Item 17****. FinancialStatements**

Not applicable.

 

**Item 18****. FinancialStatements**

 

**Index**

 
| •                  Report of  Independent Accountants                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| The auditor’s  report included in this Form 20-F is presented in a format that complies with  U.S. Generally Accepted Auditing Standards (“GAAS”). The Company’s  independent accountants Espiñeira, Sheldon y Asociados (PricewaterhouseCoopers)  have also issued a report in a format that complied with Venezuelan GAAS. The  differences between the reports are that the United States report does not  include a discussion of uncertainties pursuant to U.S. Statements of Auditing  Standards No. 79, which discussion is presented in the report that complies  with Venezuelan GAAS. |   |
| •                  Consolidated  Balance Sheet for the eight-month period ended November 30th,  2002                                                                                                                                                                                                                                                                                                                                                                                                                      |   |
| •                  Consolidated  Statement of Income for the eight-month period ended November 30th,  2002 and for years ended March 2002 and 2001                                                                                                                                                                                                                                                                                                                                                                   |   |
| •                  Consolidated  Statement of Shareholders’ Equity for the eight-month period ended  November 30th, 2002 and for years ended March 2002 and  2001                                                                                                                                                                                                                                                                                                                                               |   |
| •                  Consolidated  Statement of Cash Flows for the eight-month period ended November 30th,  2002 and for years ended March 2002 and 2001                                                                                                                                                                                                                                                                                                                                                               |   |
| •                  Notes to the  consolidated financial statements for the eight-month period ended  November 30th, 2002 and for years ended March 2002 and  2001                                                                                                                                                                                                                                                                                                                                                    |   |

 

98

----

 

**Item 19****. Exhibits**

 

**Index of Exhibits**

 
| Exhibit 1.1 Articles of  incorporation - bylaws of Corimon, C.A.                                                                                                                                                                                          |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                      |
| Exhibit 2.1 Amended and  Restated Deposit Agreement dated as of July 6, 2000, by and among  Corimon, C.A., Morgan Guaranty Trust Company of New York (now known as  JPMorgan Chase Bank) and the owners from time to time of ADRs issued  thereunder |
|                                                                                                                                                                                                                                                      |
| Exhibit 2.2 Amendment  No. 1 dated as of January 22, 2002 to the Amended and Restated Deposit  Agreement dated as of July 6, 2000 among Corimon, C.A., JPMorgan Chase  Bank and the holders from time to time of ADRs issued thereunder         |
|                                                                                                                                                                                                                                                      |
| Exhibit 4.1 Loan  Agreement dated as of October 1, 12001 between Corimon, C.A and  Bancaracas International Banking Corporation                                                                                                                      |
|                                                                                                                                                                                                                                                      |
| Exhibit 4.2  Form of Franchise Contract of Tiendas  Montana, C.A.                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                      |
| Exhibit 13.1  Certification of Bernardo Vera required by Rule 15d-14(a) of the Securities  Exchange Act of 1934, as adopted pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002                                                               |
|                                                                                                                                                                                                                                                      |
| Exhibit 13.2  Certification of Laura Emperador required by Rule 15d-14(a) of the Securities  Exchange Act of 1934, as adopted pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002                                                             |
|                                                                                                                                                                                                                                                      |
| Exhibit 14.1  Certification of Bernardo Vera required by Section 1350 of Chapter 63 of  Title 18 of the United States Code, as adopted pursuant to Section 906  of the Sarbanes-Oxley Act of 2002                                               |
|                                                                                                                                                                                                                                                      |
| Exhibit 14.2  Certification of Laura Emperador required by Section 1350 of Chapter 63  of Title 18 of the United States Code, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002                                             |

 

99

----

 

###### **SIGNATURES**

 

The registrant hereby certifies that it meets all ofthe requirements for filing on Form 20-F and that it has duly caused andauthorized the undersigned to sign this annual report on its behalf.

 

 
| CORIMON, C.A                    |                    |
|---------------------------------|-------------------------|
| (Registrant)                    |
|                            |
|                            |
| /s/ Bernardo Vera               |                    |
| Bernardo VeraCompany’s CEO |                    |
|                            |
|                            |
| Date:                           | December 19,  2003 |   |
|                                 |                         |  |  |

 

----

 

July 8, 2003

 

To the Shareholders andBoard of Directors of

Corimon, C.A.

 

In our opinion,the accompanying consolidated balance sheets and consolidated statements ofincome, of shareholders’ equity and of cash flows present fairly, in allmaterial respects, the financial position of Corimon, C.A. and its subsidiariesat November 30, 2002, March 31, 2002 and 2001, and the results of theiroperations and their cash flows for the eight-month period ended November 30,2002 and each of the three years in the period ended March 31, 2002, expressedin constant bolivars at November 30, 2002, in conformity with accounting principlesgenerally accepted in Venezuela.  Thepreparation of these financial statements is the responsibility of theCompany’s management.  Ourresponsibility is to express an opinion on these financial statements based onour audits.  We conducted our audits ofthese statements in accordance with auditing standards generally accepted inthe United States of America, which require that we plan and perform the auditsto obtain reasonable assurance about whether the financial statements are freeof material misstatement.  An auditincludes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements, assessing the accounting principlesused and significant estimates made by management, and evaluating the overallfinancial statement presentation.  Webelieve that our audits provide a reasonable basis for our opinion.

 

As described in Note 2a to the financial statements, during 2002 theCompany adopted on a retroactive basis to all years presented the newprovisions of Revised Statement of Accounting Principles No. 10 (DPC 10) tovalue inventories.

 

Accountingprinciples generally accepted in Venezuela vary in certain important respectsfrom accounting principles generally accepted in the United States.  The application of the latter would haveaffected the determination of consolidated loss expressed in constant bolivarsat November 30, 2002 for the eight-month period ended November 30, 2002 andeach of the three years in the period ended March 31, 2002 and the determinationof consolidated stockholders’ equity also expressed in constant bolivars atNovember 30, 2002, at November 30, 2002 and March 31, 2002, 2001 and 2000 tothe extent summarized in Note 19 to the consolidated financial statements

 

ESPIÑEIRA, SHELDON Y ASOCIADOS

 

José AntonioApostólico B.

CPC 18575

CNV A-859

 

 

F-1

----

 

 

 

CORIMON, C.A. ANDITS SUBSIDIARIES

 

REPORT OFINDEPENDENT ACCOUNTANTS AND

 

CONSOLIDATEDFINANCIAL STATEMENTS

 

NOVEMBER 30, 2002AND MARCH 31, 2002, 2001 AND 2000

 

 

F-2

----

 

CORIMON, C.A. ANDITS SUBSIDIARIES

 

CONSOLIDATEDBALANCE SHEET

 

(Millions ofconstant bolivars at November 30, 2002)

 
|                                                        |   | **November  30,  2002** |   | **March 31,  2002** |   | **March 31,  2001** |   |
|-------------------------------------------------------------|--------|-------------------------|--------|---------------------|--------|---------------------|--------|
|                                                        |   |                    |   |                |   |                |   |
| Assets                                                      |   |                    |   |                |   |                |   |
|                                                        |   |                    |   |                |   |                |   |
| Current  assets:                                            |   |                    |   |                |   |                |   |
| Cash  and deposits                                          |   | 4,497                   |   | 2,368               |   | 4,251               |   |
| Time  deposits (Note 8)                                     |   | 596                     |   | —              |   | —              |   |
| Notes  and accounts receivable (Note 3)                     |   | 24,635                  |   | 19,557              |   | 23,858              |   |
| Inventories  (Note 4)                                       |   | 20,186                  |   | 19,546              |   | 20,701              |   |
| Prepaid  expenses                                           |   | 911                     |   | 2,914               |   | 2,359               |   |
| Investments                                                 |   | —                  |   | —              |   | 18,460              |   |
| Total  current assets                                       |   | 50,825                  |   | 44,385              |   | 69,629              |   |
| Time  deposits (Note 8)                                     |   | 8,619                   |   | 7,548               |   | —              |   |
| Fixed  assets, net (Note 6)                                 |   | 109,398                 |   | 100,911             |   | 104,418             |   |
| Long-term  accounts receivable (Note 7)                     |   | 9,062                   |   | 7,801               |   | 7,647               |   |
| Deferred  charges and other assets                          |   | 4,129                   |   | 4,614               |   | 5,592               |   |
| Goodwill                                                    |   | 2,555                   |   | 3,207               |   | 4,021               |   |
|                                                        |   | 184,588                 |   | 168,466             |   | 191,307             |   |
|                                                        |   |                    |   |                |   |                |   |
| Liabilities and  Shareholders’ Equity                  |   |                    |   |                |   |                |   |
|                                                        |   |                    |   |                |   |                |   |
| Current  liabilities:                                       |   |                    |   |                |   |                |   |
| Short-term  loans and debt (Note 8)                         |   | 10,413                  |   | 6,078               |   | 23,469              |   |
| Notes  and accounts payable -                               |   |                    |   |                |   |                |   |
| Suppliers                                                   |   | 26,983                  |   | 23,049              |   | 20,570              |   |
| Directors  and shareholders                                 |   | 358                     |   | 353                 |   | 374                 |   |
| Accrued  wages and salaries                                 |   | 1,589                   |   | 1,724               |   | 1,804               |   |
| Interest  and other accruals (Notes 8, 10, 11 and 15)       |   | 13,281                  |   | 14,488              |   | 20,966              |   |
| Total  current liabilities                                  |   | 52,624                  |   | 45,692              |   | 67,183              |   |
| Long-term  loans and debt (Note 8)                          |   | 18,397                  |   | 18,469              |   | 11,984              |   |
| Accrual  for employee termination benefits, net of advances |   | 3,366                   |   | 3,869               |   | 4,265               |   |
| Other  liabilities and accruals (Note 10)                   |   | 2,487                   |   | 801                 |   | 813                 |   |
| Preferred  dividends (Note 9)                               |   | 2,415                   |   | 2,621               |   | 2,430               |   |
| Total  liabilities                                          |   | 79,289                  |   | 71,452              |   | 86,675              |   |
| Minority  interests                                         |   | 15,984                  |   | 14,966              |   | 16,240              |   |
| Shareholders’  equity (Note 9)                         |   | 89,315                  |   | 82,048              |   | 88,392              |   |
|                                                        |   | 184,588                 |   | 168,466             |   | 191,307             |   |

 

The accompanyingnotes are an integral part of the consolidated financial statements

 

F-3

----

 

CORIMON, C.A. ANDITS SUBSIDIARIES

 

CONSOLIDATEDSTATEMENT OF INCOME

 

(Millions ofconstant bolivars

at November 30,2002, except for per share amounts)

 
|                                                                             |   | **Eight-month  period ended  November 30,** |       | **Years  ended  March 31,** |       |
|----------------------------------------------------------------------------------|--------|---------------------------------------------|------------|-----------------------------|------------|
|                                                                             |   | **2002**                                    | ** ** | **2002***                   | ** ** | **2001*** |   | **2000*** | ** ** |
|                                                                             |   |                                        |       |                        |       |   |   |   |   |
| Net  sales                                                                       |   | 73,949                                      |       | 102,878                     |       | 107,803 |   | 88,894 |   |
| Cost  of sales                                                                   |   | 54,364                                      |       | 79,550                      |       | 83,765 |   | 64,628 |   |
| Gross  income                                                                    |   | 19,585                                      |       | 23,328                      |       | 24,038 |   | 24,266 |   |
| Selling  expenses                                                                |   | 9,041                                       |       | 15,476                      |       | 13,762 |   | 14,732 |   |
| Administrative  and general expenses                                             |   | 11,252                                      |       | 13,543                      |       | 11,992 |   | 12,824 |   |
| Operating  loss                                                                  |   | (708                                        | )          | (5,691                      | )          | (1,716 | ) | (3,290 | ) |
| Full  financing expense:                                                         |   |                                        |       |                        |       |   |   |   |   |
| Interest  expense, net (Note 8)                                                  |   | (5,105                                      | )          | (4,849                      | )          | (4,931 | ) | (4,422 | ) |
| Exchange  loss, net (Note 2d)                                                    |   | (6,035                                      | )          | (5,358                      | )          | (3,474 | ) | (5,055 | ) |
| Gain  from net monetary position (Notes 2c and 16)                               |   | 6,496                                       |       | 6,893                       |       | 4,908 |   | 6,269 |   |
|                                                                             |   | (4,644                                      | )          | (3,314                      | )          | (3,497 | ) | (3,208 | ) |
| Other  income (expense), net (Note 12)                                           |   | 49                                          |       | 2,373                       |       | (6,802 | ) | (993 | ) |
| Loss  before the following items                                                 |   | (5,303                                      | )          | (6,632                      | )          | (12,015 | ) | (7,491 | ) |
| Minority  interests                                                              |   | 776                                         |       | 1,365                       |       | 3,087 |   | 2,709 |   |
| Taxes  (Note 10)                                                                 |   | (464                                        | )          | (1,013                      | )          | (1,250 | ) | (1,183 | ) |
| Loss  from ongoing operations                                                    |   | (4,991                                      | )          | (6,280                      | )          | (10,178 | ) | (5,965 | ) |
| Loss  from discontinued operations, net of taxes and minority interests (Note 1) |   | —                                      |       | —                      |       | (9,221 | ) | (13,769 | ) |
| Net  loss                                                                        |   | (4,991                                      | )          | (6,280                      | )          | (19,399 | ) | 19,734 |   |
|                                                                             |   |                                        |       |                        |       |   |   |   |   |
| Net  loss per share (Note 2o):                                                   |   |                                        |       |                        |       |   |   |   |   |
| From  ongoing operations                                                         |   | (6.62                                       | )          | (8.33                       | )          | (13.50 | ) | (7.95 | ) |
| From  discontinued operations                                                    |   | —                                      |       | —                      |       | (12.24 | ) | (18.27 | ) |

 

----

* Restated andreclassified for comparative purposes (see Notes 2a and 2s)

 

The accompanyingnotes are an integral part of the consolidated financial statements

 

F-4

----

 

CORIMON, C.A. ANDITS SUBSIDIARIES

 

CONSOLIDATEDSTATEMENT OF SHAREHOLDERS’ EQUITY 

 

EIGHT-MONTH PERIODENDED NOVEMBER 30, 2002 AND 

 

YEARS ENDED MARCH31, 2002, 2001 AND 2000

 

(Millions ofconstant bolivars at November 30, 2002)

 
|                                             |   | **Capital  stock** |   | **Restated  share  premium** |   | **Cumulative  translation  adjustment** |   | **Result  from  holding  nonmonetary  assets** |               | **Retained  earnings  (deficit)** |        | **Total** |   |
|--------------------------------------------------|--------|--------------------|--------|------------------------------|--------|-----------------------------------------|--------|------------------------------------------------|--------------------|-----------------------------------|-------------|-----------|--------|
|                                             |   | **Nominal**        |   | **Inflation  adjustment**    |   |                                    |   |                                           | **Legal  reserve** |                              | **Deficit** |      |   |
|                                             |   |               |   |                         |   |                                    |   |                                           |               |                              |        |      |   |   |   |   |   |
| Balances at March 31, 1999                       |   | 75,349             |   | 218,092                      |   | 934                                     |   | 5,213                                          |               | (127,062                          | )           | 21,765    |   | (42,755 | ) | 151,536 |   |
|                                             |   |               |   |                         |   |                                    |   |                                           |               |                              |        |      |   |   |   |   |   |
| Preferred dividends                              |   | —             |   | —                       |   | —                                  |   | —                                         |               | —                            |        | —    |   | (811 | ) | (811 | ) |
| Net loss                                         |   | —             |   | —                       |   | —                                  |   | —                                         |               | —                            |        | —    |   | (19,734 | ) | (19,734 | ) |
| Translation adjustment                           |   | —             |   | —                       |   | —                                  |   | (29                                            | )                  | —                            |        | —    |   | — |   | (29 | ) |
| Result from holding nonmonetary  assets (Note 2) |   | —             |   | —                       |   | —                                  |   | —                                         |               | (14,092                           | )           | —    |   | — |   | (14,092 | ) |
| Balances at March 31, 2000*                      |   | 75,349             |   | 218,092                      |   | 934                                     |   | 5,184                                          |               | (141,154                          | )           | 21,765    |   | (63,300 | ) | 116,870 |   |
| Offsetting of equity accounts  (Note 9)          |   | —             |   | (167,794                     | )      | —                                  |   | —                                         |               | 104,672                           |        | —    |   | 63,122 |   | — |   |
| Preferred dividends                              |   | —             |   | —                       |   | —                                  |   | —                                         |               | —                            |        | —    |   | (611 | ) | (611 | ) |
| Net loss                                         |   | —             |   | —                       |   | —                                  |   | —                                         |               | —                            |        | —    |   | (19,399 | ) | (19,399 | ) |
| Translation adjustment                           |   | —             |   | —                       |   | —                                  |   | (98                                            | )                  | —                            |        | —    |   | — |   | (98 | ) |
| Result from holding nonmonetary  assets (Note 2) |   | —             |   | —                       |   | —                                  |   | —                                         |               | (8,370                            | )           | —    |   | — |   | (8,370 | ) |
| Balances at March 31, 2001*                      |   | 75,349             |   | 50,298                       |   | 934                                     |   | 5,086                                          |               | (44,852                           | )           | 21,765    |   | (20,188 | ) | 88,392 |   |
| Capitalization of accounts payable  (Note 9)     |   | 19                 |   | 6                            |   | —                                  |   | —                                         |               | —                            |        | —    |   | — |   | 25 |   |
| Preferred dividends                              |   | —             |   | —                       |   | —                                  |   | —                                         |               | —                            |        | —    |   | (598 | ) | (598 | ) |
| Net loss                                         |   | —             |   | —                       |   | —                                  |   | —                                         |               | —                            |        | —    |   | (6,280 | ) | (6,280 | ) |
| Translation adjustment                           |   | —             |   | —                       |   | —                                  |   | 340                                            |               | —                            |        | —    |   | — |   | 340 |   |
| Result from holding nonmonetary  assets (Note 2) |   | —             |   | —                       |   | —                                  |   | —                                         |               | 169                               |        | —    |   | — |   | 169 |   |
| Balances at March 31, 2002                       |   | 75,368             |   | 50,304                       |   | 934                                     |   | 5,426                                          |               | (44,683                           | )           | 21,765    |   | (27,066 | ) | 82,048 |   |
| Preferred dividends                              |   | —             |   | —                       |   | —                                  |   | —                                         |               | —                            |        | —    |   | (296 | ) | (296 | ) |
| Net loss                                         |   | —             |   | —                       |   | —                                  |   | —                                         |               | —                            |        | —    |   | (4,991 | ) | (4,991 | ) |
| Translation adjustment                           |   | —             |   | —                       |   | —                                  |   | 912                                            |               | —                            |        | —    |   | — |   | 912 |   |
| Result from holding nonmonetary  assets (Note 2) |   | —             |   | —                       |   | —                                  |   | —                                         |               | 11,642                            |        | —    |   | — |   | 11,642 |   |
| Balances at November 30, 2002                    |   | 75,368             |   | 50,304                       |   | 934                                     |   | 6,338                                          |               | (33,041                           | )           | 21,765    |   | (32,353 | ) | 89,315 |   |

 

----

* Restated andreclassified for comparative purposes (see Notes 2a and 2s)

 

The accompanyingnotes are an integral part of the consolidated financial statements

 

F-5

----

 

CORIMON, C.A. ANDITS SUBSIDIARIES

 

CONSOLIDATEDSTATEMENT OF CASH FLOWS

 

(Millions ofconstant bolivars at November 30, 2002)

