12. FINANCIAL PPOSITION AND OPERATING RESULTS

2.12.1 FINANCIAL STATEMENT

  2.12.1.1 Audit for report of consolidation financial statements of
  year 2004

MR. BOONSRI TECHAVARUTAMA

 CERIFIED PUBLIC ACCOUNT (THAILAND), NO. 3336

 BDO RICHFIELD LIMITED

2.  Summary of independent auditor’s report : Unqualified report as
    follows:

a) As discussed in Note 2 to the financial statements, the Company and
its subsidiary companies have experienced persistent operating losses
and have current liabilities substantially in excess of current assets.
Nevertheless, the accompanying financial statements have been prepared
on the going concern basis, assuming that the realization of assets and
settlement of liabilities and obligations will occur in the ordinary
course of business of the Company and its subsidiary companies, without
any expectation of significant disruption to the ongoing activities.

b) As discussed in Note 13 to the financial statements, land awaiting
development of a subsidiary company (Sky Cliff Limited) amounting to
Baht 409 million, is stated at the fair market value appraised by an
independent appraisal company according to his report dated 14th July,
1999. However during the year 2003, a company offered to purchase such
land at the price of Baht 422 million which is over the appraisal value.
Furthermore, towards the end of the year 2004, the Company drafted a
letter of intent to enter a joint venture to develop a serviced
residential building on the said land with a joint investor, whereby the
Company can bring in the said land as its investment, at book value. As
a result of the appraised value by the independent company in 1999
together with the offered price by a company in 2003, and the draft
letter of intent to jointly invest with another investor at the end of
year 2004, the Company and its subsidiary company believe that the
carrying amount of this land does not materially differ from the fair
market value at the balance sheet date.

c) As discussed in Note 24 to the financial statements, due to
persistent losses generated from operating results, the Company and the
subsidiary company (Cholsin Limited) considered whether there had been
impairment of the value of its operating equipment, of which the net
book value as at 31st December, 2004 was approximately Baht 69.9 million
and approximately Baht 49.4 million for the Company only (2003 :
Approximately Baht 77.77 million and Baht 53.5 million for the Company
only). To this end, cash flows from the quarry were projected, using a
discounted rate of 7 percent. These projected cash flows suggested that
the future cash flows would be in excess of the net book value of the
assets as at the balance sheet date. The Company believes that the
future projected cash flows form the quarry would not be significantly
different from the projection and will exceed the net book value of the
assets as at the balance sheet date. However, given the adverse effects
of the uncertainty of the Company’s bidding result to get the order from
a client and andesite selling capability, there may be the impairment in
the stated value of the related assets.

d) As discussed in Note 3 to the financial statements, according to the
SET decision to allow the trading of the Company's securities since 25th
March, 2003, the Company has to submit the progress report on the
Company's operation of each business to the SET every 3 months.

3.  Summary of significant accounting policies

1 Sales

Revenues from sales of tin ore and andesite are recognized when the
goods produced are sold and delivered, after excluding value added tax.

2 Allowance for doubtful accounts

Allowance for doubtful accounts is provided for the estimated collection
losses that may be incurred in collection of receivables. The allowance
is based on collection experience and the current status of receivables
outstanding at the balance sheet date.

3 Inventories

Inventories are valued at the lower of cost (average method) and net
realisable value.

4 Amortisation

Investments in andesite mining (excluded cost of land purchased and cost
of land improvement) and tin mining rights are amortised by equal annual
installments over the period of 25 years.

5 Investments accounted for under equity method

Investments in subsidiaries (only in the financial statements of the
Company) are stated under the equity method. Loss of subsidiaries in
excess of cost of investments in subsidiaries is presented as an
liability under the caption of “Provision for loss from investments
accounted for under equity method”.

6 Other investments

Long-term investments in non-marketable equity securities, which the
Company holds as other investments, are valued at cost. The Company
recognizes loss on impairment of other investments in the earnings
statements when the fair value of the investments is lower than the
cost.

7 Fixed assets and depreciation

Fixed assets are stated at cost less related accumulated depreciation.

Depreciation of fixed assets, less approximate salvage value, is
provided on the straight-line method, over the following estimated
useful lives:

Land improvement - 10 years

Buildings, temporary buildings and dry dock - 5 years and 20 years

Motor vehicles - 5 years

Furniture and office equipment - 10 years

Machinery and equipment - 10 years

Others - 5 years and 10 years

No depreciation is provided for land and work in progress.

