FYTEK, S.A. DE C.V.
                            (a Mexican corporation)


                              FINANCIAL STATEMENTS

                           DECEMBER 31, 1998 AND 1997

                                    CONTENTS
                                    --------

                                                   Page

Report of independent auditors                      1

Financial statements:
Balance sheet                                       2
Statement of income                                 3
Statement of changes in stockholders' equity        4
Statement of changes in financial position          5


Notes to financial statements                      6-10

<PAGE>

REPORT OF INDEPENDENT AUDITORS
------------------------------
Monterrey, N.L., January 25, 1999

To the Stockholders of
Fytek, S.A. de C.V.

We have  audited the balance  sheets of Fytek,  S.A. de C.V. as of December  31,
1998  and  1997,   and  the  related   statements  of  income,   of  changes  in
stockholders's  equity and of changes in  financial  position for the years then
ended.  These  financial  statements  are the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements  based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in Mexico.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement  and that they were prepared in accordance with generally  accepted
accounting  principles.  An audit includes examining,  on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

In our opinion,  the aforementioned  financial statements present fairly, in all
material respects, the financial position of Fytek, S.A. de C.V. at December 31,
1998  and  1997,  and  the  results  of  its  operations,  the  changes  in  its
stockholder's  equity and the changes in its  financial  position  for the years
then ended,  in conformity  with  accounting  principles  generally  accepted in
Mexico.

PricewaterhouseCoopers

<PAGE>

                              FYTEK, S.A. DE C.V.
                            (a Mexican corporation)

                                 BALANCE SHEET
             AT DECEMBER 31, 1998 WITH COMPARATIVE FIGURES FOR 1997

                Thousands of Mexican Pesos of December 31, 1998
                               Purchasing Power

                                        1998        1997
                                        ----        ----
Assets
------

CURRENT ASSETS:
Cash and temporary investments       Ps 2,758     Ps 4,249
Trade accounts receivable, less
   allowance for doubtful accounts
   of Ps244 in 1998 and
   Ps39 in 1997                        16,700        9,496
Other accounts receivable               2,171          299
Inventories (Note 3)                   10,122        3,566
                                       ------        -----

Total current assets                   31,751       17,610

CONSTRUCTIONS IN PROCESS                  543            0
                                       ------       ------

Total assets                         Ps32,294     Ps17,610
                                       ======       ======

Liabilities and Stockholders' Equity
------------------------------------

CURRENT LIABILITIES:
Suppliers                            Ps12,277     Ps   331
Affiliated companies (Note 6)          11,159       13,312
Accounts payable and accrued expenses     854          313
                                       ------       ------

Total liabilities                      24,290       13,956
                                       ------       ------

STOCKHOLDERS' EQUITY (Note 4):
Capital stock                           3,086        3,086
Retained earnings                       5,259          454
(Deficit) surplus on restatement
   of capital                            (341)         114
                                         ----          ---

Total stockholders' equity              8,004        3,654
                                        -----        -----

Total liabilities and
   stockholders' equity              Ps32,294     Ps17,610

                                       ======       ======

The accompanying seven notes are an integral part of these financial statements.

<PAGE>

                              FYTEK, S.A. DE C.V.

                              STATEMENT OF INCOME
              FOR THE YEAR 1998 WITH COMPARATIVE FIGURES FOR 1997

                Thousands of Mexican Pesos of December 31, 1998
                               Purchasing Power

                                         1998        1997
                                         ----        ----

Net sales                             Ps70,467     Ps10,120

Cost of sales                          (59,658)      (8,857)
                                       -------        ------
Gross margin                            10,809        1,263
                                        ------        ------

Operating expenses:
Selling                                 (1,805)         (98)
Administrative                          (2,335)        (541)
                                        ------         ------
                                        (4,140)        (639)
                                        ------         ------
Operating income                         6,669          624
                                        ------         ------

Comprehensive financing income (expense):
Financial income, net                    1,343          247
Exchange gain, net                       1,007           18
Gain (loss) on monetary position            60         (145)
                                         ------        ------
                                         2,410          120
                                         ------        ------
                                         9,079          744
Other income, net                           45
                                         ------        ------

Income before the following provision    9,124          744

Provision for income tax (Note 5)       (4,319)        (258)
                                         ------        ------

Net income for the year               Ps 4,805      Ps  486
                                       ========      ========


The accompanying seven notes are an integral part of these financial statements.

<PAGE>

                              FYTEK, S.A. DE C.V.

                  STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
              FOR THE YEAR 1998 WITH COMPARATIVE FIGURES FOR 1997

                Thousands of Mexican Pesos of December 31, 1998
                               Purchasing Power

                                                   Surplus
                                   (Deficit)     (deficit)on
                         Capital    retained     restatement
                          stock     earnings      of capital     Total
                          -----     --------      ----------     -----

Balances at
   December 31, 1996    Ps  88     (Ps  32)                     Ps  56


Changes in 1997:
Increase in capital
   stock                 2,998                                    2,998
Net income for
   the year                            486                         486
Gain from holding non-
   monetary assets                                Ps  114          114
                         -----        -----         -----         -----
                         3,086         454            114         3,654

Balances at December 31, 1997

Changes in 1998:
Net income for the year              4,805                        4,805
Loss from holding non-
   monetary assets                                  (455)         (455)
                         -----       -----          -----         -----

Balances at
   December 31, 1998   Ps3,086     Ps5,259       (Ps 341)       Ps8,004
   (Note 4)            =======     =======        =======       =======



The accompanying seven notes are an integral part of these financial statements.