 

 
|                                                                                                    |   | **Eight-month  period ended  November 30,** |   | **Years ended  March 31,** |   |
|---------------------------------------------------------------------------------------------------------|--------|---------------------------------------------|--------|----------------------------|--------|
|                                                                                                    |   | **2002**                                    |   | **2002***                  |   | **2001*** |   | **2000*** |   |
| CASH  FLOWS FROM OPERATING ACTIVITIES:                                                                  |   |                                        |   |                       |   |   |   |   |   |
| Net  loss                                                                                               |   | (4,991                                      | )      | (6,280                     | )      | (19,399 | ) | (19,734 | ) |
| Adjustments  to reconcile net loss to net cash provided by (used in) operating activities  -            |   |                                        |   |                       |   |   |   |   |   |
| Effect  from discontinued operations                                                                    |   | —                                      |   | —                     |   | 15,898 |   | (15,898 | ) |
| Depreciation  and amortization                                                                          |   | 6,095                                       |   | 7,670                      |   | 7,460 |   | 9,456 |   |
| Provisions  for doubtful accounts and inventory obsolescence                                            |   | 1,536                                       |   | 982                        |   | 888 |   | 1,190 |   |
| Provision  for investment valuation and accounts receivable                                             |   | —                                      |   | —                     |   | — |   | (1,644 | ) |
| Gain  from net monetary position, exchange gains and losses and result from holding  nonmonetary assets |   | 2,687                                       |   | 4,947                      |   | (1,565 | ) | 27,992 |   |
| (Income)  loss on sale of fixed assets                                                                  |   | (45                                         | )      | 86                         |   | 2,220 |   | 357 |   |
| Debt  settlement, net                                                                                   |   | (303                                        | )      | (8,053                     | )      | — |   | — |   |
| Accrual  for employee termination benefits, net of advances and payments                                |   | 177                                         |   | 243                        |   | 1,690 |   | (290 | ) |
| Minority  interests                                                                                     |   | (776                                        | )      | (1,365                     | )      | (2,761 | ) | (2,708 | ) |
| Translation  adjustment                                                                                 |   | 598                                         |   | 340                        |   | (98 | ) | (29 | ) |
| Net  change in operating assets and liabilities -                                                       |   |                                        |   |                       |   |   |   |   |   |
| Notes  and accounts receivable                                                                          |   | (9,901                                      | )      | 263                        |   | (7,436 | ) | (3,093 | ) |
| Inventories                                                                                             |   | (969                                        | )      | 634                        |   | 220 |   | (1,627 | ) |
| Prepaid  expenses                                                                                       |   | 2,003                                       |   | (557                       | )      | (1,489 | ) | (269 | ) |
| Deferred  charges, other assets and goodwill                                                            |   | 237                                         |   | 907                        |   | 601 |   | (613 | ) |
| Notes  and accounts payable                                                                             |   | 3,935                                       |   | 2,505                      |   | 840 |   | 10,621 |   |
| Accrued  wages and salaries, interest and other                                                         |   | 341                                         |   | (2,520                     | )      | 4,953 |   | 1,256 |   |
| Net  cash provided by (used in) operating activities                                                    |   | 624                                         |   | (198                       | )      | 2,022 |   | 4,967 |   |
| CASH  FLOWS FROM INVESTING ACTIVITIES:                                                                  |   |                                        |   |                       |   |   |   |   |   |
| Additions  to fixed assets                                                                              |   | (872                                        | )      | (3,616                     | )      | (2,167 | ) | (2,953 | ) |
| Proceeds  from sale of fixed assets                                                                     |   | —                                      |   | 420                        |   | 1,660 |   | 1,594 |   |
| Increase  in investments                                                                                |   | —                                      |   | (1,948                     | )      | — |   | (5,203 | ) |
| Long-term  accounts receivable, net                                                                     |   | 861                                         |   | 590                        |   | 1,559 |   | 5,369 |   |
| Net  cash provided by (used in) investing activities                                                    |   | (11                                         | )      | (4,554                     | )      | 1,052 |   | (1,193 | ) |
| CASH  FLOWS FROM FINANCING ACTIVITIES:                                                                  |   |                                        |   |                       |   |   |   |   |   |
| Debt  issuance                                                                                          |   | 2,530                                       |   | 12,632                     |   | 3,210 |   | 2,408 |   |
| Debt  payment                                                                                           |   | (1,014                                      | )      | (9,763                     | )      | (4,925 | ) | (5,918 | ) |
| Net  cash provided by (used in) financing activities                                                    |   | 1,516                                       |   | 2,869                      |   | (1,715 | ) | (3,510 | ) |
| CASH  AND CASH EQUIVALENTS:                                                                             |   |                                        |   |                       |   |   |   |   |   |
| Net  increase (decrease)                                                                                |   | 2,129                                       |   | (1,883                     | )      | 1,359 |   | 264 |   |
| At  the beginning of the year                                                                           |   | 2,368                                       |   | 4,251                      |   | 2,892 |   | 2,628 |   |
| At  the end of the year                                                                                 |   | 4,497                                       |   | 2,368                      |   | 4,251 |   | 2,892 |   |
|                                                                                                    |   |                                        |   |                       |   |   |   |   |   |
| SUPPLEMENTARY  INFORMATION:                                                                             |   |                                        |   |                       |   |   |   |   |   |
| Cash  activities -                                                                                      |   |                                        |   |                       |   |   |   |   |   |
| Interest  paid                                                                                          |   | —                                      |   | 5,358                      |   | 4,307 |   | 4,566 |   |
| Taxes  paid                                                                                             |   | 817                                         |   | 963                        |   | 1,189 |   | 1,559 |   |
| Non-cash  activities -                                                                                  |   |                                        |   |                       |   |   |   |   |   |
| Capital  stock increase through capitalization of debt and preferred dividends                          |   | —                                      |   | 25                         |   | — |   | — |   |
| Net  assets of discontinued operations (Note 1)                                                         |   | —                                      |   | —                     |   | — |   | 15,898 |   |
| Preferred  dividends declared                                                                           |   | 296                                         |   | 598                        |   | 611 |   | 811 |   |

 

----

* Restated andreclassified for comparative purposes (see Notes 2a and 2s)

 

The accompanyingnotes are an integral part of the consolidated financial statements

 

F-6

----

 

CORIMON, C.A. ANDITS SUBSIDIARIES

 

NOTES TO THECONSOLIDATED FINANCIAL STATEMENTS

 

NOVEMBER 30, 2002AND MARCH 31, 2002 AND 2001

 

 

NOTE 1 - ACTIVITIES:

 

Corimon, C.A. (theCompany) was incorporated in 1949 and is domiciled in Venezuela.  Through its subsidiaries, Corimonmanufactures and markets paints, coatings and related products, resins,packaging and inks.  The Company and itssubsidiaries are organized into two divisions as shown below:

 
| **Subsidiary**                                          |   | **Activity**                                                 |   |
|---------------------------------------------------------|--------|--------------------------------------------------------------|--------|
| Paints  and related products division:                  |   |                                                         |   |
| Venezuela  -                                            |   |                                                         |   |
| Corimon  Pinturas, C.A.                                 |   | Paints                                                       |   |
| Resimon,  C.A. (89.99%-owned)                           |   | Resins and chemical  products                                |   |
| Cerdex,  C.A.                                           |   | Brushes                                                      |   |
| Tiendas  Montana, C.A.                                  |   | As from 2001, a store  franchise system                      |   |
|                                                    |   |                                                         |   |
| Trinidad  and Grenada -                                 |   |                                                         |   |
| Sissons  Paints Limited                                 |   | Paints                                                       |   |
| Infinity  Colour Shop                                   |   | Exclusive  distributor of paints produced by Sissons  Paints |   |
|                                                    |   |                                                         |   |
| Dominican  Republic (inactive since 2001) -             |   |                                                         |   |
| Pinturas  Montana C por A (70%-owned)                   |   | Paints                                                       |   |
| Packaging  and inks division:                           |   |                                                         |   |
| MGC:  Montana Gráfica - Convepal, C.A. (65%-owned) |   | Packaging                                                    |   |
| Grafis,  C.A.                                           |   | Inks                                                         |   |
| Hypermarkets  division (up to 2000):                    |   |                                                         |   |
| Construcentro  CRO, C.A. (80.20%-owned)                 |   | Home decoration and  furnishing center                       |   |
| Tiendas  Montana, C.A.                                  |   | Paint distribution and  home decoration center               |   |

 

a) Transition periodcomparative data:

 

As described in Note 9, at a Regular Shareholders’Meeting held on July 29, 2002, the shareholders approved the change of theCompany’s fiscal year end to November 30. In Official Notice No. GRTICE-RC-DF-0426/2002 of August 2002, theNational Integrated Tax Administration Service (SENIAT) authorized therequested change of the fiscal year, to run from December 1 to November 30 eachyear.

 

F-7

----

 

The following table presents certain financialinformation for the eight-month period ended November 30, 2002 and 2001,respectively:

 
|                                               |   | **Eight-month period ended  November 30,**                                              |       |
|----------------------------------------------------|--------|-----------------------------------------------------------------------------------------|------------|
|                                               |   | **2002**                                                                                |       | **2001** |   |
|                                               |   |                                                                                    |       | **(Unaudited)** |   |
|                                               |   | **(Millions of constant bolivars  at November 30, 2002 except  for per share amounts)** | ** ** |
|                                               |   |                                                                                    |       |   |   |
| Net sales                                          |   | 73,949                                                                                  |       | 80,176 |   |
| Gross income                                       |   | 19,585                                                                                  |       | 19,920 |   |
| (Loss) income before minority  interests and taxes |   | (5,303                                                                                  | )          | 1,323 |   |
| Minority interests                                 |   | 776                                                                                     |       | 623 |   |
| Taxes                                              |   | (464                                                                                    | )          | (725 | ) |
| Net (loss) income                                  |   | (4,991                                                                                  | )          | 1,221 |   |
| Net (loss) income per share                        |   | (6.62                                                                                   | )          | 1.62 |   |
|                                               |   |                                                                                    |       |   |   |
| Weighted average shares  outstanding               |   | 75,684                                                                                  |       | 75,684 |   |

 

b) National Civic Work-stoppage and strategic plan-

 

On December 2, 2002,public and civic organizations began a National Civic Work-stoppage inVenezuela, which was in effect until January 2003 and seriously affected manyof the country’s economic activities. Consequently, sales, production, raw material receipts and labor-relatedactivities of the Company and its subsidiaries have been adversely affected.  Furthermore, on February 5, 2003, BancoCentral de Venezuela (BCV), in conjunction with the Ministry of Finance,established a new exchange control regime in Venezuela (see Note 14) that couldaffect the normal course of operations such as the purchase of importedmaterials and payment of liabilities denominated in foreign currency.

 

The Company and itsVenezuelan subsidiaries have had to adopt certain measures, the mostsignificant of which are:

 

•                      Rationalizeuse of production consumables and replace certain foreign suppliers due toimport limitations on some products.

 

•                      Asfrom February 2003, working hours were reduced in the subsidiaries of the paintand related products division in order to decrease personnel costs.  Since March 2003, certain personnel of thepackaging and inks division have been temporarily laid off due to the decreasein production.  All these measures weretaken in mutual agreement with employees.

 

•                      Adjustingproduct sale prices to new production costs resulting from the coming intoeffect of the currency exchange control and price control regimes whilemaintaining a profit margin that will at least allow recovery of operatingcosts.  This price adjustment is withinthe market’s competitive margin (see Note 14).

 

•                      Negotiatingpayment terms and conditions with suppliers and financial creditors.

 

F-8

----

 

The Company’s managementcontinuously assesses operating results and follows up on measures taken asresult of the decreased production and sales of the Venezuelan subsidiaries, inorder to mitigate the effects of the current situation of the Company and itsVenezuelan subsidiaries.  However, thereare no guarantees of the effectiveness of these measures.

 

With respect to theoperations of the Company’s subsidiary in Trinidad, in July 2002 the Company’sBoard of Directors approved a feasibility study on the expansion of productionand marketing operations of resins, inks, coatings and coating tools from theSissons Paints subsidiary to the rest of the Caribbean and Central America.  The cost of this study, made by an externaladvisory firm, amounted to approximately Bs 329 million (equivalent toUS$250,000), which was paid by the Company during the eight-month period endedNovember 30, 2002 and is shown under General and administrative expenses.

 

Discontinued operations-

 

Up to February 2000 thesubsidiary Tiendas Montana, C.A. was dedicated to the sale of paints and homedecoration.  As of to date, this Companyestablished a franchise system in which it transferred the administration and salerights of products manufactured by the paint and related products division ofCorimon.  At November 30, 2002, thereare 81 franchise shops (79 shops at March 31, 2002).

 

In February 2000 theBoard of Directors of Corimon approved the sale of all assets owned by thesubsidiary Construcentro CRO, C.A. and during 2000 the Company completed thesale by handing over all the assets of its subsidiary amounting toapproximately US$33,500,000 to settle liabilities.  The Company retained trademark ownership.  The effects of this transaction on thestatement of income in 2001 are included under Loss from discontinuedoperations, net of taxes and minority interests.  The subsidiary Construcentro CRO, C.A. continued commercialoperations until August 2000 and administrative operations until March 2001.

 

Up to 2000 thesubsidiaries Tiendas Montana, C.A. (engaged in marketing activities) andConstrucentro CRO, C.A. together constituted the hypermarket division.  Accordingly, management considered that theoperations described above represented the disposal of segment.  Below is a summary of the financialinformation of the hypermarket division operations for the years 2001 and 2000(statement of income):

 
|                       |   | **Years  ended March 31,**                                 |   |
|----------------------------|--------|------------------------------------------------------------|--------|
|                       |   | **2001**                                                   |   | **2000** |   |
|                       |   | **(Millions  of constant bolivars  at November 30, 2002)** |   |
|                       |   |                                                       |   |   |   |
| Statement  of income data: |   |                                                       |   |   |   |
|                       |   |                                                       |   |   |   |
| Net  sales                 |   | 15,933                                                     |   | 61,461 |   |
| Gross  profit              |   | 2,480                                                      |   | 12,103 |   |
| Operating  loss            |   | (6,315                                                     | )      | (14,803 | ) |
| Net  loss                  |   | (9,221                                                     | )      | (13,769 | ) |

 

F-9

----

 

NOTE 2 - SUMMARY OFSIGNIFICANT ACCOUNTING PRINCIPLES:

 

The accompanyingconsolidated financial statements have been prepared in conformity with theRules for the preparation of financial statements of entities regulated by theVenezuelan Securities and Exchange Commission (CNV).  These rules differ from generally accepted accounting principlespublished by the Venezuelan Federation of Public Accountants, with respect tothe treatment of the effects that arise out of applying the “mixed method” tofixed assets, as explained below:

 

a) Mixed method -

 

Statement of AccountingPrinciples No. 10 (DPC 10) “Rules for the preparation of financial statementsadjusted for the effects of inflation,” published by the Venezuelan Federationof Public Accountants, requires the preparation of financial statements fullyadjusted for the effects of inflation using either the mixed method or theGeneral Price Level (GPL) method.

 

The Company adopted themixed method for valuation of fixed assets to prepare its inflation-adjustedconsolidated financial statements.  Thismethod consists in restating the consolidated financial statements based on theGPL method and, subsequently, adjusting fixed assets according to currentmarket values determined by independent appraisers.  Current market values may differ from historic costs adjusted bythe General Price Level (GPL) as the former are specific prices and the latterare calculated based on general price indices that measure the loss of thepurchasing power of the bolivar.  Theequity account Result from holding nonmonetary assets includes the differencebetween current market values and application of the GPL method.

 

There are significantdifferences between the rules of the CNV and DPC 10 as to the treatment of theeffects of applying the mixed method. Under DPC 10, the operating results applying either the mixed or GeneralPrice Level methods are the same. However, in accordance with rules for the preparation of financialstatements of entities regulated by CNV, depreciation of the fair market valueof fixed assets, under certain conditions, is recorded directly in thestatement of income, without considering any effects from the result of holdingnonmonetary assets in the statement of income.

 

At November 30, 2002, theequity account Result from holding nonmonetary assets, with a debit balance ofapproximately Bs 33,041 million (Bs 44,683 million, Bs 44,852 million andBs 141,154 million at March 31, 2002, 2001 and 2000, respectively), is anet amount comprising:  a credit balanceof approximately Bs 6,608 million (a debit balance of Bs 3,216million and Bs 4,143 million and Bs 85,346, net of Bs 85,346 millionoffset (see Note 9) at March 31, 2002, 2001 and 2000, respectively), arisingfrom the restatement of fixed assets at current costs that reducedshareholders’ equity by this amount and: a debit balance of approximatelyBs 39,649 million (Bs 41,467 million, Bs 40,709 million andBs 55,808 million, net of Bs 19,326 million offset (see Note 9) atMarch 31, 2002, 2001 and 2000, respectively), from calculation of depreciationexpense at current costs.

 

F-10

----

 

For the application ofthe mixed method for fixed assets at November 2002 and March 2002 and 2001, theCompany used an independent appraisal performed in March 2000 updated byapplying in November 2002 and in March 2002 and 2001 the devaluation index ofthe bolivar against the U.S. dollar for imported fixed assets and the PriceIndex for the Construction Sector for buildings and the Consumer Price Index(CPI) for the remaining assets.  Thisinflation-adjustment procedure is in conformity with generally acceptedaccounting principles; nevertheless, these results may differ from those obtainedfrom new appraisals.

 

With respect toinventories, as from 2002, Revised DPC 10 sets out that the mixed method willonly apply to inventories over six months old. At November 30, 2002 and March 31, 2002, Company average inventory agingdoes not exceed six months.  Forcomparative purposes, in March 2002 the Company restated the financialstatements for 2001 and 2000 to recognize the effects of applying the mixedmethod to inventories based on this new principle, with a resulting increase inthe cost of sales and net loss for 2001 of approximately Bs 3,230 million andBs 2,903 million, respectively (Bs 1.212 million and Bs 178 million,respectively for 2000) (see Note 2s). Inventories are valued at restated cost, which does not exceed marketvalue.

 

Below are other CNVaccounting rules followed by the Company, which do not differ from generallyaccepted accounting principles issued by the Venezuelan Federation of PublicAccountants:

 

b) Useof estimates in the preparation of consolidated financial statements -

 

The preparation offinancial statements and their notes in conformity with the accounting rulesset forth by the CNV and generally accepted accounting principles requiresmanagement to make estimates and assumptions that affect the amounts of assetsand liabilities and the disclosure of contingent assets and liabilities at thedate of the consolidated financial statements, as well as the reported amountsof income and expenses for the reporting period.  Actual results may differ from those estimates.

 

c) Accounting forinflation -

 

The amounts reported atNovember 30, 2002 and March 31, 2002, 2001 and 2000 are expressed in constantcurrency at November 30, 2002.

 

The inflation rates inVenezuela for the eight-month period ended November 30, 2002 and the yearsended March 31, 2002, 2001 and 2000, according to the CPI, were 21.33%, 17.63%,12.5% and 17.5%, respectively.

 

Below is a summary of themethodology used by the Company for the preparation of the consolidatedinflation-adjusted financial statements:

 

•             Monetaryassets and liabilities, including balances in foreign currency are, by theirnature, shown in terms of purchasing power at November 30, 2002.  Full financing expense comprises actualinterest expense, the gain or loss from monetary position and any exchangegains or losses arising from the devaluation of the bolivar.

 

F-11

----

 

•             Capitalstock, the stock premium, legal reserve and deficit have been restated bymultiplying them by a factor obtained by dividing the CPI at November 30, 2002by the CPI at their date of origin.

 

•             Nonmonetaryassets such as inventories, fixed assets, deferred charges and goodwill havebeen restated by multiplying them by a factor obtained from dividing the CPI atNovember 30, 2002 by the CPI at their date of origin.  Fixed assets at November 30, 2002 are shown at current marketvalues determined by independent appraisers (see Note 2a).

 

•             Depreciationwas determined based on current costs of related fixed assets.  Cost of sales was determined on the basis ofthe restated inventories to which they relate.

 

•             Sales,other income and expenses and operating expenses have been restated bymultiplying them by a factor obtained from dividing the CPI at November 30,2002 by the CPI at the date on which they were earned or incurred.

 

d) Neteffect of translation of foreign subsidiaries’ financial statements -

 

The functional currencyof the Company’s foreign subsidiaries Sissons Paint Limited and itssubsidiaries and Pinturas Montana C por A is the local currency of the countryin which they operate.  The procedureused to include the financial position of those subsidiaries and the results oftheir operations in the Company’s consolidated financial statements consists intranslating their balance sheets and statements of income into bolivars at theyear-end exchange rate and the average exchange rate for the fiscal year,respectively.  No adjustments are madefor the current year effects of inflation in Venezuela.  Translation gains and losses are included inthe statement of shareholders’ equity as Cumulative translation adjustment.