8 Land awaiting development

Land awaiting development, which is a fixed asset of a subsidiary
company, was initially recorded at cost. However, the land was
subsequently revalued by an independent appraiser and was therefore
recorded by its reappraised value. Revaluations are to be made with
sufficient regularity to ensure that the carrying amount of assets does
not materially differ from their fair value at the balance sheet date.

The differences arising from revaluation are dealt in the financial
statements as follows :

- When an asset’s carrying amount is increased as a result of the
revaluation, the increase is credited directly to equity under the
heading of “Revaluation surplus”. However, a revaluation increase will
be recognized as income to the extent that it reverses a revaluation
decrease of the same asset previously recognized as an expense.

- When an asset’s carrying amount is decreased as a result of the
revaluation, the decrease is recognized as an expense. However, a
revaluation decrease will be charged directly against the related
“Revaluation surplus” to the extent that the decrease does not exceed
the amount held in the revaluation surplus in respect of that same
asset. Any excess amount is to be recognized as an expense in the
earnings statements.

9 Exploration expenditures and development costs

Exploration expenditures and development costs incurred before the date
of issuance of mining rights are deferred as assets in the balance
sheets to await amortisation once the concession begins to earn
operating income.

10 Interest capitalisation

The interest cost of the borrowings related to mine exploration and
development has been capitalised and has recorded them under exploration
expenditures and development costs, until the mine is ready for its
intended use.

11 Foreign currency

Exchange rates adopted :-

Foreign currency transactions during the period - at the rates ruling on
the

transaction dates.

Assets and liabilities in foreign currency outstanding

on the balance sheet date - at the rates ruling on the

balance sheet date.

Exchange gains and losses are included in determining earnings.

12 Buffer stock contributions

Believing that the buffer stock contributions will not be recoverable,
the Company has adopted a policy of expending buffer stock contributions
to earnings instead of recognizing them as an asset in the balance
sheets.

13 Impairment of assets

The Company will reduce the carrying amount of the Company’s asset to
its recoverable amount if, and only if, the recoverable amount of an
asset is less than its carrying amount. That reduction is an impairment
loss.

14 Basic loss per share

Basic loss per share as presented in the earnings statements is
determined by dividing net loss for the year by the weighted average
number of ordinary shares in issued during the year.

15 Use of accounting estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of revenues, expenses,
assets and liabilities and disclosure of contingent assets and
liabilities. Subsequent actual results may differ from these estimates.

4.  Summary of financial statement

Comparative financial statements and consolidated financial statements
for the past two consecutive years (Audited Account).

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5.  Table of important financial ratios of the fiscal year 2004 and 2003
    (Audited)

  -------------------------------- -------------- ----------- ---------- ----------
                                   Consolidated               The        
                                                              Company    
                                                              only       

                                   2004           2003        2004       2003

  LIQUIDITY RATIO                                                        

  Current Ratio (Times)            1.21           0.17        0.79       0.29

  Quick Ratio (Times)              1.01           0.02        0.13       0.02

  Quick Ratio (Cash Basis) (Times) (0.81)         0.61        (0.66)     (0.14)

  Receivable Turnover (Times)      22.55          15.41       22.55      15.41

  Collection Period (Days)         15.96          23.36       15.96      23.36

  Inventory Turnover (Times)       5.60           3.31        4.86       3.46

  Inventory Turnover (Days)        64.25          108.82      74.02      103.94

  Accounts Payable Turnover (Days) 1.90           1.64        29.26      13.91

  Payment Period (Days)            189.66         219.14      12.30      25.88

  Cash Cycle (Days)                (109.45)       (86.97)     77.68      101.42

  PROFITABLE RATIO                                                        

  Gross Profit Margin (%)          6.60%          (11.31%)    4.02%      (7.94%)

  Net Profit Margin (%)            (95.75%)       (101.68%)   (70.55%)   (88.11%)

  Return on Equity (%)             (6.26%)        (5.57%)     (7.05%)    (6.46%)

  EFFICIENCY RATIO                                                        

  Return on Total Assets (%)       (4.88%)        (4.43%)     (5.47%)    (5.05%)

  Return on Fixed Assets (%)       (21.82%)       (26.30%)    (40.82%)   (47.02%)

  Asset Turnover (Times)           0.05           0.04        0.08       0.06

  FINANCIAL POLICY RATIO                                                  

  Debt to Equity Ratio (Times)     0.23           0.35        0.27       0.31

  Interest Coverage (Times)        (9.85)         (7.28)      (6.74)     (6.60)