<PAGE>

                              FYTEK, S.A. DE C.V.

                   STATEMENT OF CHANGES IN FINANCIAL POSITION
              FOR THE YEAR 1998 WITH COMPARATIVE FIGURES FOR 1997

                Thousands of Mexican Pesos of December 31, 1998
                               Purchasing Power

                                         1998         1997
                                         ----         ----

Operations
----------
Net income for the year                Ps4,805      Ps   486

Changes in working capital
   other than financing:
Trade accounts receivable               (7,204)       (9,496)
Inventories                             (7,011)       (3,453)
Suppliers                               11,946           331
Affiliated companies                    (2,153)       13,312
Other, net                              (1,331)           20
                                        ------         ------

Resources (used in)
   provided by operations                 (948)        1,200

Financing:
----------
Increase in capital stock                              2,998

Investment
----------
Construction in process                  (543)             0
                                        ------         ------

(Decrease) increase in cash and
   temporary investments               (1,491)         4,198

Cash and temporary investments
   at beginning of year                 4,249             51
                                        ------         ------

Cash and temporary investments at
   end of year                        Ps2,758        Ps4,249
                                        =====          =====


The accompanying seven notes are an integral part of these financial statements.

<PAGE>

                              FYTEK, S.A. DE C.V.

                         NOTES TO FINANCIAL STATEMENTS
                    DECEMBER 31, 1998 COMPARATIVE WITH 1997

                Thousands of Mexican Pesos of December 31, 1998
                               Purchasing Power
                       (except where otherwise indicated)


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------

The  Company,  a  subsidiary  of  Novacorp,  S.A.  de  C.V.  is  engaged  in the
manufacture of chemical fibers;  to carry out it activities,  the Company leases
machinery and equipment to an affiliated company.

The  accompanying  financial  statements  have been prepared in accordance  with
accounting  principles  generally  accepted in Mexico,  including  the  standard
requiring comprehensive recognition of the effects of inflation on the financial
information.  Consequently,  all financial statements,  including those of prior
periods  presented for  comparative  purposes,  are stated in constant  pesos of
December 31, 1998 purchasing power.

The most  important  indexes  (National  Consumer  Price  Index - NCPI)  used to
reflect the  effects of general  inflation  on the  financial  statements  were:
275.038,  231.886 and 200.388 at December 31, 1998, 1997, and 1996, respectively
(1994 = 100).

Following is a summary of the most significant accounting policies:

a. Transactions in foreign currency and exchange differences (Note 2)
---------------------------------------------------------------------

Monetary  assets and  liabilities  in foreign  currencies,  mainly U.S.  dollars
(US$),  are stated in Mexican currency at the rates of exchange in effect at the
balance-sheet date. Exchange differences arising from changes in exchange  rates
between the  transaction  and  settlement  dates or the  balance-sheet  date are
charged or credited to comprehensive financing income (expense).

b. Temporary investments
------------------------

These investments are stated at market value.

<PAGE>


c. Inventories and cost of sales (Note 3)
-----------------------------------------

Inventories are stated at estimated  replacement  cost,  basically at the latest
purchase  prices and  production  costs  for the  year.  The  amounts  shown for
inventories do not exceed market value.

The  cost of sales  is  determined  based  on the  estimated  replacement  costs
prevailing on the dates when the sales were effected.

d. Comprehensive financing income (expense)
-------------------------------------------

This item is  determined  by grouping  together in the  statement  of income the
financial income and expense, exchange gains and losses, and the gain or loss on
monetary position.

The gain or loss on monetary  position  represents  the effect of inflation,  as
measured  by  the  NCPI,  on  the  Company's  monthly  net  monetary  assets  or
liabilities during the year.

e. Income tax (Note 5)
----------------------

Income tax is recorded using interperiod allocation procedures under the partial
liability  method.  Under this  method the effect on income tax of  nonrecurring
timing differences  between taxable income and financial pretax income which are
expected  to reverse in an  identifiable  time  period is  recorded  as deferred
income tax.


NOTE 2- FOREIGN CURRENCY POSITION
---------------------------------

At December  31, 1998 and 1997,  the  exchange  rates were 9.88 and 8.05 nominal
pesos to the U.S. dollar, respectively. At January 25, 1999, date of issuance of
the audited financial  statements,  the exchange rate was 10.24 nominal pesos to
the dollar.

Amounts  shown below in this note are  expressed in  thousands  of U.S.  dollars
(US$),  since  this is the  currency  in  which  most of the  Company's  foreign
currency transactions are carried out.