 

The bolivar is thefunctional currency of the Company’s non-operating foreign subsidiaries CorimonCorporation, Santa Rita Investment and Corimon International Holding.  Transactions of these subsidiaries aretranslated into bolivars at the average exchange rate for the year and thenadjusted for the effects of inflation in Venezuela.  Monetary assets and liabilities are translated at the exchange ratein effect at the end of each period.  Translationdifferences are recorded in the statements of income for the period and theyear.

 

e) Consolidation -

 

The consolidatedfinancial statements include the Company’s accounts and those of itsmajority-owned subsidiaries (see Note 1). All significant intercompany transactions and balances are eliminated inconsolidation and minority interests in the net results of the partly ownedsubsidiaries are included in the consolidated statement of income.

 

f) Inventories -

 

Inventories are valued atrestated average cost, which does not exceed market value.  Costs include raw materials, labor andmanufacturing costs.

 

F-12

----

 

g) Investments-

 

Until March 31, 2001, theinvestment in Productora de Alcoholes Hidratados, C.A. (Pralca) was presentedat restated cost.  During 2002 theCompany divested itself of its interest in that company (see Note 5).

 

h) Goodwill -

 

The difference thatarises between the investment acquisition costs and the fair value of thesubsidiaries’ net assets purchased is amortized using the straight-linemethod.  Goodwill relates primarily tothe acquisition in 1995 of Pinturas Pinco, S.A. (currently merged with CorimonPinturas, C.A.).  Since 1997 unamortizedgoodwill has been amortized over a ten-year period.

 

i) Fixed assets -

 

Fixed assets are statedat current cost, which approximates their current fair market value in usagecondition, as determined by independent appraisers (see Note 2a).  Current cost is defined as the lower of thecost of acquiring or producing a given asset at current prices, withoutincluding other costs and expenses necessary for its installation, or itsrecoverable cost which depends, among other things, on the amount of usage ofthe manufacturing installations and their technological obsolescence.  Differences between current costs and costsadjusted by the GPL are considered as part of the fixed asset appraisaladjustment and are shown in the equity account Result from holding nonmonetaryassets.  The Company computes income orloss from the sale of assets based on their carrying value at the beginning ofthe year, adjusted for the effects of inflation through the date of theirwithdrawal.  Renewals and improvementsof fixed assets are capitalized, while maintenance and minor repairs areexpensed.

 

j) Deferred chargesand other assets -

 

Deferred charges relatemainly to costs and expenses associated with the purchase and installation ofintegrated computer systems, which are amortized over five years using the straight-linemethod.  Other assets include land ownedbut not used by certain subsidiaries, shown at values determined by independentappraisers in 2000 (see Note 2a).  TheCompany’s management believes that realization of these assets would notgenerate significant losses.

 

k) Debt discounts-

 

Discounts which arisefrom debt issuance (see Note 8) are deducted from the capital amounts andamortized over the life of the debt.

 

l) Employeetermination and other accrued benefits -

 

The Company and itssubsidiaries accrue for their liabilities in respect of employee terminationbenefits, which are a vested right of employees, based on the labor law of thecountries where they operate.  InVenezuela, the Company and its subsidiaries accrue for their liabilities in respectof employee termination benefits, which are vested rights of employees underVenezuelan Labor Law.  Under certaincircumstances, the Law also provides for an additional indemnity payment forunjustified dismissals and, based on experience, the Company and its

 

F-13

----

 

subsidiaries have setaside an additional provision to cover this contingent liability.  The Company and its subsidiaries do not havepension or other post-retirement benefit plans for their employees.

 

In addition, theVenezuelan Labor Law calls for a mandatory profit-sharing payment foremployees, up to a maximum of 15% of taxable income but subject to a minimum offifteen days and a maximum of one hundred and twenty days of salary.  For the eight-month period ended November30, 2002 and the years ended March 31, 2002, 2001 and 2000, the Company and itsVenezuelan subsidiaries paid a profit-sharing bonus of between sixty and onehundred and twenty days of salary.

 

At November 30, 2002, andMarch 31, 2002 and 2001, the accrual for employee termination benefits is shownnet of advances of approximately Bs 2,123 million, Bs 1,290 million andBs 2,300, respectively.

 

m) Foreign currencybalances and transactions -

 

Foreign currencytransactions are recorded at the exchange rate in effect at the date of thetransaction.  Foreign currency balancesat November 30, 2002 are shown at the exchange rate of Bs 1,325/US$1 (Bs894.50/US$1, Bs 707.75/US$1 and Bs 670/US$1 at March 31, 2002, 2001 and2000, respectively) (see Note 14). Exchange gains or losses are included in the statement of income.  The Company does not engage in hedgingactivities in connection with its balances and transactions in foreigncurrency.

 

n) Long-term accountsreceivable -

 

Long-term accountsreceivable which bear interest at rates substantially lower than those expectedfor similar transactions are adjusted to reflect the current value at the dateof these transactions (see Note 7).

 

o) Net loss per share-

 

Net loss per share hasbeen calculated by dividing net loss for the eight-month period and each yearby the number of outstanding shares at each period or year-end.

 

p) Cash and cashequivalents -

 

The Company considers ascash equivalents all highly liquid investment instruments maturing within threemonths.

 

q) Concentration ofcredit risk -

 

The instruments which mayimply a potential concentration of credit risk for the Company consistprimarily of short-term cash investments and trade accounts receivable.  The Company places short-term investments inbanks with acceptable creditworthiness and, as a policy, limits the amount ofcredit risk in any single financial institution.  The concentration of credit risk from trade accounts receivableis limited due to the large number of clients which make up the

 

F-14

----

 

Company’s clientportfolio and their industrial and geographical diversification, with theexception of accounts receivable from Inversora Neuco, C.A. described in Note 7.  At November 30, 2002 and March 30, 2002 and2001, except for these accounts receivable, the Company does not havesignificant concentrations of credit risk.

 

r) Fair value offinancial instruments -

 

The carrying value ofcash and cash equivalents, trade accounts receivable and accounts payableapproximates their fair market value due to the short-term maturities of theseinstruments.  Since the majority of theloans, commercial paper and other debt of the Company and its subsidiaries havevariable interest rates, management considers their carrying amounts toapproximate fair market value.

 

s) Restatement andreclassification of consolidated financial statements -

 

Until 2001 the Companypriced its inventories and determined cost of sales using the mixed method inaccordance with DPC 10 of 1991 and CNV rules (see Note 2a).  As of 2002 and for comparative purposes, theCompany retroactively applied the methodology specified in Revised DPC 10 asdescribed in Note 2a.  The 2001 and2000, financial statements were restated for comparative purposes to assess theeffect of applying the mixed method to inventories.

 

Furthermore, forcomparative purposes during the eight-month period ended November 30, 2002,certain reclassifications were made from the account Other income (expense),net, to the account General and administrative expenses resulting in anoperating loss increase in the consolidated statement of income for the yearsended March 31, 2002 and 2001 of approximately Bs 2,183 million andBs 1,865 million, respectively. Inventories are valued at restated cost, which does not exceed marketvalue.

 

A comparison of the mainfinancial information, restated and reclassified, with information reportedpreviously in the Company’s consolidated financial statements for the yearsended March 31, 2002, 2001 and 2000 is shown below:

 
|                                       |   | **2002**                                                  |       | **2001**                           |       | **2000**                                  |       |
|--------------------------------------------|--------|-----------------------------------------------------------|------------|------------------------------------|------------|-------------------------------------------|------------|
|                                       |   | **Restated  and  reclassified  balances**                 | ** ** | **Previously  reported  balances** |       | **Restated  and  reclassified  balances** | ** ** | **Previously  reported  balances** | ** ** | **Restated  and  reclassified  balances** | ** ** | **Previously  reported  balances** | ** ** |
|                                       |   | **(Millions  of constant bolivars at November 30, 2002)** | ** ** |
|                                       |   |                                                      | ** ** |                               | ** ** |                                      | ** ** |   | ** ** |   | ** ** |   | ** ** |
| **Total  assets**                          |   | **168,466**                                               | ** ** | **168,466**                        | ** ** | **191,307**                               | ** ** | **190,211** | ** ** | **222,684** | ** ** | **222,522** | ** ** |
| **Total  liabilities**                     |   | **71,452**                                                | ** ** | **71,452**                         | ** ** | **86,676**                                | ** ** | **86,676** | ** ** | **83,049** | ** ** | **83,049** | ** ** |
| **Minority  interest in subsidiary**       |   | **14,966**                                                | ** ** | **14,966**                         | ** ** | **16,240**                                | ** ** | **16,219** | ** ** | **22,762** | ** ** | **22,709** | ** ** |
| **Gross  income**                          |   | **23,328**                                                | ** ** | **23,328**                         | ** ** | **24,038**                                | ** ** | **27,268** | ** ** | **24,266** | ** ** | **25,478** | ** ** |
| **Operating  income (loss)**               |   | **(5,691**                                                | **)**      | **(3,508**                         | **)**      | **(1,716**                                | **)**      | **3,379** | ** ** | **(3,290** | **)** | **187** | ** ** |
| **Minority  interests**                    |   | **1,365**                                                 | ** ** | **1,365**                          | ** ** | **3,087**                                 | ** ** | **2,760** | ** ** | **2,709** | ** ** | **2,700** | ** ** |
| **Net  loss from ongoing operations**      |   | **(16,280**                                               | **)**      | **(6,280**                         | **)**      | **(10,178**                               | **)**      | **(7,275** | **)** | **(5,965** | **)** | **(4,762** | **)** |
| **Net  loss from discontinued operations** |   | **—**                                                | ** ** | **—**                         | ** ** | **(9,221**                                | **)**      | **(9,221** | **)** | **(13,769** | **)** | **(14,794** | **)** |
| **Net  loss**                              |   | **(6,280**                                                | **)**      | **(6,280**                         | **)**      | **(19,399**                               | **)**      | **(16,496** | **)** | **(19,734** | **)** | **(19,556** | **)** |
| **Net  loss per share:**                   |   |                                                      | ** ** |                               | ** ** |                                      | ** ** |   | ** ** |   | ** ** |   | ** ** |
| **From  ongoing operations**               |   | **(8.33**                                                 | **)**      | **(8.33**                          | **)**      | **(13.50**                                | **)**      | **(9.65** | **)** | **(7.95** | **)** | **(6.32** | **)** |
| **From  discontinued operations**          |   | **—**                                                | ** ** | **—**                         | ** ** | **(12.24**                                | **)**      | **(12.23** | **)** | **(18.27** | **)** | **(19.62** | **)** |

 

F-15

----

 

NOTE 3 - NOTES ANDACCOUNTS RECEIVABLE:

 

Notes and accountsreceivable comprise the following:

 
|                             |   | **November  30,  2002**                                    |   | **March 31,  2002** |   | **March 31,  2001** |   |
|----------------------------------|--------|------------------------------------------------------------|--------|---------------------|--------|---------------------|--------|
|                             |   | **(Millions  of constant bolivars at  November 30, 2002)** |   |
|                             |   |                                                       |   |                |   |                |   |
| Trade                            |   | 23,517                                                     |   | 19,342              |   | 22,216              |   |
| Provision  for doubtful accounts |   | (2,250                                                     | )      | (2,225              | )      | (2,094              | )      |
|                             |   | 21,267                                                     |   | 17,117              |   | 20,122              |   |
| Inversora Neuco, C.A. (Note 7)   |   | 883                                                        |   | 723                 |   | 673                 |   |
| Interest  receivable             |   | 459                                                        |   | 188                 |   | 50                  |   |
| Taxes  withheld                  |   | 344                                                        |   | 556                 |   | 493                 |   |
| Advances  and claims             |   | 222                                                        |   | 121                 |   | 262                 |   |
| Cindú de Venezuela, S.A.    |   | —                                                     |   | 25                  |   | 188                 |   |
| Officers  and employees          |   | 564                                                        |   | 172                 |   | 175                 |   |
| Other  (Note 11)                 |   | 896                                                        |   | 655                 |   | 1,895               |   |
|                             |   | 24,635                                                     |   | 19,557              |   | 23,858              |   |

 

At November 30, 2002, theaccount Officers and employees includes accounts receivable from Companyexecutives of approximately Bs 209 million in respect of advances for travelexpenses.

 

Movements on theprovision for doubtful accounts are shown below:

 
|                           |   | **Eight-month  period ended  November 30,**                |   | **Years  ended  March 31,** |       |
|--------------------------------|--------|------------------------------------------------------------|--------|-----------------------------|------------|
|                           |   | **2002**                                                   |   | **2002**                    | ** ** | **2001** | ** ** | **2000** | ** ** |
|                           |   | **(Millions  of constant bolivars  at November 30, 2002)** |   |
|                           |   |                                                       |   |                        |       |   |   |   |   |
| Balances  at March 31, 2002    |   | 2,225                                                      |   | 2,094                       |       | 2,424 |   | 2,094 |   |
|                           |   |                                                       |   |                        |       |   |   |   |   |
| Provision                      |   | 902                                                        |   | 462                         |       | 329 |   | 699 |   |
| Utilization  of provision      |   | (393                                                       | )      | (118                        | )          | (413 | ) | (165 | ) |
| Effect  of inflation           |   | (484                                                       | )      | (213                        | )          | (246 | ) | (204 | ) |
| Balances  at November 30, 2002 |   | 2,250                                                      |   | 2,225                       |       | 2,094 |   | 2,424 |   |

 

F-16

----

 

NOTE 4 - INVENTORIES:

 

Inventories comprise thefollowing:

 
|                        |   | **November  30,  2002**                                    |   | **March 31,  2002** |   | **March 31,  2001** |   |
|-----------------------------|--------|------------------------------------------------------------|--------|---------------------|--------|---------------------|--------|
|                        |   | **(Millions  of constant bolivars at  November 30, 2002)** |   |
|                        |   |                                                       |   |                |   |                |   |
| Finished  products          |   | 7,033                                                      |   | 7,225               |   | 6,911               |   |
| Work  in progress           |   | 2,235                                                      |   | 2,275               |   | 2,411               |   |
| Raw  materials              |   | 10,078                                                     |   | 9,342               |   | 10,758              |   |
| Spare  parts and supplies   |   | 1,603                                                      |   | 1,712               |   | 1,962               |   |
| Goods  in transit           |   | 700                                                        |   | 627                 |   | 480                 |   |
| Provision  for obsolescence |   | (1,463                                                     | )      | (1,635              | )      | (1,821              | )      |
|                        |   | 20,186                                                     |   | 19,546              |   | 20,701              |   |

 

Movements on theprovision for inventory obsolescence are shown below:

 
|                        |   | **Eight-month  period ended  November 30,**                |       | **Years  ended  March 31,** |       |
|-----------------------------|--------|------------------------------------------------------------|------------|-----------------------------|------------|
|                        |   | **2002**                                                   |       | **2002**                    | ** ** | **2001** | ** ** | **2000** | ** ** |
|                        |   | **(Millions  of constant bolivars  at November 30, 2002)** | ** ** |
|                        |   |                                                       |       |                        |       |   |   |   |   |
| Balances  at March 31, 2001 |   | 1,635                                                      |       | 1,821                       |       | 1,933 |   | 1,821 |   |
| Provision                   |   | 634                                                        |       | 520                         |       | 559 |   | 691 |   |
| Utilization  of provision   |   | (806                                                       | )          | (706                        | )          | (671 | ) | (579 | ) |
| Balances  at March 31, 2002 |   | 1,463                                                      |       | 1,635                       |       | 1,821 |   | 1,933 |   |

 

NOTE 5 - INVESTMENTS:

 

Investments comprise thefollowing:

 
|                                                                                  |   | **November  30,  2002**                                    |   | **March 31,  2002** |   | **March 31,  2001** |   |
|---------------------------------------------------------------------------------------|--------|------------------------------------------------------------|--------|---------------------|--------|---------------------|--------|
|                                                                                  |   | **(Millions  of constant bolivars at  November 30, 2002)** |   |
|                                                                                  |   |                                                       |   |                |   |                |   |
| Procuctora de Alcoholes Hidratados, C.A.  (Pralca):                                   |   |                                                       |   |                |   |                |   |
| Acquired  by the Company, 16% of capital stock, including  cash requirement from 2000 |   | —                                                     |   | —              |   | 42,668              |   |
| Put  option, 10% of capital stock                                                     |   | —                                                     |   | —              |   | 15,581              |   |
|                                                                                  |   | —                                                     |   | —              |   | 58,249              |   |
| Provision  for possible losses                                                        |   | —                                                     |   | —              |   | (39,789             | )      |
| Short-term  investment                                                                |   | —                                                     |   | —              |   | 18,460              |   |

 

F-17

----

 

Productora de Alcoholes Hidratados, C.A. (Pralca)

 

Pralca has a plantlocated in Zulia State which produces ethylene oxide and ethylene glycol.  Until 2001 its shareholders werePetroquímica de Venezuela, S.A. (Pequiven) with a 49% interest, OlinCorporation with a 25% interest and the Company with 16%; however, the Company hadrecorded an additional 10% representing its obligations with the InternationalFinance Corporation (IFC) under the put option agreement.  In January 1999 IFC exercised this putoption for US$15,425,008, the effects of which were recorded until March 2001as investments with the related liability recorded under Loans and debt.

 

At March 31, 2001, theCompany’s equity in Pralca, including the put option amount and Pralca’s cashrequirements for 2000 of approximately Bs 2,879 million, amounted toapproximately Bs 58,249 million.  Asa result of the agreement entered into by the shareholders of Pralca in 1990,until July 1997 the Company provided Pralca with cash of US$9,224,000(Bs 4,402 million in historic amounts at their date of contribution) assubordinated loans.

 

The Company set aside aprovision for the full amount of its 16% share in Pralca’s capital stock andfor the balance of its accounts receivable (subordinated loans), including cashamounts required by Pralca in 1998 and 1999 of approximately Bs 1,415million (approximately US$1,400,000).

 

In 1997 the Companyinitiated conversations with Pequiven (shareholder of Pralca) to terminate theCompany’s role as shareholder of Pralca. In October 2001 Pralca, the Company, Pequiven, Olin Corporation and IFCentered into agreements which, among other things, ended the loan agreementwith Pralca (sponsorship agreement) and the put option (debt with IFC) andexchanged full settlement of each and every obligation derived or derivablefrom agreements entered into with IFC. Based on these agreements, in October 2001 Corimon transferred netassets to IFC of approximately Bs 18,460 million and liabilities mentionedpreviously of approximately Bs 24,387 million and paid IFC US$2,000,000(equivalent to approximately Bs 1,949 million in constant amounts).  These transactions gave rise to a net gain ofapproximately Bs 3,978 million in constant amounts at March 31, 2002,which is shown under Other income (expense), net.

 

During the eight-monthperiod ended November 30, 2002, the Company decided to pay discretionary feesof approximately Bs 152 million (equivalent to US$100,000) for financialand administrative advisory services rendered in connection with theaforementioned disinvestment transaction. The amount paid is shown under Administrative and general expenses.

 

F-18

----

 

NOTE 6 - FIXED ASSETS:

 

Fixed assets comprise thefollowing:

 
|                            |   | **November  30,  2002**                                    |   | **March 31,  2002** |   | **March 31,  2001** |   | **Estimated  useful lives** |   |
|---------------------------------|--------|------------------------------------------------------------|--------|---------------------|--------|---------------------|--------|-----------------------------|--------|
|                            |   | **(Millions  of constant bolivars at  November 30, 2002)** |   | **(Years)**         |   |
|                            |   |                                                       |   |                |   |                |   |                        |   |
| Buildings  and facilities       |   | 129,686                                                    |   | 125,418             |   | 124,142             |   | 32                          |   |
| Machinery  and equipment        |   | 190,638                                                    |   | 181,430             |   | 181,262             |   | 14                          |   |
| Vehicles                        |   | 2,507                                                      |   | 2,486               |   | 2,471               |   | 10                          |   |
| Office  furniture               |   | 11,917                                                     |   | 11,155              |   | 11,234              |   | 14                          |   |
| Accumulated  depreciation       |   | (238,919                                                   | )      | (232,909            | )      | (228,059            | )      |                        |   |
| Total  depreciable fixed assets |   | 95,829                                                     |   | 87,580              |   | 91,050              |   |                        |   |
| Land                            |   | 10,979                                                     |   | 9,752               |   | 9,521               |   |                        |   |
| Construction  in progress       |   | 118                                                        |   | 860                 |   | 891                 |   |                        |   |
| Discontinued  project - land    |   | 2,472                                                      |   | 2,719               |   | 2,956               |   |                        |   |
|                            |   | 109,398                                                    |   | 100,911             |   | 104,418             |   |                        |   |

 

In 1999 the Company’smanagement and that of the subsidiary MGC: Montana Gráfica- Convepal, C.A.carried out a plan to identify the assets of the folding box line, one of MGC’sproduction lines, in order to disinvest in this production line andsubsequently sell the respective assets. During 2001 the subsidiary sold assets belonging to the production lineand recorded a loss of approximately Bs 1,840 million, shown under Other income(expense), net; it also reincorporated assets for approximately Bs 1,600million in the production process and adjusted the values of idle assets ofthis line and of other assets identified in the flexible line (see Note12).  During 2001 the Company and itssubsidiary Corimon Pinturas adjusted the value of certain assets temporarilyout of operation (see Note 12).

 

Depreciation expense(including discontinued operations in 2001 and 2000) is approximately Bs 6,783million and Bs 6,998 million for 2001 and 2000, respectively, Bs 6,786 millionand Bs 5,066 million for the year ended March 31, 2002 and the eight-monthperiod ended November 30, 2002, respectively.

 

Depreciation expense ofcontinued operations was approximately Bs 6,786 million, Bs 6,319 million andBs 6,734 million in 2002, 2001, and 2000, respectively.  Depreciation expense for the eight-monthperiod ended November 30, 2002 is approximately Bs 5,066 million.

 

At November 30, 2002,certain real estate has been provided as collateral (under first mortgage) toguarantee the Company’s debts for up to Bs 6,000 million and US$1 million (seeNote 8).

 

F-19

----

 

NOTE 7 - LONG-TERMACCOUNTS RECEIVABLE:

 

Long-term accountsreceivable comprise the following:

 
|                   |   | **November  30,  2002**                                    |   | **March 31,  2002** |   | **March 31,  2001** |   |
|------------------------|--------|------------------------------------------------------------|--------|---------------------|--------|---------------------|--------|
|                   |   | **(Millions  of constant bolivars at  November 30, 2002)** |   |
|                   |   |                                                       |   |                |   |                |   |
| Inversora  Neuco, C.A. |   | 9,062                                                      |   | 7,801               |   | 7,647               |   |

 

Inversora Neuco, C.A. -

In March 1994 the Companysold its interest in Cindú to Neuco for approximately US$11,500,000, which isbeing settled as follows:

 

a)         US$8,000,000 (debt “A”)is being paid in twelve equal annual installments beginning on September 14,1998, with interest calculated on a quarterly basis as from March 1994 atthree-month LIBOR, with a 4% maximum annual interest rate until the firstinstallment of principal is paid.  Fromthat date, the applicable annual interest rate will not exceed 10%.  The balance of this account at November 30,2002 amounts to approximately US$4,666,667 (Bs 6,183 million) (US$5,333,333 andUS$6.000.000 at March 31, 2002 and 2001, respectively).

 

b)        US$3,500,000 (Bs 4,637million) (debt “B”) will be paid on September 4, 2010, with interest calculatedas from March 1994 and payable annually at three-month LIBOR, with a maximuminterest rate of 6% per annum.

 

The sales agreement forCindú shares establishes that the Company will be fully responsible for anyclaims arising from flaws in products sold by Cindú prior to March 4, 1994, upto the first US$250,000.  Any additionalcost will be split equally with Neuco. At November 30, 2002, Cindú calculated that all claims on foreign salesup to March 1994 amount to approximately US$200,000.  At November 30, 2002 and March 31, 2002 and 2001, the Companymaintains a provision which the Company’s management and its internal legaladvisor consider sufficient to cover any liabilities in this connection.

 

Olin Corporation -

In December 1994 OlinCorporation exercised the call option in respect of all the shares of thesubsidiary, at that time, Etoxyl.  Thesale price was based on future earnings of Etoxyl for the following tenyears.  During the period between 1997and 2002, the Company did not receive any payments since Etoxyl did not havedistributable earnings.  The Company isto receive 25.5% of the earnings of Etoxyl for each of the following two yearsas from December 1, 2001; nevertheless, in 2000 the Company set aside aprovision for the remaining carrying amount.

 

F-20

----

 

NOTE 8 - LOANS AND OTHERDEBT:

 

Loans and other debtcomprise the following:

 
|                                              |   | **November  30,  2002**                                    |   | **March 31,  2002** |   | **March 31,  2001** |   |
|---------------------------------------------------|--------|------------------------------------------------------------|--------|---------------------|--------|---------------------|--------|
|                                              |   | **(Millions  of constant bolivars at  November 30, 2002)** |   |
|                                              |   |                                                       |   |                |   |                |   |
| Bank  loans                                       |   | 17,260                                                     |   | 14,921              |   | 16,399              |   |
| Promissory  notes                                 |   | 9,222                                                      |   | 7,554               |   | —              |   |
| New  Eurobonds                                    |   | 2,172                                                      |   | 1,838               |   | 3,093               |   |
| New  bonds, debts and other financial instruments |   | 156                                                        |   | 221                 |   | 337                 |   |
| Financial  leases                                 |   | —                                                     |   | 13                  |   | 43                  |   |
| Other  debt                                       |   | —                                                     |   | —              |   | 15,581              |   |
|                                              |   | 28,810                                                     |   | 24,547              |   | 35,453              |   |
| Current  portion                                  |   | (10,413                                                    | )      | (6,078              | )      | (23,469             | )      |
| Long-term  portion                                |   | 18,397                                                     |   | 18,469              |   | 11,984              |   |

 

A breakdown of loanmaturities at November 30, 2002 is shown below:

 
|               |   | **(Millions  of constant bolivars at  November 30, 2002)** |   |
|--------------------|--------|------------------------------------------------------------|--------|
|               |   |                                                       |   |
| 2003               |   | 10,413                                                     |   |
| 2004               |   | 17,579                                                     |   |
| 2005               |   | 174                                                        |   |
| 2006               |   | 281                                                        |   |
| 2007               |   | 363                                                        |   |
| Total              |   | 28,810                                                     |   |
| Current  portion   |   | 10,413                                                     |   |
| Long-term  portion |   | 18,397                                                     |   |

 

F-21

----

 

Below is a breakdown ofloans and other debt:

 

a) Bank loans

 
|                                                 |   | **November  30,  2002**                                    |   | **March 31,  2002** |   | **March 31,  2001** |   |
|------------------------------------------------------|--------|------------------------------------------------------------|--------|---------------------|--------|---------------------|--------|
|                                                 |   | **(Millions  of constant bolivars at  November 30, 2002)** |   |
|                                                 |   |                                                       |   |                |   |                |   |
| Bancaracas  International Banking Corporation        |   | 9,215                                                      |   | 7,548               |   | —              |   |
| Banesco  Banco Universal                             |   | 3,098                                                      |   | 3,366               |   | 3,050               |   |
| Central  Banco Universal                             |   | 2,206                                                      |   | 2,652               |   | 1,531               |   |
| Provivienda Entidad de Ahorro y Préstamo,  C.A. |   | 992                                                        |   | —              |   | —              |   |
| Banco  Canarias                                      |   | 700                                                        |   | 243                 |   | —              |   |
| JPMorgan  Chase Bank (formerly Chase Manhattan Bank) |   | 216                                                        |   | 291                 |   | 499                 |   |
| Republic  Bank Trinidad                              |   | 415                                                        |   | —              |   | —              |   |
| Corporación Andina de Fomento (CAF)             |   | —                                                     |   | 705                 |   | 9,560               |   |
| Union  Bank of Switzerland (UBS)                     |   | —                                                     |   | —              |   | 1,513               |   |
| Other  banks                                         |   | 418                                                        |   | 116                 |   | 246                 |   |
|                                                 |   | 17,260                                                     |   | 14,921              |   | 16,399              |   |

 

Bancaracas InternationalBanking Corporation -

 

In October 2001 Corimonentered into a loan agreement with Bancaracas International Banking Corporationfor US$6,955,000, equivalent to approximately Bs 9,215 million(approximately Bs 7,548 million at March 31, 2002), at a 12.75% fixed interestrate payable quarterly.  Loan principalis to be repaid in one sum in April 2003. This loan is guaranteed by a deposit at the same bank for US$6,955,000at a fixed interest rate of 11.75%, maturing in April 2003.  In May 2003 the Company settledapproximately US$450,000 with part of this deposit and the remaining balance ofthe promissory note and the deposit was renewed, with maturity in April 2004,at a fixed interest rate of 11% and 10%, respectively.

 

Banesco Banco Universal (formerly Unibanca Banco Universal) -

 

In June 2000 thesubsidiary Corimon Pinturas, C.A. issued promissory notes for approximatelyBs 3,500 million for three years and maturity in June 2003.  These promissory notes were placed at a 50%discount with a variable interest rate adjusted quarterly, based on marketrates. At November 30, 2002, the annual interest rate was 35.15% (27.27% and 21.29%on March 31, 2002 and 2001, respectively). The discount will be amortized over the term of the promissory notes.

 

At November 30, 2002, thebalance of this debt, net of the unamortized discount is approximatelyBs 3,098 million (Bs 3,366 million and Bs 3,050 million in constantamounts at March 31, 2002 and 2001, respectively), which represents the netface value of the negotiable

 

F-22

----

 

promissory notes.  The Company is currently negotiating withthe bank new maturity dates and principal amortization.  These debts were issued with the followingguarantees:

 

1.          An investment,administrative and guarantee trust fund agreement set up in two fiduciarysubaccounts:  one for payment ofinterest coupons and the other for payment of principal or face value of thenegotiable promissory notes.  Thesubsidiary must maintain in the fiduciary subaccount the necessary amount tocover the prepaid interest coupons and it should deposit at least Bs 30 millionduring the first 45 days of the quarter in which this coupon is due.  The subsidiary further agrees to makemonthly payments to the fiduciary subaccount for the payment of the principalor face value of promissory notes.

 

2.          First mortgage on realproperty of the Company’s subsidiaries Productos Químicos Adín, InversionesMaterra and Inversiones Peña Mayor for a maximum amount of Bs 4,500million.

 

3.          Guarantee on inventoriesup to Bs 2,000 million.

 

4.          Guarantee of the entiredebt and a security bond granted by the Company.

 

Central Banco Universal-

 

During the year endedMarch 31, 2002, the Company and its subsidiaries took out short-term promissorynotes that bore annual interest at market rates between 39% and 70% for theeight-month period ended November 30, 2002 (between 27% and 70%, and 27% and32% at March 31, 2002 and 2001, respectively). For some of these promissory notes, the Company pledged in guarantee infavor of Central Banco Universal all the Company’s shares in the subsidiaryCerdex C.A.  The latter became joint andseveral guarantor and main payor of these obligations.  These promissory notes were renewed and atNovember 30, 2002 this debt balance of approximately Bs 2,206 million maturesin September and October 2003.

 

Provivienda Entidad deAhorro y Préstamo, C.A. -

 

In September 2002 thesubsidiary Corimon Pinturas, C.A. took out a loan with Provivienda Entidad deAhorro y Préstamo, C.A. of Bs 1,000 million at an annual interest rate of49% for five years payable in 60 variable installments comprising of capitaland interest.  At November 30, 2002,this debt balance is approximately Bs 992 million.

 

The subsidiary CorimonPinturas, C.A. granted usufruct and first mortgage on real property for up toBs 1,500 million.

 

Banco Canarias-

 

In March 2002 a Companysubsidiary took out a loan with Banco Canarias of Bs 200 million innominal amounts, which bore interest at annual market rates between 50% and 61%for the eight-month period ended November 30, 2002 (61% at March 31, 2002),payable monthly, one

 

F-23

----

 

month in advance, andrepayable in one sum in March 2003. This loan was renewed with the payment of three equal quarterlyinstallments beginning September 2003.

 

In September 2002 thesubsidiary Corimon Pinturas, C.A. took out a loan with Banco Canarias ofBs 500 million at an interest rate of 50% per annum, varying with themarket, and repayable in five equal quarterly installments beginning August2003.

 

JPMorgan Chase Bank(formerly Chase Manhattan Bank) -

 

In August 1996 theCompany signed a letter of understanding with Chase Manhattan Bank torestructure its debt as follows:

 

•    Ofthe total debt at that date (approximately US$1,214,200 in principal andapproximately US$76,750 in interest): 1) 33% of the principal and interest was converted into Class “B”preferred shares; 2) the remaining debt amounting to approximately US$813,500was rescheduled to be paid over six years through eight biannual installmentsas follows:

 
| **Installment** |   | **Percentage  of  principal  amortization** |   |
|-----------------|--------|---------------------------------------------|--------|
|            |   |                                        |   |
| 1  and 2        |   | 5                                           |   |
| 3  and 4        |   | 7.5                                         |   |
| 5  and 6        |   | 15                                          |   |
| 7  and 8        |   | 22.5                                        |   |

 

Principal installmentsare payable from the fifth semester following the date of the agreement.  At March 31, 2002, the amount due wasUS$268,441 (equivalent to approximately Bs 291 million), which includesUS$87,437 (equivalent to approximately Bs 95 million) of installment No. 7of February 2002.  In February 2002 theCompany proposed to the bank a payment agreement for the amount due, withmaturity in 2003.

 

In September 2002 theCompany paid the bank US$65,000 for installment No. 7 and presented a newpayment proposal for the amount due at that date of US$203,441, which will bepaid in ten equal monthly installments of US$20,344, maturing in July2003.  At November 30, 2002, the debtbalance amounts to US$162,752, equivalent to Bs 216 million.  At present, installments due as fromDecember 2002 are pending payment.

 

Republic Bank Trinidad-

 

During the period endedNovember 30, 2002, the subsidiary Sissons Paints Limited used a line of creditof US$1 million taken out with Republic Bank Limited, the balance of which atNovember 30, 2002 amounts to approximately US$313,000, equivalent toBs 415 million.  This loan will berepaid in five years in monthly installments of US$20,758 once the whole amountis granted, bearing annual interest at the 9% PRIME rate.  This line of credit is guaranteed by a firstmortgage on real property owned by Sissons Paints Limited for up to US$1million.

 

F-24

----

 

Corporación Andina de Fomento (CAF) -

 

In July 1999 the Companyand CAF entered into an agreement to restructure the debt at that date ofapproximately US$11,738,000, which would be repayable in a maximum six-yearperiod beginning July 1999.  This debt balancebore interest equivalent to the six-month LIBOR rate plus 2% and 3% annualinterest during the first year and second year, respectively, and 4% annualinterest as from the third year until the final maturity date.

 

At March 31, 2001, thedebt balance was approximately US$9,463,000 (Bs 9,560 million in constantamounts).  In April 2001 the Companyproposed to CAF a plan to finance this debt. In October 2001 CAF and the Company entered into an agreement forpayment of the debt at that date (approximately US$10,350,000, includingprincipal, interest and overdue interest). Based on this payment agreement, the Company paid CAF approximatelyUS$6,200,000, accepted by CAF as payment of the outstanding principal andinterest balance.  CAF released thepledge on the shares held by the Company in its subsidiary Montana Gráfica -Convepal, C.A.  The effect of thistransaction is shown under Other income (expense), net and the balance payableat March 31, 2002 of approximately US$650,000 matured in April 2002, bearsinterest at LIBOR plus 4%, and is guaranteed by the subsidiary CorimonPinturas, C.A.  In May 2002 the Companyowed approximately US$618,000 and agreed with CAF payment of approximatelyUS$416,000 as full debt repayment.  Theeffect of this transaction is shown under Other income (expense), net.

 

Union Bank ofSwitzertland (UBS)*-*

 

In December 1996 theCompany formalized an agreement to refinance approximately US$5,534,000 of thedebt of its subsidiaries Resimon, Corimon Pinturas and Sissons Paint Ltd. withUBS.  The agreement provided that theprincipal of the debt of Resimon and Corimon Pinturas of approximatelyUS$4,900,000 will be paid in 20 quarterly installments beginning December 1996,with interest calculated beginning October 1996 at LIBOR plus 2%, and payableon a quarterly basis.  Sissons PaintLtd. will pay the principal of its debt of approximately US$544,000 in 16 equalquarterly installments beginning December 1996, with interest calculatedbeginning October 1996 at LIBOR plus 3% also payable on a quarterly basis.  During the years ended March 31, 2001 and2000, the interest rate averaged 10.22% and 7.7%, respectively.  At March 31, 2001, Sissons Paint Ltd. paidits debt and in December 2001 the debt amount due by the Venezuelansubsidiaries was fully paid.

 

b) Promissory notes 

 

In September 2001 thesubsidiary Corimon International Holdings Limited issued promissory notes ofUS$6,960,000, equivalent to Bs 9,222 million at November 30, 2002(approximately Bs 7,554 million at March 31, 2002 in constant amounts) for an18-month term as from the  issue date,which are due in a single payment at maturity in April 2003.  Interest is calculated and paid on aquarterly basis at a 12.75% fixed annual rate. In April 2003 the Company paid US$605,000 in cash and issued newpromissory notes of US$6,355,000 maturing in April 2004, at an 11% fixedinterest rate.

 

F-25

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This issue wassubscribed, among others, by some of the Company’s directors and executives andis secured by a guarantee from Corimon, C.A. and a trust fund on behalf ofholders of paper in respect of all shares of the subsidiary Sissons PaintLimited in Trinidad.  Issuance of thesepromissory notes is in respect of debt settlement with CAF and IFC (see Notes 5and 8a).

 

As part of the issuanceof these promissory notes, the Company hired an external advisory firm toassess the market and study, design and implement the most convenient scenariofor issuing and placing the aforementioned securities.  The company paid fees of approximatelyBs 181 million (equivalent to US$150,000) in this connection as approvedat a Board of Directors’ Meeting held on June 29, 2002.  Also, in October 2002 the Board of Directorsapproved hiring the services provided by the aforementioned firm at a fee ofapproximately Bs 199 million (equivalent to US$150,000) for a new issue ofpromissory notes maturing in April 2004. Fees paid in this connection are shown under Administrative and generalexpenses.

 

c) New Eurobonds

 

This debt of approximatelyUS$28,700,000 was rescheduled in 1996 and at November 30, 2002, the outstandingbalance is approximately US$1.6 million, equivalent to approximately Bs 2,196million (US$1.7 million at March 31, 2002, equivalent to approximately Bs 1,838million) shown as short-term.  Theannual interest rate is 1% for the first year, 2% for the second and thirdyears, 3% for the fourth and fifth years, and 4% for the sixth year.  New Eurobonds mature within six years asfrom their issue date and are repayable in eight biannual installments.

 

In May 2002 the Companyproposed the Eurobonds creditors a schedule for payment of the lastinstallment.  During the eight-monthperiod ended November 30, 2002, the Company paid approximately US$51,000 and isin the process of negotiating with creditors new plans for payment of theremaining amount maturing between August 2002 and August 2004; the Company’sproposals have not yet met with a reply.

 

During the eight-monthperiod ended November 30, 2002, the Company recorded expenses of approximatelyBs 504 million (equivalent to US$340,000) in respect of payment ofcommercial europaper submitted by the holders of the original securities andissued by the Company in September 1995. This payment was approved by the Board of Directors and is shown underInterest expense, net.

 

d) New bonds, debtsecurities and financial instruments

 

New bonds and debtsecurities are repayable in four and five years, respectively, as from theirissue date, in six biannual installments. The annual interest rate is 60% of the Preferred Lending Rate (PLR),which is calculated as the simple average of the interest rate at the beginningof each quarter charged by Banco Provincial, Banco de Venezuela and BancoMercantil to their preferred corporate clients for 90-day loan operations.  In September 2002 the Company proposed toits creditors a schedule for payment of the last installment beginning October2002 and maturing in April 2003.  InOctober 2002 the Company paid approximately

 

F-26

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Bs 26 million, accordingto the payment schedule.  At November30, 2002, the PLR was 15.4% (38% and 28.67% at March 31, 2002 and 2001,respectively) and the debt balance at that date is approximately Bs 156million (Bs 221 million and Bs 337 million at March 31, 2002 and 2001,respectively).