At December  31, the  company  had the  following  foreign  currency  assets and
liabilities:

                                          1998        1997
                                          ----        ----

Monetary assets                           US$738    US$324
Monetary liabilities                         (78)        0
                                          ------    ------

Foreign currency monetary position        US$660    US$324
                                          ======    ======

Nonmonetary assets                        US$ 45
                                          ======
<PAGE>


During 1998 and 1997 the  transactions for goods export in foreign currency were
US$2,443 and US$227, respectively.


NOTE 3 - INVENTORIES
--------------------

At December 31, this caption comprised the following:

                                         1998         1997
                                         ----         ----

Finished goods                       Ps  7,435      Ps 1,927
Work in process                          2,058         1,639
Materials and supplies                     629
                                        ------        ------

Estimated replacement cost           Ps10,122       Ps 3,566
                                     ========       ========



NOTE 4 - STOCKHOLDERS' EQUITY
-----------------------------

At  December  31,  1998 the  restated  figures of  stockholders'  equity were as
follows:

                               Nominal                        Restated
                               amount      Restatement         amount
                               ------      -----------         ------

Capital stock                 Ps2,445       Ps641             Ps3,086
Retained earnings               5,191          68               5,259
Deficit on restatement
   of capital                       0        (341)               (341)
                               ------       ------             ------

                              Ps7,636       Ps368             Ps8,004
                              =======       =====             =======


The capital  stock is  variable  with a fixed  minimum of Ps50 and an  unlimited
maximum.  At December 31, 1998,  the  subscribed  and paid-in  capital  stock of
Ps2,445,  was represented by 24,450 Series A common,  nominative,  shares of one
hundred nominal pesos par value each.

Dividends paid from previously  taxed earnings are not subject to any additional
tax (at December 31, 1998 these earnings amounted to approximately Ps8,234). For
dividends paid from retained  earnings  which have not previously  been taxed, a
tax equivalent to 53.85% of the dividend will be payable by the Company.  In the
event  dividends are paid to individuals  or to residents  abroad arising or not
from  previously  taxed  earnings  they  will  also  be  subject  to  a  maximum
withholding tax equivalent to 7.69%.

<PAGE>

In the event of capital stock  reductions,  any excess of  stockholders'  equity
over capital  contributions  plus net taxable income and net reinvested  taxable
income,  calculated in accordance with the procedures established by the Mexican
Income Tax law, is accorded the same tax treatment as dividends.

The deficit on restatement of capital comprises principally the accumulated loss
from holding  nonmonetary  assets and represents  the difference  resulting from
restating these assets by the specific cost method and their  restatement  based
on inflation measured in terms of the NCPI.


NOTE 5 - INCOME TAX
-------------------

The net charge to income for taxes was as follows:

                                         1998         1997
                                         ----         ----

Income tax                             (Ps4,319)    (Ps287)

Extraordinary item - Income tax
   reduction from realization of
   tax loss carryforwards from
   prior years                                          29
                                         ------      ------
                                       (Ps4,319)    (Ps258)
                                        =======      =====

Taxable income differs from accounting income due to: (a) permanent  differences
mainly  comprising  items recorded to reflect the effects of inflation,  and (b)
recurring  timing  differences   affecting  accounting  and  taxable  income  in
different  periods,  basically  the  deduction  of inventory  purchases  for tax
purposes and certain  provisions.  In accordance with Mexican generally accepted
accounting  principles  no  deferred  tax effect is  recognized  for such timing
differences.


NOTE 6 - RELATED PARTIES
------------------------

The financial  statements includes the following  significant  transactions with
ALFA companies and other related parties:

                                         1998         1997
                                         ----         ----

Purchase of raw and other materials   (Ps41,583)    (Ps7,533)
Cost of administrative and
   technical services                    (5,400)      (1,103)
Rentals of property, machinery
   and equipment                         (6,762)        (815)

Balances  with  affiliated  companies  included in the balance sheet derive from
these transactions.


NOTE 7 - YEAR 2000
------------------

As many computer  systems use only two digits to represent the year, they may be
unable to  accurately  identify  date  data  between  the  years  1900 and 2000.
Consequently,  remedial  action where necessary must be implemented to avoid any
disruption  in  the  Company's  business  operations  as a  result  of  possible
miscalculations or systems failures.

In order for the  systems to be Year 2000  compliant,  among  other  factors,  a
timely  identification  of critical issues,  together with appropriate  remedial
action  to be taken by the  Company's  management  and its  main  customers  and
suppliers (external agents), is necessary.

The Company has developed various plans intended to mitigate the  aforementioned
problem.   Specialized   personnel  is  working  to  adjust  the  main  computer
applications affecting the Company's business operations,  such as those related
to control of trade accounts  receivable,  production,  distribution,  treasury,
communications,  etc. Additionally,  management has been in contact with related
external  agents,  who may also be  affected as a  consequence  of the Year 2000
problem, in order to discuss the current situation and determine the effects, if
any,  which the  relationship  with these  agents  might  have on the  Company's
operations.

The accumulated cost of dealing with the Year 2000 issue,  incurred by a related
party, has been charged to its income for the year.