 

e) Financial leasecontracts

 

Corp Leasing-

 

In August 1996 theCompany entered into an agreement with Corp Leasing to refinance the leases forcomputer equipment entered into in December 1995 for approximately Bs 52million. The Company undertook to pay the debt in twenty quarterly installmentsbeginning November 1997.  Interest wascalculated and paid quarterly at the rate stipulated in the restructuringagreement.  During the eight-monthperiod ended November 30, 2002, the interest rate ranged between 18.25% and47.50% (between 21.50% and 47.50%, and between 21.25% and 22.75% in March2002).  The Company has repaid thisdebt.

 

f) Other debts

 

As described in Note 5,in January 1999 International Finance Corporation (IFC) exercised the putoption on its 10% interest in Pralca of US$15,425,008 (equivalent toapproximately Bs 15,581 million in constant amounts).  This amount should have been paid by theCompany to IFC upon receiving notice that the put option had been exercised byIFC.  However, based on the Put OptionAgreement of October 23, 1990, the Company deferred payment of this option inthree equal annual installments until January 2001.  At March 31, 2001, the Company had not paid amounts to IFC, basedon option price, due in January 1999, 2000 and 2001 or interest borne at thatdate of approximately US$4,236,000 (equivalent to Bs 4 billion).  Accordingly, all debt with IFC at that datewas shown as short-term.  In October2001 and under the agreements entered into with IFC, this debt was fully paid(see Note 5).

 

NOTE 9 - SHAREHOLDERS’EQUITY:

 

At November 30, 2002, theCompany’s subscribed and paid-in capital stock is Bs 75,368,354,800,represented by 753,683,548 common shares of Bs 100 each.  In July 2002 expired the special rights ofClass “B” shares and at that date they were converted into common shares.

 

At a Regular Shareholders’ Meeting held on July 29,2002, the shareholders resolved to change the Company’s fiscal year-end toNovember 30.  Amendments to theCompany’s by-laws in respect of its fiscal year, capital stock and shares werealso approved.

 

At March 31, 2002, theCompany’s subscribed and paid-in capital stock was Bs 75,368,354,800,represented by 732,908,748 Class “A” common shares and 20,774,800 Class “B”preferred shares of Bs 100 each. At March 31, 2001, the Company’s registered and paid-in capital stockwas Bs 75,349,896,250 represented by 7,329,087,480 Class “A” common sharesand 205,902,145 Class “B” preferred shares of Bs 10 each.

 

F-27

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At a RegularShareholders’ Meeting held on July 27, 2001, the shareholders resolved thefollowing:

 

a)         Authorize the Board ofDirectors to increase the Company’s authorized capital stock up toBs 22,604,968,000, through the issue of new registered shares not payableto bearer, with the same characteristics of existing shares.

 

b)        Increase the par value ofthe Company’s shares by Bs 90, from Bs 10 to Bs 100 per share, and,consequently, issue one share to replace every ten shares held by shareholdersincluded in the register of the Company’sshareholders at the date of this Meeting, by exchanging the old sharecertificates for the new ones with a par value of Bs 100 per share.

 

c)         Discuss and decide onadoption of the Authorized Capital Company (S.A.C.A.) denomination.

 

d)        Capitalize debts(principal and interest), up to an amount of Bs 18,458,550, throughsubscription and full payment of 1,845,855 Class “B” preferred shares.

 

Because of the increasein the par value of shares, the Company’s American Depositary Receipts (ADR)would be adjusted so that each ADR represents 500 shares instead of 5,000.

 

Based on the above, theBoard of Directors may at any time during the two years following this meeting,declare new capital stock increases, through the issue of partially or fullypaid shares in the amounts it deems convenient by:

 

a)              Issuing new sharesout of income earned and/or surplus, to be distributed among shareholders asstock dividends proportionate to shares held.

 

b)             Issuing new shares tobe distributed exclusively among the Company’s shareholders.

 

c)              Issuing new sharesto be distributed among the Company’s shareholders and non-shareholder thirdparties, individuals or companies, or only among non-shareholder third parties,individuals or companies.

 

The change in the parvalue of shares proposed by the Shareholders’ Meeting was approved by theVenezuelan Securities and Exchange Commission (CNV) through Resolution No.240-1-2001 of November 7, 2001.

 

At a SpecialShareholders’ Meeting held on November 9, 2001, the shareholders approved theproposal of the Board of Directors to issue bearer debenture bonds which areconvertible into common shares of Corimon C.A. for an amount of up toUS$10,000,000, to finance working capital and acquire productive assets.  In addition, the Shareholders’ Meetingapproved the issue of bearer commercial paper up to Bs 2,500,000,000 tofinance working capital.

 

F-28

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At a RegularShareholders’ Meeting held on July 31, 2000, the shareholders approved a planproposed by the Board of Directors to repurchase Company shares, in conformitywith Chapter IV of the Capital MarketsLaw.  This plan included the following:

 

a)              Delegateall the decisions in respect of the execution of this plan to the Board ofDirectors up to a maximum of 377 million shares at a price that will, under nocircumstances, exceed Bs 7 per share and US$50 per ADR.

 

b)             Authorizethe Board of Directors to cancel all shares acquired under the repurchase planby inserting a note on the respective share certificates and in the register ofthe Company’s shareholders.

 

c)              Authorizethe Company to reduce its capital stock by the exact number of shares acquiredunder the repurchase plan.

 

At November 30, 2002 andMarch 31, 2002 and 2001, the Company has not acquired shares under this plan.

 

At a RegularShareholders’ Meeting of the Company’s subsidiaries held on July 31, 2000, theshareholders resolved to offset equity items of these subsidiaries in theirbalance sheets at March 31, 2000. Management of the subsidiaries, based on the opinion of their legalcounsel, partly offset the debit balances in Deficit and Result from holdingnonmonetary assets for approximately Bs 167,794 million, against the creditbalances of Capital inflation adjustment.

 

At a RegularShareholders’ Meeting held on July 30, 1998, the shareholders resolved to:

 

a)              Increase capitalstock by approximately Bs 2,798 million, with a subscription price of Bs 11.53per share, through capitalization of debt of approximately Bs 3,226 million andthe issue of 279,802,606 Class “B” preferred shares of Bs 10 each.  This gave rise to an excess in subscriptionvalue over the par value of shares of approximately Bs 428 million in historic amounts (Bs 934 million in constantamounts at November 30, 2002).  Thisexcess is reported in the Stock premium equity account.

 

b)             Convert Class “B”preferred shares issued as a result of the aforementioned capital stockincrease into Class “A” common shares, by exchanging 1 Class “B” share for 1.23Class “A” common shares.  Of the Class“B” shares mentioned in the previous paragraph, 73,900,461 shares were exchanged,giving rise to a capital stock increase of approximately Bs 170 million inhistoric amounts, charged to accumulated deficit at that date, withapproximately 205,902,145 Class “B” shares remaining outstanding at March 31,1999.  Therefore, the capital stockincrease approved at the Regular Shareholders’ Meeting amounted toapproximately Bs 2,968 million.

 

F-29

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Holders of Class “B”preferred shares will be entitled to the same rights as the Company’s Class “A”common shares, except for the following:

 

a)              Class “B” shareswill earn an annual guaranteed dividend, calculated by multiplying thesubscription price of each share (Bs 10) by the Reference Rate.  These dividends are cumulative.  Once this cumulative dividend has been paid,the additional dividends declared by the Company will be proportionally dividedamong common and Class “B” shareholders.

 

b)             In the event that theCompany is liquidated, holders of Class “B” shares will have preferentialparticipation in the liquidation of the assets, after all liabilities andliquidation expenses have been settled.

 

The Reference Rate is theaverage of the 90-day deposit rates paid by Banco Provincial, Banco deVenezuela and Banco Mercantil, plus 7.5%.

 

From March 31, 1998,dividends will be declared annually at the Company’s year-end, until expirationof the special rights of the Class “B” shares in July 2002 when they areconverted into common shares.  Thisconversion will be automatic, will not require approval from the Shareholders’Meeting or other person or entity and will not affect the right to receive anycumulative guaranteed dividend pending payment at that date.

 

The Capital Markets Lawrequires companies that publicly offer their shares to distribute among theirshareholders at least 50% of their net income (in bolivars) after income taxand appropriation to legal reserves.  Inaddition, at least half of this dividend must be paid in cash.  In conformity with the rules andinstructions of the Venezuelan Securities and Exchange Commission (CNV),dividend distribution and statutory participations do not take into accountequity in the results of subsidiaries. At November 30, 2002 and March 31, 2002 and 2001, the Company hasrecorded losses.

 

Stock option andcompensation plan for executives -

In July 1993 the Companyestablished a stock option plan for executives, which grants options topurchase common shares in the form of ADRs at fair market value at the date theoption is granted.  Options for 584,006ADRs (20,440,210 shares) were granted in 1994 at an option price of US$8.59 perADR and 1,072,000 ADRs (37,520,000 shares) in 1995 at an option price of US$10per ADR.  These options last ten yearsand may be exercised according to a formula two years after being granted.  At November 30, 2002 and March 31, 2002, thenumber of options outstanding, after canceling the options of employees thathave left the Company, is 14,310 ADRs, represented by 500 Class “A” shareseach.

 

During the eight-monthperiod ended November 30, 2002, the Board of Directors approved payment ofapproximately Bs 1,225 million (equivalent to US$876,400) in respect ofspecial bonuses for the Company’s executives, shown under Administrative andgeneral expenses.

 

F-30

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NOTE 10 - TAXES:

 

Loss from ongoing anddiscontinued operations before taxes and minority interests, and tax expensefrom ongoing and discontinued operations are as follows:

 
|                                                                                                 |   | **Eight-month  period ended  November 30,**                |   | **Years  ended  March 31,** |   |
|------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------|--------|-----------------------------|--------|
|                                                                                                 |   | **2002**                                                   |   | **2002**                    |   | **2001** |   | **2000** |   |
|                                                                                                 |   | **(Millions  of constant bolivars  at November 30, 2002)** |   |
|                                                                                                 |   |                                                       |   |                        |   |   |   |   |   |
| Loss  from ongoing and discontinued operations before taxes and minority interests                   |   | (5,303                                                     | )      | (6,632                      | )      | (20,916 | ) | (20,706 | ) |
|                                                                                                 |   |                                                       |   |                        |   |   |   |   |   |
| Taxes:                                                                                               |   |                                                       |   |                        |   |   |   |   |   |
| Income  tax -                                                                                        |   |                                                       |   |                        |   |   |   |   |   |
| Venezuela                                                                                            |   | (1,280                                                     | )      | —                      |   | (283 | ) | — |   |
| Abroad                                                                                               |   | (168                                                       | )      | (355                        | )      | (196 | ) | (187 | ) |
|                                                                                                 |   | (1,448                                                     | )      | (355                        | )      | (479 | ) | (187 | ) |
| Deferred  taxes -                                                                                    |   |                                                       |   |                        |   |   |   |   |   |
| Abroad                                                                                               |   | (139                                                       | )      | (22                         | )      | (121 | ) | 9 |   |
| Total  income tax                                                                                    |   | (1,587                                                     | )      | (377                        | )      | (600 | ) | (178 | ) |
|                                                                                                 |   |                                                       |   |                        |   |   |   |   |   |
| Business  assets tax -                                                                               |   |                                                       |   |                        |   |   |   |   |   |
| Venezuela                                                                                            |   | (137                                                       | )      | (636                        | )      | (978 | ) | (1,559 | ) |
| Total  business assets tax                                                                           |   | (137                                                       | )      | (636                        | )      | (978 | ) | (1,559 | ) |
| Taxes  before benefit from utilization of tax loss carryforwards                                     |   | (1,724                                                     | )      | (1,013                      | )      | (1,578 | ) | (1,737 | ) |
| Tax  benefit from the utilization of tax loss carryforwards and investment tax  credits in Venezuela |   | 1,260                                                      |   | —                      |   | 8 |   | — |   |
| Total  taxes                                                                                         |   | (464                                                       | )      | (1,013                      | )      | (1,570 | ) | (1,737 | ) |
|                                                                                                 |   |                                                       |   |                        |   |   |   |   |   |
| Taxes  from ongoing operations                                                                       |   | (464                                                       | )      | (1,013                      | )      | (1,250 | ) | (1,183 | ) |
| Taxes  from discontinued operations                                                                  |   | —                                                     |   | —                      |   | (320 | ) | (554 | ) |
|                                                                                                 |   | (464                                                       | )      | (1,013                      | )      | (1,570 | ) | (1,737 | ) |

 

Business assets tax (innominal amounts) -

Business assets tax is aminimum tax, complementary to income tax. It is calculated as 1% of the simple average of the inflation-adjustednonmonetary and monetary assets based on amounts at the beginning and end ofthe year excluding, among other things, investments in shares.  Under current regulations, the Company andits Venezuelan subsidiaries computed this tax together with income tax, andrecorded the greater of the two as the tax expense.  For the eight-month period ended November 30, 2002, the Companyand its Venezuelan subsidiaries recorded business assets tax expense ofapproximately Bs 137 million (Bs 636 million, Bs 978 million and Bs 1,559million for the years ended March 31, 2002, 2001 and 2000, respectively, inconstant amounts at November 30, 2002), which will be mainly offset with taxwithholdings.

 

F-31

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In addition, businessassets tax credits may be used to offset income tax for three years providedthat income tax is greater than business assets tax.

 

Income tax (in nominalamounts) -

For the eight-monthperiod ended November 30, 2002, the Company and its Venezuelan subsidiariescomputed taxable income of approximately Bs 4,416 million, which includesapproximately Bs 9,597 million for annual inflation adjustment, which maybe used until 2003. The difference between the book loss and combined taxincome arises mainly from the net annual inflation adjustment and certainprovisions that are deductible in subsequent periods.

 

At November 30, 2002, theCompany and its Venezuelan subsidiaries have tax loss carryforwards ofapproximately Bs 5,427 million, of which approximately Bs 3,307million, Bs 1,642 million and Bs 478 million may be used until 2003,2004 and 2005, respectively, and investment tax credits in respect ofqualifying new investments in fixed assets of approximately Bs 345 million,which may be used to offset future taxable income.

 

The Venezuelan Income TaxReform Law, published in the Official Gazette in October 1999, introducedsubstantial amendments to the Venezuelan income tax system, such as thereplacement of territorial income taxation by worldwide income taxation,transfer pricing and international fiscal transparency regulations, and aproportional tax on dividends.  TheCompany and its Venezuelan subsidiaries are subject to this Law as from 2001;the provisions in respect of proportional tax on dividends and worldwide incometaxation become effective in 2002.  Anew Law Reform published in December 2001 introduced, among other things,certain amendments to the proportional tax on dividends, transfer pricingregulations and the inflation adjustment.

 

Below is a reconciliationbetween the reported taxes and the amount computed by applying the statutorytax rate established in the Venezuelan Income Tax Law to the loss from ongoingand discontinued operations before minority interests and taxes:

 
|                                                                |   | **Eight-month  period ended  November 30,**                |   | **Years  ended  March 31,** |   |
|---------------------------------------------------------------------|--------|------------------------------------------------------------|--------|-----------------------------|--------|
|                                                                |   | **2002**                                                   |   | **2002**                    |   | **2001** |   | **2000** |   |
|                                                                |   | **(Millions  of constant bolivars  at November 30, 2002)** |   |
|                                                                |   |                                                       |   |                        |   |   |   |   |   |
| Statutory  tax rate                                                 |   | 34                                                         | %      | 34                          | %      | 34 | % | 34 | % |
|                                                                |   |                                                       |   |                        |   |   |   |   |   |
| Taxable  income at the tax rate laid down in the Venezuelan Tax Law |   | 1,803                                                      |   | 2,254                       |   | 7,111 |   | 7,040 |   |
| Adjustments  to tax expense due to:                                 |   |                                                       |   |                        |   |   |   |   |   |
| Nontaxable  and nondeductible items                                 |   | 1,212                                                      |   | (7,174                      | )      | (9,518 | ) | (12,112 | ) |
| Investment  tax credits                                             |   | —                                                     |   | —                      |   | — |   | (188 | ) |
| Fiscal  inflation adjustment                                        |   | (2,345                                                     | )      | 5,551                       |   | 2,590 |   | 4,908 |   |
| Foreign  income tax rate differential                               |   | (977                                                       | )      | (1,008                      | )      | (500 | ) | 174 |   |
| Taxes                                                               |   | (157                                                       | )      | (636                        | )      | (1,253 | ) | (1,559 | ) |
| Total  taxes                                                        |   | (464                                                       | )      | (1,013                      | )      | (1,570 | ) | (1,737 | ) |

 

F-32

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Transfer pricing -

The current Income Tax Law includes transfer-pricingregulations.  Taxpayers thatconduct transactions with related parties abroad are required to calculateincome, costs and deductions applying the methodology set out in the Law.

 

Value added tax -

In May 1999 the Venezuelan government enacted theValue Added Tax Law.  This tax is basedon a tax credit system and applies to the different stages of production andsales.  It is payable based on the valueadded at each stage.  The VAT rate isset annually in the Venezuelan Budget Law and until August 2002 was 14.5% and,as from September 2002, 16%.  This Lawalso introduced, as from September 2002, an additional 10% tax rate on goodsand services considered luxury items. The Law provides a special tax rate (0%) for exporters, granting themthe right to recover tax credits from the purchase or import of goods andservices based on the ratio of export sales to total sales.

 

During the eight-monthperiod ended November 30, 2002, differences between value added tax declaredand amounts that should have been declared in this connection were identifiedfor the Venezuelan subsidiaries Corimon Pinturas, C.A.; MGC: MontanaGráfica-Convepal, C.A.; Resimon, C.A. and; Grafis, C.A., resulting in taxespayable of Bs 2,321 million.  AtNovember 30, 2002, this situation gave rise to overdue interest and fines of 1%(Bs 373 million) of the tax amount, in respect of which the companies set asidea provision of approximately Bs 373 million, shown under Interest andother accruals.

 

In May 2003 thesubsidiaries Grafis, C.A. and Resimon, C.A. filed with SENIAT (the Venezuelanfiscal authorities) substitute value added tax returns for Bs 451 million,which gave rise to overdue interest and fines of approximately Bs 226million.  Payments of approximatelyBs 499 million were made in this connection.  The outstanding balance of approximately Bs 178 million isin respect of the subsidiary Resimon, C.A. Substitute value added tax returns for Corimon Pinturas, C.A. and MGC:Montana Gráfica-Convepal, C.A. were also filed.

 

A request to pay byinstallments, the VAT difference in respect of Corimon Pinturas, C.A. and MGC:Montana Gráfica-Convepal, C.A., as well as the outstanding balance of Resimon,C.A. was also submitted in May 2003, together with a similar request in respectof the debt resulting from fines and overdue interest, in accordance withcurrent legal provisions.  This requestprovides for full payment of debt over 24 months.  In July 2003 SENIAT informed the subsidiaries of its decision toaccept the terms proposed for the payment of the debt.  The subsidiaries are currently making allthe necessary arrangements to formalize the respective agreement.

 

F-33

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NOTE 11 - DISPOSAL OFINVESTMENTS IN SUBSIDIARIES:

 

a) Colorín Industria deMateriales Sintéticos, S.A. (Colorín) -

In October 1993 and April1994, the Company purchased 52.8% of the common shares of Colorín, anArgentina-based company that manufactures paints, enamels and other products.

 

In February 1996 Colorínfiled for voluntary bankruptcy (moratorium) in a Commercial Court inArgentina.  In September 1996 theCompany sold its interest in Colorín to Bemberg Investments, S.A. (BI, S.A.)for US$3,500,000, of which US$2 million was received in cash, leaving anaccount receivable from BI, S.A. of US$1.5 million.  The selling price included release from all guarantees bycreditors of Colorín, except for approximately US$5,650,000 which would bereleased upon settlement of the voluntary bankruptcy process filed by Colorín.The Company is currently exercising its right to oblige BI, S.A. to release theaforementioned guarantees.

 

The remainingUS$1,500,000 receivable from BI, S.A. as proceeds of the sale was receivablewith accrued interest on June 30, 2001. Interest accrues at an annual rate of 1% for the first year, 2% for thesecond year, 3% for the third year and 4% for the fourth and fifth years.  Both the principal and interest payable byBI, S.A. may be used to offset any claim that BI, S.A. may file during thisterm in relation to certain specific provisions set out in the salesagreement.  These claims are limited tothe amount of US$1,500,000 receivable from BI, S.A. plus accrued interest.  At November 30, 2002, the Company has notcollected the pending amount and has set aside a provision for the totalaccount receivable.

 

b) Standard Brands PaintCompany (SBP) -

In May 1995 the Companyacquired a 55% interest in SBP for approximately US$18 million. In December1995 SBP filed a voluntary bankruptcy petition under the provisions of Chapter11 of the United States Federal Bankruptcy Code.  In June 1996 the Bankruptcy Court resolved to liquidate SBP.  In a hearing held in October 1997, theBankruptcy Court approved the liquidation plan as well as the agreement reachedby SBP and the Debenture Creditors Committee. However, in the opinion of the Company’s external legal counsel, certainexpress agreements or guarantees of the Company may exist which would not beextinguished by virtue of the aforementioned commitment.  The Company’s management believes that atNovember 30, 2002 there are no additional losses to be recorded in relation tothe SBP liquidation process.

 

In addition, and as partof the voluntary bankruptcy petition, the Company guaranteed the State ofCalifornia, United States of America, certain employee compensation liabilitiesincurred by SBP after July 10, 1996 which, in the opinion of the Company’sinternal legal counsel, may amount to approximately US$5 million at November30, 2002.  The Company is likely toshare this risk in equal parts with a U.S.-based insurance company (FrontierPacific Insurance Company), which will be responsible for SBP’s past, presentand potential liabilities with its employees for up to US$5.7 million.  In 1995 concurrent with the voluntarybankruptcy petition, the insurance company used a letter of credit ofapproximately US$2 million issued by the Company in respect of theaforementioned commitments.  At November30, 2002 and March 31, 2002 and 2001, the Company’s management and its internallegal counsel have not

 

F-34

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been formally advised whether the insurance company used this amount topay the SBP employee claims.  During1996 and 1998, Frontier Pacific Insurance Company made payments ofapproximately US$2.5 million on behalf of the Company in respect ofcompensation claims filed by SBP employees, with the guarantee of aself-insurance deposit made by the Company for this purpose with the State ofCalifornia.  In January 1999 Frontierfiled a lawsuit in the District Court of the State of California against theCompany for noncompliance with the terms set out in the Agreement forAcceptance and Guarantee of Labor Liabilities in favor of the State ofCalifornia.  This lawsuit amounts toUS$2.4 million and relates to payments made by the insurance company in respectof claims filed by employees and will include all costs and/or expensesincurred in executing the guarantee.

 

At November 30, 2002 andMarch 31, 2002, the consolidated financial statements include a provision ofapproximately US$300,000 (US$800,000 in 2001) to cover any losses in respect ofthis contingency.  The Company’sinternal legal counsel believes that this provision is sufficient to cover anylosses in respect of the aforementioned matter.

 

In August 2002 theCompany and the State of California, United States of America, entered into anagreement whereby, on payment of US$300,000, the latter acknowledges thatCorimon owes nothing in respect of payments made on behalf of the Company toSBP employees and acknowledges settlement of obligations guaranteed by theCompany in benefit of Standard Brands Paint Company.  This payment would be made in ten monthly installments beginningSeptember 30, 2002 and ending on June 30, 2003 and would bear interest onoverdue balances at the PRIME rate plus 1%. Installments as from January 2003 are currently overdue.

 

NOTE 12 - OTHER INCOME(EXPENSE), NET:

 

Other income (expense),net comprises the following:

 
|                                                          |   | **Eight-month  period ended  November 30,**                |   | **Years  ended  March 31,** |   |
|---------------------------------------------------------------|--------|------------------------------------------------------------|--------|-----------------------------|--------|
|                                                          |   | **2002**                                                   |   | **2002**                    |   | **2001** |   | **2000** |   |
|                                                          |   | **(Millions  of constant bolivars  at November 30, 2002)** |   |
|                                                          |   |                                                       |   |                        |   |   |   |   |   |
| Debt  settlement, net of consulting expenses  (Notes 5 and 8) |   | 303                                                        |   | 2,934                       |   | — |   | — |   |
| Loss  on sale of idle fixed assets (Note 6)                   |   | —                                                     |   | (86                         | )      | (2,220 | ) | (357 | ) |
| Effect  of restatement of idle fixed assets (Note 6)          |   | —                                                     |   | —                      |   | (2,693 | ) | (1,075 | ) |
| Disposal  of projects                                         |   | —                                                     |   | —                      |   | — |   | (495 | ) |
| Other                                                         |   | (254                                                       | )      | (475                        | )      | (1,889 | ) | 934 |   |
|                                                          |   | 49                                                         |   | 2,373                       |   | (6,802 | ) | (993 | ) |

 

During the year endedMarch 31, 2002, as part of the debt settlement and refinancing process, incomeof approximately Bs 8,030 million and related expenses of approximately Bs5,096 million were recorded.

 

F-35

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NOTE 13 - DEBT IN FOREIGNCURRENCY:

 

Under the provisions ofthe foreign exchange regime established in July 1994 in effect until April1996, the Company and its subsidiaries received advances in foreign currency topay debt and import raw materials and other supplies secured by performancebonds issued by the Company and bank guarantees, of which approximatelyUS$825,000 and US$3 million, respectively, are pending release by the ForeignExchange Study Unit (UNEC) of the Ministry of Finance at November 30, 2002.

 

In May 1995 theauthorities accepted the Company and its exporting subsidiaries into the Special Optional System for Exporters(REFE).  This system allowed foreigncurrency from exports to be kept abroad and used for payments stipulated inthis system.  Any foreign currency notrequired for exporting activities was required to be sold to the Banco Centralde Venezuela (BCV).  The Company usedapproximately US$1,540,000 from export collections to partially settle its netforeign debt, which was in the process of being registered with the taxauthorities.  The UNEC requested theCompany to provide certain supporting documentation in respect of the use ofthe net balance of foreign currency due at April 21, 1996 not sold to BCV.

 

The Company’s managementexpects a favorable outcome to the aforementioned matters.  Management considers that the likelihood ofany material loss in respect of these contingencies is remote and, therefore,has not set aside any provision in this connection.

 

NOTE 14 - FOREIGNCURRENCY BALANCES:

 

The consolidated balancesheet at November 30, 2002 includes the following foreign currency balances,mainly in U.S. dollars:

 
|                                                    |   | **U.S.  dollars** |   | **Equivalent  in bolivars at  November 30, 2002** |   |
|---------------------------------------------------------|--------|-------------------|--------|---------------------------------------------------|--------|
|                                                    |   |              |   | **(In  millions)**                                |   |
|                                                    |   |              |   |                                              |   |
| Monetary  assets:                                       |   |              |   |                                              |   |
| Cash  and cash equivalents                              |   | 9                 |   | 11,925                                            |   |
| Short-term  and long-term notes and accounts receivable |   | 11                |   | 14,575                                            |   |
|                                                    |   | 20                |   | 26,500                                            |   |
| Monetary  liabilities:                                  |   |              |   |                                              |   |
| Loans  and other debt                                   |   | 16                |   | 21,200                                            |   |
| Notes,  accounts payable and other accruals             |   | 11                |   | 14,575                                            |   |
|                                                    |   | 27                |   | 35,775                                            |   |

 

On January 21, 2003, the Venezuelan governmentauthorized the Ministry of Finance, in conjunction with BCV, to establishtemporary measures aimed at restricting the

 

F-36

----

 

convertibility of the Venezuelan bolivar and thetransfer of funds out of the country; that same day, the Ministry of Financeand BCV announced the closure of the foreign exchange market in Venezuela.

 

On February 5, 2003, the Ministry of Finance and BCVbegan to publish the legal instruments regulating the exchange control regime,one of which establishes initial official exchange rates for the U.S. dollar ofBs 1,596/US$1 (sale) and Bs 1,600/US$1 (purchase).  Also on February 5, 2003, the governmentcreated the Commission for the Administration of Foreign Currency (CADIVI) withthe task of establishing the detailed rules and regulations and generallyadministering the exchange control regime.

 

The Company’s managementis currently negotiating with its creditors the terms and conditions forpayment of overdue debt, taking into consideration the current foreign exchangeregime (see Note 8).

 

NOTE 15 - CONTINGENCIES:

 

a) Taxes and other -

“Economic Unit” principle-

SENIAT’s National andRegional Tax Administration for Special Taxpayers of the Capital Regionnotified the Company on August 16, 1996 and July 14, 1997 that its income taxand business assets tax returns should not have been filed on a consolidatedbasis and, consequently, the Company’s final income tax and business assets taxreturns for fiscal years ended March 31, 1996 and 1997 would be deemed null andvoid.  Consequently, subsidiaries thatare part of an economic group and have been classified by the TaxAdministration as special taxpayers of the Capital Region are required to fileseparate income tax and business assets tax returns with the Regional TaxAdministration and pay their respective taxes in addition to related fines andany applicable additional assessments.

 

At November 30, 2002, theeffect of not having filed separate final income tax and business assets taxreturns would be approximately Bs 9,934 million and Bs 3,387 millionfor the years ended March 31, 1997 and 1996, respectively.  These amounts, in addition to taxes, includethe applicable fines.

 

On September 26, 1996 andSeptember 1, 1997, the Company filed appeals with SENIAT in respect of theconsolidation issue for 1996 and 1997. The Company has applied the economic unit principle for calculatingconsolidated taxable income from 1996 to 2000. The Company’s management and its external tax advisors consider that theCompany exerts direct or indirect shareholding control over all itssubsidiaries, as well as administrative control over all decisions made by thecompanies of the Group, as evidenced during the appeals process.  Accordingly, based on existing legalprovisions, the Company’s management and its external tax advisors believe thatif current circumstances persist applicability of the economic unit principle until2000 (effective date covered by law) would be well grounded in law forcomputation of consolidated taxable income and, therefore, the outcome of theappeals filed

 

F-37

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would be favorable.  The Company considers that the likelihood ofany material loss regarding this matter is remote and, therefore, has not setaside any provision in this connection.

 

Wholesale and luxury tax-

In October 1998 thesubsidiary Construcentro CRO received additional tax assessments in respect ofwholesale and luxury tax for the fiscal periods between January 1996 andFebruary 1998.  These tax assessmentsalleged the omission of tax debits, disallowed tax credits and gave rise to aclaim for additional taxes of approximately Bs 504 million.  The Company filed an appeal which is stillpending decision by the Court.  Based onthis appeal, the Company has set aside a provision to cover any possiblecontingencies.

 

In April 2000Construcentro Caracas (currently merged with Construcentro CRO) was notified oftax assessments in respect of wholesale and luxury tax for the fiscal periodsbetween May and December 1997.  Thesetax assessments disallowed tax credits without supporting documentation anddemanded additional taxes of approximately Bs 838 million and the applicable fine.  In June 2001 the Company filed an appealrequesting a review of the documents supporting the rejected credits.

 

The Company’s managementand its internal legal counsel believe that the maximum risk exposure inrespect of these additional assessments is not significant, since there aresufficient grounds to appeal them.  TheCompany considers the likelihood of any material loss in this connection to beremote and, therefore, has not set aside an additional provision in thisconnection.

 

Income tax -

The Venezuelan taxauthorities have reviewed the income tax returns of several of the Company’ssubsidiaries for fiscal years 1982 to 1989 and disallowed deduction of certaincosts and expenses as well as tax-exempt income for approximately Bs 314million, including fines and interest. The main objections, which represent approximately 97% of theassessments, are in respect of tax credits for investments in anti-pollutionprojects and intercompany charges considered as professional fees.  The Company has successfully defended itstax treatment against all objections in the court of appeals in the case of onesubsidiary; the decision of this court would create a precedent if the taxadministration were to continue with the tax assessments.  The Company has also appealed the remaining3% of the assessments, which are in respect of the treatment of tax credits anddoubtful debts, among other matters.

 

b) Other claims -

There are other claims bythe tax and municipal authorities, INCE (National Apprenticeship TrainingProgram), and former employees against the Company and some of itssubsidiaries.  These claims are beingsatisfactorily contested and the Company’s management and its external legalcounsel believe that the final outcome will be favorable to the Company and itssubsidiaries.

 

F-38

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c) Sissons Paints Limited-

There are certain legalactions pending against the subsidiary. In the opinion of the subsidiary’s management and legal counsel, theprovision set aside of approximately US$112,000 (TT$692,000) is sufficient tocover any contingencies in this connection.

 

NOTE 16 - ANALYSIS OFMONETARY RESULT FOR THE YEAR:

 

An analysis of themonetary result for the year is provided below for the purpose of additionalanalysis of the consolidated financial statements:

 
|                                                              |   | **Eight-month  period ended  November 30, 2002**           |   | **Year ended  March 31, 2002** |   |
|-------------------------------------------------------------------|--------|------------------------------------------------------------|--------|--------------------------------|--------|
|                                                              |   | **(Millions  of constant bolivars  at November 30, 2002)** |   |
|                                                              |   |                                                       |   |                           |   |
| Net  monetary liability position at the beginning of the year     |   | (26,999                                                    | )      | (45,100                        | )      |
|                                                              |   |                                                       |   |                           |   |
| Transactions that increased  net monetary position:               |   |                                                       |   |                           |   |
| Net sales                                                         |   | 73,949                                                     |   | 102,878                        |   |
| Disposal  of investment resulting from debt settlement            |   | —                                                     |   | 22,439                         |   |
| Other                                                             |   | 135                                                        |   | 150                            |   |
| Subtotal                                                          |   | 74,084                                                     |   | 125,467                        |   |
|                                                              |   |                                                       |   |                           |   |
| Transactions that decreased  net monetary position:               |   |                                                       |   |                           |   |
| Purchase  of inventories                                          |   | 50,151                                                     |   | 68,392                         |   |
| Operating  expenses                                               |   | 15,045                                                     |   | 26,117                         |   |
| Interest  expense, net                                            |   | 5,105                                                      |   | 4,849                          |   |
| Exchange  loss, net                                               |   | 6,035                                                      |   | 5,358                          |   |
| Other  (income) expense, net                                      |   | (49                                                        | )      | 1,554                          |   |
| Deferred  charges                                                 |   | (379                                                       | )      | 3,766                          |   |
| Additions  to fixed assets                                        |   | 872                                                        |   | 3,616                          |   |
| Preferred  dividends                                              |   | 296                                                        |   | 598                            |   |
| Other                                                             |   | —                                                     |   | 9                              |   |
| Subtotal                                                          |   | 77,076                                                     |   | 114,259                        |   |
|                                                              |   |                                                       |   |                           |   |
| Estimated  net monetary liability position at the end of the year |   | (29,991                                                    | )      | (33,892                        | )      |
| Net  monetary liability position at the end of the year           |   | (23,495                                                    | )      | (26,999                        | )      |
| Gain from monetary position                                       |   | 6,496                                                      |   | 6,893                          |   |

 

NOTE 17 - BUSINESS ANDGEOGRAPHICAL SEGMENT DATA:

 

Most intersegment salesand transfers are recorded at commercial prices.  Corporate assets consist mainly of cash and cash equivalents,notes and accounts receivable and investments. Export sales account for less than 10% of net consolidated sales foreach of the three periods reported.  TheCompany does not have any customer to which it makes 10% or more of its sales.

 

F-39

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|                                                                                 |   | **Eight-month  period ended  November 30,**                |   | **Years  ended  March 31,** |   |
|--------------------------------------------------------------------------------------|--------|------------------------------------------------------------|--------|-----------------------------|--------|
|                                                                                 |   | **2002**                                                   |   | **2002**                    |   | **2001** |   | **2000** |   |
|                                                                                 |   | **(Millions  of constant bolivars  at November 30, 2002)** |   |
|                                                                                 |   |                                                       |   |                        |   |   |   |   |   |
| Net  sales from ongoing operations:                                                  |   |                                                       |   |                        |   |   |   |   |   |
| Paints  and related products                                                         |   | 56,980                                                     |   | 82,509                      |   | 86,614 |   | 67,011 |   |
| Packaging  and inks                                                                  |   | 16,969                                                     |   | 20,369                      |   | 21,189 |   | 21,883 |   |
|                                                                                 |   | 73,949                                                     |   | 102,878                     |   | 107,803 |   | 88,894 |   |
| Income  (loss) from ongoing operations:                                              |   |                                                       |   |                        |   |   |   |   |   |
| Paints  and related products                                                         |   | 4,695                                                      |   | 3,342                       |   | 6,264 |   | 6,075 |   |
| Packaging  and inks                                                                  |   | (342                                                       | )      | (3,605                      | )      | (3,458 | ) | (3,732 | ) |
| Corporate                                                                            |   | (5,061                                                     | )      | (5,428                      | )      | (4,522 | ) | (5,633 | ) |
|                                                                                 |   | (708                                                       | )      | (5,691                      | )      | (1,716 | ) | (3,290 | ) |
| Identifiable  assets at year-end:                                                    |   |                                                       |   |                        |   |   |   |   |   |
| Paints  and related products                                                         |   | 111,733                                                    |   | 102,658                     |   | 105,352 |   | 105,610 |   |
| Packaging  and inks                                                                  |   | 39,073                                                     |   | 36,798                      |   | 41,543 |   | 51,187 |   |
| Corporate                                                                            |   | 33,782                                                     |   | 29,010                      |   | 44,412 |   | 65,877 |   |
|                                                                                 |   | 184,588                                                    |   | 168,466                     |   | 191,307 |   | 222,674 |   |
| Fixed  asset depreciation and amortization of deferred charges (ongoing operations): |   |                                                       |   |                        |   |   |   |   |   |
| Paints  and related products                                                         |   | 3,638                                                      |   | 5,018                       |   | 4,991 |   | 5,211 |   |
| Packaging  and inks                                                                  |   | 1,709                                                      |   | 2,465                       |   | 2,257 |   | 2,397 |   |
| Corporate                                                                            |   | 748                                                        |   | 187                         |   | 212 |   | 569 |   |
|                                                                                 |   | 6,095                                                      |   | 7,670                       |   | 7,460 |   | 8,177 |   |
| Additions  to fixed assets:                                                          |   |                                                       |   |                        |   |   |   |   |   |
| Paints  and related products                                                         |   | 844                                                        |   | 3,563                       |   | 1,577 |   | 2,127 |   |
| Packaging  and inks                                                                  |   | 28                                                         |   | 53                          |   | 507 |   | 804 |   |
| Corporate                                                                            |   | —                                                     |   | —                      |   | 83 |   | 22 |   |
|                                                                                 |   | 872                                                        |   | 3,616                       |   | 2,167 |   | 2,953 |   |

 

F-40

----

 
|                                    |   | **Eight-month  period ended  November 30,**                |   | **Years  ended  March 31,** |   |
|-----------------------------------------|--------|------------------------------------------------------------|--------|-----------------------------|--------|
|                                    |   | **2002**                                                   |   | **2002**                    |   | **2001** |   | **2000** |   |
|                                    |   | **(Millions  of constant bolivars  at November 30, 2002)** |   |
|                                    |   |                                                       |   |                        |   |   |   |   |   |
| Net  sales:                             |   |                                                       |   |                        |   |   |   |   |   |
| Paints  and related products            |   | 64,096                                                     |   | 91,684                      |   | 96,172 |   | 89,588 |   |
| Intersegment                            |   | (7,116                                                     | )      | (9,175                      | )      | (9,558 | ) | (22,577 | ) |
|                                    |   |                                                       |   |                        |   |   |   |   |   |
| Third-party  clients                    |   | 56,980                                                     |   | 82,509                      |   | 86,614 |   | 67,011 |   |
|                                    |   |                                                       |   |                        |   |   |   |   |   |
| Packaging  and inks                     |   | 19,084                                                     |   | 22,539                      |   | 23,243 |   | 23,766 |   |
| Intersegment                            |   | (2,115                                                     | )      | (2,170                      | )      | (2,054 | ) | (1,883 | ) |
|                                    |   |                                                       |   |                        |   |   |   |   |   |
| Third-party  clients                    |   | 16,969                                                     |   | 20,369                      |   | 21,189 |   | 21,883 |   |
|                                    |   |                                                       |   |                        |   |   |   |   |   |
| Total  third-party clients              |   | 73,949                                                     |   | 102,878                     |   | 107,803 |   | 88,894 |   |
|                                    |   |                                                       |   |                        |   |   |   |   |   |
| Geographical  segment data:             |   |                                                       |   |                        |   |   |   |   |   |
| Net  sales -                            |   |                                                       |   |                        |   |   |   |   |   |
| Venezuela                               |   | 74,248                                                     |   | 105,904                     |   | 110,921 |   | 105,236 |   |
| Intersegment                            |   | (8,652                                                     | )      | (11,263                     | )      | (11,586 | ) | (24,431 | ) |
|                                    |   |                                                       |   |                        |   |   |   |   |   |
| Third-party  clients                    |   | 65,596                                                     |   | 94,641                      |   | 99,335 |   | 80,805 |   |
| Caribbean  Region third-party clients   |   | 8,932                                                      |   | 8,319                       |   | 8,468 |   | 8,089 |   |
| Intersegment                            |   | (579                                                       | )      | (82                         | )      | — |   | — |   |
|                                    |   |                                                       |   |                        |   |   |   |   |   |
| Third-party  clients                    |   | 8,353                                                      |   | 8,237                       |   | 8,468 |   | 8,089 |   |
|                                    |   |                                                       |   |                        |   |   |   |   |   |
| Total  third-party clients              |   | 73,949                                                     |   | 102,878                     |   | 107,803 |   | 88,894 |   |
|                                    |   |                                                       |   |                        |   |   |   |   |   |
| Income  (loss) from ongoing operations: |   |                                                       |   |                        |   |   |   |   |   |
| Venezuela                               |   | (1,616                                                     | )      | (7,143                      | )      | (3,042 | ) | (4,530 | ) |
| Caribbean  Region                       |   | 908                                                        |   | 1,452                       |   | 1,326 |   | 1,240 |   |
|                                    |   | (708                                                       | )      | (5,691                      | )      | (1,716 | ) | (3,290 | ) |
| Assets  at the end of the year:         |   |                                                       |   |                        |   |   |   |   |   |
| Venezuela                               |   | 164,231                                                    |   | 153,025                     |   | 184,762 |   | 216,168 |   |
| Caribbean  Region                       |   | 20,357                                                     |   | 15,441                      |   | 6,545 |   | 6,506 |   |
|                                    |   | 184,588                                                    |   | 168,466                     |   | 191,307 |   | 222,674 |   |

 

F-41

----

 

NOTE 18 - SUPPLEMENTARYINFORMATION - CONSOLIDATED FINANCIAL STATEMENTS EXPRESSED IN NOMINAL BOLIVARS:

 

The consolidatedfinancial statements expressed in nominal bolivars, which served as the basisfor the preparation of the inflation-adjusted consolidated financialstatements, are provided as supplementary information:

 

CORIMON, C.A. ANDITS SUBSIDIARIES

 

SUPPLEMENTARYCONSOLIDATED BALANCE SHEET 

(Millions ofnominal bolivars)

 
|                                                        |   | **November  30,  2002** |   | **March 31,  2002*** |   | **March 31,  2001*** |   |
|-------------------------------------------------------------|--------|-------------------------|--------|----------------------|--------|----------------------|--------|
|                                                        |   |                    |   |                 |   |                 |   |
| Assets                                                      |   |                    |   |                 |   |                 |   |
|                                                        |   |                    |   |                 |   |                 |   |
| Current  assets:                                            |   |                    |   |                 |   |                 |   |
| Cash  and deposits                                          |   | 4,497                   |   | 1,952                |   | 2,979                |   |
| Time  deposits                                              |   | 596                     |   | —               |   | —               |   |
| Notes  and accounts receivable                              |   | 24,635                  |   | 16,119               |   | 16,717               |   |
| Inventories                                                 |   | 19,896                  |   | 15,433               |   | 13,633               |   |
| Prepaid  expenses                                           |   | 876                     |   | 2,347                |   | 1,629                |   |
| Investments                                                 |   | —                  |   | —               |   | 10,624               |   |
|                                                        |   |                    |   |                 |   |                 |   |
| Total  current assets                                       |   | 50,500                  |   | 35,851               |   | 45,582               |   |
|                                                        |   |                    |   |                 |   |                 |   |
| Time  deposits                                              |   | 8,619                   |   | 6,221                |   | —               |   |
| Fixed  assets, net                                          |   | 36,223                  |   | 36,558               |   | 36,743               |   |
| Long-term  accounts receivable                              |   | 9,062                   |   | 6,430                |   | 5,358                |   |
| Deferred  charges and other assets                          |   | 1,264                   |   | 1,637                |   | 1,822                |   |
| Goodwill                                                    |   | 1,163                   |   | 1,459                |   | 1,839                |   |
|                                                        |   | 106,831                 |   | 88,156               |   | 91,344               |   |
| Liabilities and  Shareholders’ Equity                  |   |                    |   |                 |   |                 |   |
|                                                        |   |                    |   |                 |   |                 |   |
| Current  liabilities:                                       |   |                    |   |                 |   |                 |   |
| Short-term  loans and debt                                  |   | 10,413                  |   | 5,010                |   | 16,444               |   |
| Notes  and accounts payable -                               |   |                    |   |                 |   |                 |   |
| Suppliers                                                   |   | 26,983                  |   | 18,998               |   | 14,413               |   |
| Directors  and shareholders                                 |   | 358                     |   | 291                  |   | 262                  |   |
| Accrued  wages and salaries                                 |   | 1,589                   |   | 1,421                |   | 1,264                |   |
| Interest  and other accruals                                |   | 13,281                  |   | 11,938               |   | 14,690               |   |
|                                                        |   |                    |   |                 |   |                 |   |
| Total  current liabilities                                  |   | 52,624                  |   | 37,658               |   | 47,073               |   |
|                                                        |   |                    |   |                 |   |                 |   |
| Long-term  loans and debt                                   |   | 18,397                  |   | 15,222               |   | 8,397                |   |
| Accrual  for employee termination benefits, net of advances |   | 3,366                   |   | 3,189                |   | 2,989                |   |
| Other  liabilities and accruals                             |   | 2,487                   |   | 660                  |   | 569                  |   |
| Preferred  dividends                                        |   | 2,415                   |   | 2,160                |   | 1,703                |   |
|                                                        |   |                    |   |                 |   |                 |   |
| Total  liabilities                                          |   | 79,289                  |   | 58,889               |   | 60,731               |   |
|                                                        |   |                    |   |                 |   |                 |   |
| Minority  interests                                         |   | 3,316                   |   | 3,592                |   | 4,083                |   |
| Shareholders’  equity                                  |   | 24,226                  |   | 25,675               |   | 26,530               |   |
|                                                        |   | 106,831                 |   | 88,156               |   | 91,344               |   |

 

----

* Reclassified forcomparative purposes

 

F-42

----

 

CORIMON, C.A. ANDITS SUBSIDIARIES

 

SUPPLEMENTARYCONSOLIDATED STATEMENT OF INCOME

 

(Millions ofnominal bolivars)

 
|                                                                      |   | **Eight-month  period ended  November 30,** |   | **Years  ended  March 31,** |   |
|---------------------------------------------------------------------------|--------|---------------------------------------------|--------|-----------------------------|--------|
|                                                                      |   | **2002**                                    |   | **2002 ***                  |   | **2001*** |   | **2000** |   |
|                                                                      |   |                                        |   |                        |   |   |   |   |   |
| Net  sales                                                                |   | 69,538                                      |   | 78,126                      |   | 72,550 |   | 52,590 |   |
| Cost  of sales                                                            |   | 44,903                                      |   | 56,053                      |   | 53,494 |   | 35,058 |   |
|                                                                      |   |                                        |   |                        |   |   |   |   |   |
| Gross  income                                                             |   | 24,635                                      |   | 22,073                      |   | 19,056 |   | 17,532 |   |
| Selling,  administrative and general expenses                             |   | 17,559                                      |   | 19,445                      |   | 15,260 |   | 14,084 |   |
| Operating  income                                                         |   | 7,076                                       |   | 2,628                       |   | 3,796 |   | 3,448 |   |
| Full  financing expense:                                                  |   |                                        |   |                        |   |   |   |   |   |
| Interest  expense, net                                                    |   | (4,740                                      | )      | (3,691                      | )      | (3,295 | ) | (1,760 | ) |
| Exchange  loss, net                                                       |   | (5,119                                      | )      | (3,504                      | )      | (1,314 | ) | (2,673 | ) |
|                                                                      |   | (9,859                                      | )      | (7,195                      | )      | (4,609 | ) | (4,433 | ) |
| Other  income (expense), net                                              |   | 176                                         |   | 3,887                       |   | (2,500 | ) | (1,699 | ) |
| Loss  before the following items                                          |   | (2,607                                      | )      | (680                        | )      | (3,313 | ) | (2,684 | ) |
| Minority  interests                                                       |   | 268                                         |   | 481                         |   | 226 |   | 660 |   |
| Taxes                                                                     |   | (464                                        | )      | (835                        | )      | (876 | ) | (737 | ) |
| Loss  from ongoing operations                                             |   | (2,803                                      | )      | (1,034                      | )      | (3,963 | ) | (2,761 | ) |
| Income  from discontinued operations, net of taxes and minority interests |   | —                                      |   | —                      |   | 2,713 |   | (9,128 | ) |
| Net  loss                                                                 |   | (2,803                                      | )      | (1,034                      | )      | (1,250 | ) | (11,889 | ) |

 

----

* Reclassified forcomparative purposes

 

F-43

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Below are the bases ofpresentation of the consolidated financial statements expressed in nominalbolivars on the historic cost basis. These consolidated financial statements constitute a presentation whichdiffers from accounting principles generally accepted in Venezuela, since theygive no recognition to the effects of inflation:

 

a) Translation offoreign subsidiaries -

 

The functional currencyof the Company’s subsidiaries operating overseas is the local currency of thecountry where they operate.  Balancesheet accounts have been translated at the year-end exchange rate and incomeaccounts at the average exchange rate for the year.  Translation differences are included in shareholders’ equityunder Cumulative translation adjustment.

 

The Company has used thebolivar as the functional currency of the non-operating foreignsubsidiaries.  Monetary assets andliabilities were translated into bolivars at the year-end exchange rate and incomeaccounts at the average exchange rate for the year.  Translation differences are recorded in the statement of income.

 

b) Inventories -

 

Inventories are stated ataverage cost, which does not exceed market value.

 

Inventories comprise thefollowing:

 
|                       |   | **November  30,  2002**              |   | **March 31,  2002** |   | **March 31,  2001** |   |
|----------------------------|--------|--------------------------------------|--------|---------------------|--------|---------------------|--------|
|                       |   | **(Millions  of  nominal bolivars)** |   |
|                       |   |                                 |   |                |   |                |   |
| Finished products          |   | 7,005                                |   | 5,749               |   | 4,937               |   |
| Work in progress           |   | 2,182                                |   | 1,795               |   | 1,637               |   |
| Raw material               |   | 10,002                               |   | 7,355               |   | 6,659               |   |
| Spare parts and supplies   |   | 1,465                                |   | 1,289               |   | 1,302               |   |
| Merchandise in transit     |   | 700                                  |   | 517                 |   | 337                 |   |
| Provision for obsolescence |   | (1,458                               | )      | (1,272              | )      | (1,239              | )      |
|                       |   | 19,896                               |   | 15,433              |   | 13,633              |   |

 

c) Fixed assets -

 

Fixed assets are statedat fair market value in usage conditions determined by appraisals performed byindependent appraisers in 1996. Additions made after revaluation as well as the remaining fixed assetsare recorded at cost.  The expenses offinancing and installation of assets during the construction and start-upperiod are capitalized.

 

Renewals and improvementsare capitalized, while maintenance and minor repairs are expensed.

 

F-44

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The rules for thepreparation of financial statements of entities regulated by the CNV requirethat the bases used to calculate depreciation of current values of fixed assets(depreciation method and useful life) be the same as those used to calculatetheir depreciation in historic amounts. In the Company’s case, there are differences between the estimateduseful lives applied to calculate depreciation of fixed assets at current andhistoric cost.  Depreciation of fixedassets using the current cost method is calculated using the straight-linemethod over the estimated useful lives of the assets determined by independentappraisers.  Depreciation expense underthe historic cost method is calculated using the straight-line method over theoriginal estimated useful lives of the fixed assets.

 

Fixed assets at November30, 2002 comprise the following:

 
|                           |   | **Historic  cost**                 |   | **Revaluations  up to 1992  and 1996** |   | **Total** |   |
|--------------------------------|--------|------------------------------------|--------|----------------------------------------|--------|-----------|--------|
|                           |   | **(Millions of nominal bolivars)** |   |
|                           |   |                               |   |                                   |   |      |   |
| Buildings and facilities       |   | 3,463                              |   | 18,636                                 |   | 22,099    |   |
| Machinery and equipment        |   | 7,397                              |   | 55,052                                 |   | 62,449    |   |
| Vehicles                       |   | 435                                |   | 1,095                                  |   | 1,530     |   |
| Office furniture               |   | 1,978                              |   | 3,110                                  |   | 5,088     |   |
| Accumulated depreciation       |   | (10,841                            | )      | (45,745                                | )      | (56,586   | )      |
|                           |   |                               |   |                                   |   |      |   |
| Total depreciable fixed assets |   | 2,432                              |   | 32,148                                 |   | 34,580    |   |
|                           |   |                               |   |                                   |   |      |   |
| Land                           |   | 409                                |   | —                                 |   | 409       |   |
| Construction in progress       |   | 76                                 |   | —                                 |   | 76        |   |
| Discontinued project - Land    |   | 760                                |   | 398                                    |   | 1,158     |   |
|                           |   | 3,677                              |   | 32,546                                 |   | 36,223    |   |

 

d) Shareholders’equity -

 

In 1998, and for thepurpose of presentation of the consolidated financial statements in nominalbolivars as supplementary information, the Company’s management resolved topartially offset the deficit in nominal bolivars at March 31, 1996 ofapproximately Bs 51,871 million against the revaluation surplus of assets atthat date amounting to approximately Bs 39,034 million, leaving a deficit ofapproximately Bs 12,837 million.  AtNovember 30, 2002, the deficit in nominal amounts is approximately Bs 64,332million (Bs 61,031 million at March 31, 2002).

 

For the purpose ofpresentation of the consolidated financial statements in nominal bolivars, theCompany has included the amounts of the revaluations determined by independentappraisers up to 1996.  These amountsare not recorded in books.

 

NOTE 19 - SUMMARY OFDIFFERENCES BETWEEN U.S. AND VENEZUELAN GAAP:

 

Accounting principlesgenerally accepted in Venezuela (VEN GAAP) are determined primarily by theVenezuelan Federation of Public Accountants (the Federation) and, in the caseof companies such as Corimon, which are listed on Venezuelan stock exchanges,VEN GAAP are determined by the Venezuelan Securities and Exchange Commission(CNV).  On specific

 

F-45

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matters where neither ofthese organizations has issued pronouncements, International AccountingStandards are the first alternative for all accounting and disclosure matters.

 

In cases where VEN GAAPor International Accounting Standards do not apply, Mexican principles or U.S.GAAP are resorted to, in that order.

 

The accompanyingconsolidated financial statements were derived from the Company’s accountingrecords, which are prepared in accordance with Venezuelan GAAP, which differ incertain material respects from U.S. GAAP. The consolidated financial statements are adjusted for the effects ofinflation as required by VEN GAAP, which include provisions for comprehensivemeasurement of the effects of price level changes on the Venezuelan economy.Inflation-adjusted reporting is considered to constitute a more meaningfulpresentation than historic cost-based financial reporting for both VEN GAAP andreconciliation to U.S. GAAP. Accordingly, the following reconciliations to U.S. GAAP do not includereversals of such accounting for inflation as allowed by Item 18 of Form 20-F.

 

The main differencesbetween VEN GAAP and U.S. GAAP are summarized below.  Adjustments included in the reconciliation to U.S. GAAP arepresented below, net of purchasing power gain (loss) on the related monetaryreconciling items:

 

Net loss

 

Below is thereconciliation of consolidated net loss for the eight-month period endedNovember 30 and the years ended March 31:

 
|                                                         |   | **Sub  note** |   | **Eight-month  period ended  November 30,**                                                  |   | **Years  ended  March 31,** |   |
|--------------------------------------------------------------|--------|---------------|--------|----------------------------------------------------------------------------------------------|--------|-----------------------------|--------|
|                                                         |   |          |   | **2002**                                                                                     |   | **2002**                    |   | **2001** |   | **2000** |   |
|                                                         |   |          |   | **(In  millions of constant bolivars at  November 30, 2002,  except for per share amounts)** |   |
| Net  loss from ongoing operations under Venezuelan GAAP      |   |          |   | (4,991                                                                                       | )      | (6,280                      | )      | (10,178 | ) | (5,965 | ) |
| Amortization  of Pinco Pittsburgh goodwill                   |   | c             | )      | 538                                                                                          |   | (343                        | )      | (343 | ) | (343 | ) |
| Deferred  income tax (expense) benefit                       |   | e             | )      | (463                                                                                         | )      | (14,442                     | )      | 9,384 |   | (6,936 | ) |
| Gain  on early extinguishment of debt                        |   | d             | )      | —                                                                                       |   | (4,052                      | )      | — |   | — |   |
| Net  loss from ongoing operations under U.S. GAAP            |   |          |   | (4,916                                                                                       | )      | (25,117                     | )      | (1,137 | ) | (13,244 | ) |
| Net  loss from discontinued operations under Venezuelan GAAP |   |          |   | —                                                                                       |   | —                      |   | (9,221 | ) | (13,769 | ) |
| Deferred  acquisition cost                                   |   | b             | )      | —                                                                                       |   | —                      |   | — |   | 3,943 |   |
| Deferred  income tax (expense) benefit                       |   | e             | )      | —                                                                                       |   | —                      |   | (2,248 | ) | (1,813 | ) |
| Net  loss from discontinued operations under U.S. GAAP       |   |          |   | —                                                                                       |   | —                      |   | (11,469 | ) | (11,639 | ) |
| Extraordinary  item:                                         |   |          |   |                                                                                         |   |                        |   |   |   |   |   |
| Gain  on early extinguishment of debt                        |   | d             | )      | —                                                                                       |   | 4,052                       |   | — |   | — |   |
| Income  from extraordinary item                              |   |          |   | —                                                                                       |   | 4,052                       |   | — |   | — |   |
| Net  loss under U.S. GAAP                                    |   |          |   | (4,916                                                                                       | )      | (21,065                     | )      | (12,606 | ) | (24,883 | ) |

 

F-46

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The Company followsAccounting Principles Board Opinion No. 25 (APB 25) to account for its stockoptions under U.S. GAAP.

 

Shareholders’ equity

 

Reconciliation ofconsolidated shareholders’ equity at November 30 and March 31, comprises thefollowing:

 
|                                      |   | **Sub  note** |   | **November  30,**                                             |   | **March 31,** |   |
|-------------------------------------------|--------|---------------|--------|---------------------------------------------------------------|--------|---------------|--------|
|                                      |   |          |   | **2002**                                                      |   | **2002**      |   | **2001** |   | **2000** |   |
|                                      |   |          |   | **(In  millions of constant bolivars at  November 30, 2002)** |   |
|                                      |   |          |   |                                                          |   |          |   |   |   |   |   |
| Net  equity under Venezuelan GAAP         |   |          |   | 89,315                                                        |   | 82,048        |   | 88,392 |   | 116,870 |   |
| Accounting  for investments in affiliates |   |          |   | (6,259                                                        | )      | (6,259        | )      | (6,259 | ) | (6,259 | ) |
| Goodwill  related to Pinco acquisition    |   | c             | )      | 1,900                                                         |   | 1,362         |   | 1,705 |   | 2,049 |   |
| Deferred  income tax                      |   | e             | )      | (23,063                                                       | )      | (22,600       | )      | (8,158 | ) | (15,295 | ) |
|                                      |   |          |   |                                                          |   |          |   |   |   |   |   |
| Net  equity under U.S. GAAP               |   |          |   | 61,893                                                        |   | 54,551        |   | 75,680 |   | 97,365 |   |

 

Below is an analysis ofthe changes in shareholders’ equity under U.S. GAAP:

 
|                                  |   | **Eight-month  period ended  November 30,**                   |   | **Years  ended  March 31,** |   |
|---------------------------------------|--------|---------------------------------------------------------------|--------|-----------------------------|--------|
|                                  |   | **2002**                                                      |   | **2002**                    |   | **2001** |   | **2000** |   |
|                                  |   | **(In  millions of constant bolivars at  November 30, 2002)** |   |
|                                  |   |                                                          |   |                        |   |   |   |   |   |
| Balance  at the beginning of the year |   | 54,551                                                        |   | 75,680                      |   | 97,365 |   | 137,180 |   |
| Debt  capitalization                  |   | —                                                        |   | 25                          |   | — |   | — |   |
| Preferred  dividends                  |   | (296                                                          | )      | (598                        | )      | (611 | ) | (811 | ) |
| Net  loss                             |   | (4,916                                                        | )      | (21,065                     | )      | (12,606 | ) | (24,883 | ) |
| Other  comprehensive income           |   | 12,554                                                        |   | 509                         |   | (8,468 | ) | (14,121 | ) |
| Balance  at the end of the year       |   | 61,893                                                        |   | 54,551                      |   | 75,680 |   | 97,365 |   |

 

F-47

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The statement ofcomprehensive income prepared under U.S. GAAP for the eight-month period endedNovember 30, and the years ended March 31 is as follows:

 
|                                                       |   | **Eight-month  period ended  November 30,**                   |   | **Years  ended  March 31,** |   |
|------------------------------------------------------------|--------|---------------------------------------------------------------|--------|-----------------------------|--------|
|                                                       |   | **2002**                                                      |   | **2002**                    |   | **2001** |   | **2000** |   |
|                                                       |   | **(In  millions of constant bolivars at  November 30, 2002)** |   |
|                                                       |   |                                                          |   |                        |   |   |   |   |   |
| Net  loss                                                  |   | (4,916                                                        | )      | (21,065                     | )      | (12,606 | ) | (24,883 | ) |
| Other  comprehensive loss, none of which have tax effects: |   |                                                          |   |                        |   |   |   |   |   |
| Translation  adjustment                                    |   | 912                                                           |   | 340                         |   | (98 | ) | (29 | ) |
| Effect  from holding nonmonetary assets                    |   | 11,642                                                        |   | 169                         |   | (8,370 | ) | (14,092 | ) |
| Other  comprehensive income (loss)                         |   | 12,554                                                        |   | 509                         |   | (8,468 | ) | (14,121 | ) |
| Total  comprehensive income (loss)                         |   | 7,638                                                         |   | (20,556                     | )      | (21,074 | ) | (39,004 | ) |

 

The accumulated othercomprehensive income (loss) comprises the following:

 
|                           |   | **Translation  adjustment**                                   |   | **Effect of  holding  nonmonetary  assets** |   | **Accumulated  other  comprehensive  loss** |   |
|--------------------------------|--------|---------------------------------------------------------------|--------|---------------------------------------------|--------|---------------------------------------------|--------|
|                           |   | **(In  millions of constant  bolivars at November 30, 2002)** |   |
|                           |   |                                                          |   |                                        |   |                                        |   |
| Balance  at March 31, 1999     |   | 5,213                                                         |   | (127,062                                    | )      | (121,849                                    | )      |
| 2000  change                   |   | (29                                                           | )      | (14,092                                     | )      | (14,121                                     | )      |
| Balance  at March 31, 2000     |   | 5,184                                                         |   | (141,154                                    | )      | (135,970                                    | )      |
| Offsetting  of equity accounts |   | —                                                        |   | 104,672                                     |   | 104,672                                     |   |
| 2001  change                   |   | (98                                                           | )      | (8,370                                      | )      | (8,468                                      | )      |
| Balance  at March 31, 2001     |   | 5,086                                                         |   | (44,852                                     | )      | (39,766                                     | )      |
| 2002  change                   |   | 340                                                           |   | 169                                         |   | 509                                         |   |
| Balance  at March 31, 2002     |   | 5,426                                                         |   | (44,683                                     | )      | (39,257                                     | )      |
| 2002  change                   |   | 912                                                           |   | 11,642                                      |   | 12,554                                      |   |
| Balance  at November 30, 2002  |   | 6,338                                                         |   | (33,041                                     | )      | (26,703                                     | )      |

 

Sub-notes toshareholders’ equity

 

a) Accounting forinvestments in affiliates -

 

Cindú de Venezuela, S.A.

 

As indicated in Note 7,in March 1994 the Company sold its interest in Cindú de Venezuela, S.A. andreported this sale as a discontinued operation under Venezuelan GAAP.  As the terms of the agreement includedelements of financial support by the buyer of Cindú, administrative accountinginterpretations in the U.S. would have required deferral of the discontinued

 

F-48

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operations to a lateraccounting period.  In 1999, 2000 and2001, there was no material difference between the amount recognized underVenezuelan GAAP and that calculated under U.S. GAAP.

 

b) Deferred acquisitioncost -

Under Venezuelan GAAP,acquisition related expenses are deferred and amortized, while under U.S. GAAPthey are expensed as incurred.

 

c) Goodwill -

During the year endedMarch 31, 1995, Corimon acquired Pinturas Pinco.  The amount of goodwill is Bs 3,836 million, in constant bolivarsat November 30, 2002 would have been recorded under U.S. GAAP arising as aresult of recording the provision for deferred income taxes under U.S.GAAP.  This goodwill was initially beingamortized over a 20-year term but was modified to 10 years in 1997 until March31, 2002.  The Company adopted FAS No.142 effective on April 1, 2002, and as a result, goodwill under U.S. GAAP is nolonger amortized; annual impairment evaluation is made.

 

The effect on U.S. GAAPnet loss from ongoing operations and net loss of applying SFAS 142 to previousperiods would have been as follows:

 
|                                                       |   | **Years ended March 31,** |   |
|------------------------------------------------------------|--------|---------------------------|--------|
|                                                       |   | **2002**                  |   | **2001** |   | **2000** |   |
|                                                       |   |                      |   |   |   |   |   |
| Net loss from ongoing operations under U.S. GAAP           |   | (25,117                   | )      | (1,137 | ) | (13,244 | ) |
| Add goodwill amortization                                  |   | 881                       |   | 881 |   | 881 |   |
| Pro forma net loss from ongoing operation under U.S.  GAAP |   | (24,236                   | )      | (256 | ) | (12,363 | ) |
|                                                       |   |                      |   |   |   |   |   |
| Net loss under U.S. GAAP                                   |   | (21,065                   | )      | (12,606 | ) | (24,883 | ) |
| Add goodwill amortization                                  |   | 881                       |   | 881 |   | 881 |   |
| Pro forma net loss under U.S. GAAP                         |   | (20,184                   | )      | (11,725 | ) | (24,002 | ) |

 

d) Extinguishment of debt-

As described more full inNote 8, in October 2001 the Company entered into an agreement to restructurethe payment terms of debt “A” above to accelerate the payment of principal andinterest.  As a result, the balance owedunder the debt was reduced.  Thisreduction has been accounted for under U.S. GAAP as an early extinguishment ofdebt and, accordingly, the Company recognized an extraordinary gain ofapproximately Bs 4,052 million in connection with this transaction.

 

e) Accounting for taxation-

Venezuelan GAAP isconsistent with the accounting principles set forth in U.S. AccountingPrinciples Board Opinion No. 11 (APB 11) “Accounting for Income Tax.”  Venezuelan GAAP requires deferred taxes tobe provided for at the tax rate in effect at the date of the provision.  Additionally, provisions for deferredtaxation are not adjusted to take into account subsequent changes in thestatutory tax rates.

 

F-49

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The Company follows theprovisions of SFAS No. 109 (SFAS 109) for U.S. GAAP reconciliation purposes.This statement requires an asset and liability approach for financialaccounting and reporting for income tax under the following basicprinciples:  a) a current tax liabilityor asset is recognized for the estimated taxes payable or refundable on taxreturns for the current year; b) a deferred tax liability or asset isrecognized for the estimated future tax effects of temporary differences andtax loss and tax credit carryforwards; c) the measurement of current anddeferred tax liabilities and assets is based on the prevailing tax law and theeffects of future changes in tax laws or rates are not anticipated and, d) themeasurement of deferred tax assets is reduced, if necessary, by the amount of anytax benefits for which available evidence indicates that it is likely that theywill not be realized.  Under thismethod, deferred income tax is recognized with respect to all temporarydifferences, and the benefit related to tax loss carryforwards and tax creditsis recognized in the year in which the losses or credits arise (subject to avaluation provision with respect to any tax benefits that are not likely to berealized).  The subsequent realizationof this benefit with which a deferred tax asset was previously associated doesnot affect income.  Under SFAS 109,utilization of tax loss carryforwards or other tax credits arising in prioryears is not recorded as an extraordinary item as under Venezuelan GAAP.

 

The temporary differencesunder SFAS 109 are determined based on the difference between the indexed taxbase of assets and liabilities, and the related amounts reported in thefinancial statements.  The remeasurementof deferred tax assets and liabilities at the end of the year is reported togetherwith that of all other assets and liabilities as a restatement of the initialequity.

 

Deferred income taxarising out of differences between the indexed tax base of the assets and therelated replacement cost reported in the financial statements is recorded underthe Deferred income tax provision for the year of the financial statements.

 

The income tax effects ofsignificant items comprising the Company’s net deferred income tax assets andliabilities at November 30 and March 31 under U.S. GAAP are as follows:

 
|                                          |   | **Eight-month  period ended  November 30,**                   |   | **Years  ended  March 31,** |   |
|-----------------------------------------------|--------|---------------------------------------------------------------|--------|-----------------------------|--------|
|                                          |   | **2002**                                                      |   | **2002**                    |   | **2001** |   | **2000** |   |
|                                          |   | **(In  millions of constant bolivars  at November 30, 2002)** |   |
|                                          |   |                                                          |   |                        |   |   |   |   |   |
| Deferred  income tax liabilities:             |   |                                                          |   |                        |   |   |   |   |   |
| Fixed  assets                                 |   | 27,444                                                        |   | 26,187                      |   | 23,323 |   | 28,155 |   |
|                                          |   |                                                          |   |                        |   |   |   |   |   |
| Deferred  income tax assets:                  |   |                                                          |   |                        |   |   |   |   |   |
| Inventories                                   |   | 3,616                                                         |   | 2,775                       |   | 2,369 |   | 7,859 |   |
| Other                                         |   | 765                                                           |   | 812                         |   | 712 |   | 1,068 |   |
| Tax  loss carryforwards                       |   | 3,990                                                         |   | 16,612                      |   | 28,059 |   | 19,825 |   |
| Valuation  allowance                          |   | (3,990                                                        | )      | (16,612                     | )      | (15,975 | ) | (15,892 | ) |
|                                          |   | 4,381                                                         |   | 3,587                       |   | 15,165 |   | 12,860 |   |
| Net  deferred tax liabilities under U.S. GAAP |   | 23,063                                                        |   | 22,600                      |   | 8,158 |   | 15,295 |   |

 

F-50

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f) Basic and diluted lossper share -

 
|                                                      |                                   | **Eight-month  period ended  November 30,**                                                  |   | **Years  ended  March 31,** |    |
|-----------------------------------------------------------|----------------------------------------|----------------------------------------------------------------------------------------------|--------|-----------------------------|---------|
|                                                      |                                   | **2002**                                                                                     |   | **2002**                    |    | **2001** |   | **2000** |   |
|                                                      |                                   | **(In  millions of constant bolivars  at November 30, 2002, except for  per share amounts)** |   |
|                                                      |                                   |                                                                                         |   |                        |    |   |   |   |   |
| Net  loss                                                 |                                   | (4,916                                                                                       | )      | (21,065                     | )       | (12,606 | ) | (24,883 | ) |
| Less:                                                     | Preferred  dividend                    |                                                                                         | (296   | )                           | (598    | ) | (611 | ) | (811 | ) |
|                                                      | Loss  allocated to common shareholders |                                                                                         | (5,212 | )                           | (21,663 | ) | (13,217 | ) | (25,694 | ) |
|                                                      |                                   |                                                                                         |   |                        |    |   |   |   |   |
| Basic  and diluted loss per share (in constant bolivars): |                                   |                                                                                         |   |                        |    |   |   |   |   |
| Ongoing  operations                                       |                                   | (6.92                                                                                        | )      | (33.33                      | )       | (1.51 | ) | (17.82 | ) |
| Discontinued  operations                                  |                                   | —                                                                                       |   | —                      |    | (15.22 | ) | (15.45 | ) |
| Extraordinary  item                                       |                                   | —                                                                                       |   | 5.38                        |    | — |   | — |   |
|                                                      |                                   |                                                                                         |   |                        |    |   |   |   |   |
| Net  loss                                                 |                                   | (6.92                                                                                        | )      | (27.95                      | )       | 16.73 |   | (33.27 | ) |
| Weighted  average number of outstanding shares            |                                   | 753.49                                                                                       |   | 753.49                      |    | 753.49 |   | 753.49 |   |

 

Basic and fully dilutedincome (loss) per share are the same for all years as there are no contingentlyissued shares that are dilutive.

 

g) Recently issuedaccounting standards -

In June 2001 the FASB issued SFAS No. 141 (SFAS14) “BusinessCombinations” and SFAS No. 142 (SFAS 142) “Goodwill and Other Intangible Assets.”  SFAS 141 supersedes Accounting PrinciplesBoard Opinion No. 16 (APB 16) “Business Combinations.”  The most significant changes made by SFAS141 are (1) requiring that the purchase method of accounting be used for allbusiness combinations initiated after June 30, 2001; (2) establishing specificcriteria for the recognition of intangible assets separately from goodwill and;(3) requiring unallocated negative goodwill to be written off immediatelyas an extraordinary gain instead of being deferred and amortized.  The adoption of SFAS 141 did not haveany effect on the result of operations or financial position of the Company.

 

SFAS 142 supersedes APBNo. 17 (APB 17) “Intangible Assets.” SFAS 142 primarily addresses accounting for goodwill and intangibleassets subsequent to their acquisition and its provisions are effective forfiscal years beginning after December 15, 2001.  The most significant changes made by SFAS 142 are that:  (1) goodwill and indefinite-lived intangibleassets will no longer be amortized; (2) goodwill will be tested for impairmentat least annually at the reporting unit level; (3) intangible assets deemed tohave an indefinite life will be tested for impairment at least annually and;(4) the amortization period of intangible assets with finite lives will nolonger be limited to 40 years.  Theadoption of SFAS 142 did not have a significant effect on the financialstatements other than the fact that goodwill is no longer amortized.

 

The FASB also recently issuedSFAS No. 143 (SFAS 143) “Accounting for Obligations Associated with theRetirement of Long-Lived Assets.”  Theobjectives of SFAS 143 are to

 

F-51

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establish accountingstandards for the recognition and measurement of a tangible long-lived assetretirement obligation and its associated asset retirement cost.  SFAS 143 is effective for fiscal yearsbeginning after June 30, 2002.  TheCompany is evaluating the possible effect, if any, of future adoption of thisStatement.

 

In August 2001 the FASBissued SFAS No. 144 (SFAS 144) “Accounting for the Impairment of Disposal orLong-Lived Assets.”  It supersedes SFASNo. 121 (SFAS 121) “Accounting for the Impairment of Long-Lived Assets and forLong-Lived Assets to Be Disposed of,” but retains the fundamental provisions ofthat statement.  SFAS 144 is effectivefor financial statements issued for fiscal years beginning after December 15,2001.  The adoption of SFAS 144 didnot have any effect on the result of operations or financial position of theCompany.

 

In April 2002 The FASBissued SFAS No. 145 (SFAS 145) “Rescission of FASB Statements No. 4, 44 and 64,Amendment of FASB Statements No. 13 and Technical Corrections.”  The most significant provision of this Statementis the rescission of FASB Statement No. 4 (FASB 4)”Reporting Gains and Lossesfrom Extinguishment of Debt,” which required that gains and losses fromextinguishment of debt be aggregated and, if material, classified as anextraordinary item, net of related income tax effect.  The provisions of this Statement related to the rescission ofStatement No. 4 shall be applied in fiscal years beginning after May 15, 2002.Any gain or loss on extinguishment of debt that was classified as anextraordinary item in prior periods presented that does not meet the criteriain APB Opinion No. 30 for classification as an extraordinary item shall bereclassified.  The Company considersthat the adoption of this Statement will not have a significant effect on theresults of its operations or its financial position.

 

In June 2002 the FASBissued SFAS No. 146 (SFAS 146) “Accounting for Costs Associated with Exit orDisposal Activities.”  SFAS 146addresses significant issues relating to the recognition, measurement, and reportingof costs associated with exit and disposal activities, including restructuringactivities, and nullifies the guidance in Emerging Issues Task Force Issue No.94-3 (EITF 94-3)  “Liability Recognitionfor Certain Employee Termination Benefits and Other Costs to Exit an Activity(including Certain Costs Incurred in a Restructuring).”  The provisions of this Statement areeffective for exit or disposal activities that are initiated after December 31,2002.  The Company considers that theadoption of this Statement will not have a significant effect on the result ofits operations or financial position.

 

In December 2002 the FASBissued SFAS No. 148 (SFAS 148) “Accounting for Stock-Based Compensation -Transition and Disclosure,” which amended SFAS No. 123 (SFAS 123) “Accountingfor Stock-Based Compensation.” SFAS 148 is effective for years ending after December 15, 2002 andprovides three methods for transition to the fair value method of accountingfor stock options for those companies that elect to use the fair value methodunder SFAS 123.  The Companyconsiders that the adoption of this Statement will not have an impact on theresults of its operations or financial position.

 

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SFAS 149 Amendmentsto SFAS No. 133 (SFAS 133) on “Derivative Instruments and Hedging Activities”was issued in April 2003 and is applicable for contracts entered into ormodified after June 30, 2003.  Therequirements of SFAS 133, as amended by SFAS 149 requires allderivative instruments to be recognized as either assets or liabilities on thebalance sheet, measured at fair values. The statement permits special hedge accounting for fair value, cash flowand foreign currency hedges providing specific criteria are met.  Certain aspects of the required hedgecriteria do not allow portfolio hedging. The Company considers that the adoption of this Statement will not havean impact on the results of its operations or financial position.

 

In May 2003 the FASBissued Statement of Financial Accounting Standard No. 150 (SFAS 150)“Accounting for Certain Financial Instruments with Characteristics of bothLiabilities and Equity.”  SFAS 150improves the accounting for certain financial instruments that, under previousguidance, issuers could account for as equity. SFAS 150 requires that those instruments be classified asliabilities in the statements of financial position.  SFAS 150 is applicable for all financial instruments enteredinto or modified after May 31, 2003 and is otherwise applicable for our fiscalyear ending November 30, 2004.  TheCompany is in the process of evaluating the effect, if any, that the adoptionof this Statement may have on the financial statements.

 

In November 2002 theFinancial Standards Board (FASB) issued FASB Interpretation No. 45 (FIN 45)“Guarantor’s Accounting and Disclosure Requirements for Guarantees, IncludingIndirect Guarantees of Indebtedness of Others,” which requires a company torecord as a liability the fair value of certain guarantees initiated by thecompany.  The offsetting entry isdependent on the nature of the guarantee, with an asset generally beingrecorded, such as the consideration received for providing a letter of creditor prepaid rent for a residual value guarantee in an operating lease.  The liability recorded will typically bereduced by a credit to the results of operations as the guarantee lapses, whichgenerally will occur on a systematic basis over the term of the guarantee or atsettlement of the guarantee.  Theinitial measurement and recognition provisions of FIN 45 are effective forapplicable guarantees written or modified after December 31, 2002 with thedisclosure requirements applicable to us for the year ended November 30,2003.  The Company is evaluating theeffect, if any, that the adoption of this Statement may have on the financialstatements.

 

In January 2003 the FASBissued FIN 46 Consolidation of Variable Interest Entities, which is applicableimmediately to all variable interest entities (VIEs) created after January 31,2003 and to VIEs in which an enterprise obtains an interest after thatdate.  For VIEs created prior toFebruary 1, 2003 it applies to the Company for the reporting period beginningDecember 1, 2003.  FIN 45 clarifiesthe application of Accounting Research Bulletin No. 51 “Consolidated FinancialStatements,” to certain entities in which equity investors do not have thecharacteristics of a controlling financial interest or do not have sufficientequity at risk for the entity to finance its activities without additionalsubordinated financial support from other parties.  These types of entities are referred to as VIEs.  The Company is in the process of evaluatingthe effect, if any, that the adoption of this Statement may have on thefinancial statements.

 

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