  Contingency Coverage (Times)     (6.89)         (5.09)      (4.72)     (4.62)

  Contingency Coverage (Cash       (1.37)         (0.21)      (0.77)     (0.13)
  Basis) (Times)                                                         

  Pay Out Ratio (%)                0.00%          0.00%       0.00%      0.00%
  -------------------------------- -------------- ----------- ---------- ----------

2.12.2 SUMMARY OF FINANCIAL POSITION AND OPERATING RESULTS

REVIEW OF FINANCIAL RESULTS

The Company continued to incur a loss of Baht 57.15 million in 2004. The
Company’s income still derived from two of its three major mining
projects (the tin and andesite mining operations). However, in late
2004, the Company has obtained USD 13 million loan for plant
construction and equipment of its gold mine project in Loei province.
The construction is expected to be completed and commence its commercial
operation in the last quarter of 2005. Thus, from the year 2005 onwards,
the Company shall realize income from all of its mining projects, i.e.
andesite, tin and gold mining.

TIN PERFORMANCE

The Company’s income from tin and tantalum was based on production and
price levels at the international metals market. In 2004, total revenue
received during the year from tin ore sales totaled Baht 39.77 million
as compared to Baht 20.83 million in the year 2003, representing an
increase of 90.93%. Likewise, operational costs charged by the
contractor increased 94.85% from Baht 19.02 million charged in the year
2003 to Baht 37.06 million charged in 2004. Overall, the Company’s net
income from its tin mining operations increased 49.72% from the previous
year due to the increase of tin price. However, the Company’s gross
margin from tin slightly decreased from 8.69% to 6.81% in 2004 due to
the increase of the royalty fee and the tin dressing cost. The Premiums
from its tin byproduct (tantalum), slightly increased from Baht 0.45
million in 2003 to Baht 0.51 million in 2004.

QUARRY PERFORMANCE

Revenue from andesite sales in 2004 increased 19.19% from the preceding
year. Total sales amounted to Baht 17.39 million for the year as
compared to Baht 14.59 million last year. Operational costs decreased
from Baht 20.40 million in 2003 to Baht 16.33 million in 2004, a
decrease of 19.95%. The Company managed to have a positive gross margin
of 6.10% compared to a negative margin last year. The improvement was
due mainly to the increase in aggregate sales as the Company diversified
its aggregate product to a new market, the highway construction sector.
The Company also spent sometime overhauling its crushing plant to
improve production capacity and efficiency.

OVERALL PERFORMANCE

Total revenue for the Company was Baht 59.68 million, an increase of
37.89% from Baht 43.28 million in 2003. The increase in revenue is
attributable to the increase in both tin and andesite revenues.

General and administrative expenses increased from Baht 36.52 million in
2003 to Baht 64.61 million in 2004, an increase of 76.92% from the
previous year. The increase was due to the marketing and consulting fees
incurred for the condominium project, inclusive of building permits and
other regulatory fees. The Company also incurred further consulting and
report fees as required by lending institutions for loan approval with
respect to the Company’s gold mining project in Loei province. Interest
expenses remained at the same level as last year.

LIQUIDITY ANALYSIS

As at 31 December 2004, the Company’s current assets totaled Baht 172.99
million as compared to Baht 36.03 million for the preceding year. The
Company’s current liabilities decreased form Baht 216.17 million in 2003
to Baht 143.41 in 2004, representing a decrease of 33.66%. As a result,
the current ratio stood at 1.21 times when compared to 0.17 times in
2003.

The ratio improvement was due to the Company’s capital increase. The
fund raised was partially utilized to repay a short term loan from
financial institution which was previously used for infrastructure
construction of the gold project, and also partially used in the
condominium project. In addition, the Company was also able to obtain a
long term loan for its new office in 2004, thus the short term liability
was decreased, providing the Company with more liquidity.

CASH LLOW FOR OPERATING ACTIVITIES

The net cash flow utilized for operations amounted to approximately Baht
145.28 million, the majority of which was expended to decrease the
account payable of the condominium project and also to decrease other
payable of the office building and Phuket land purchase.

CASH FLOW FOR INVESTING ACTIVITIES

The net cash flow utilized for investment purposes amounted to Baht
44.69 million. Funds were mainly utilized to invest in Tungkum Limited,
the Company’s gold mining project. Some funds were expended in Phuket
Bay Rehabilitation project and also to purchase a piece of land in
Phuket.

CASH FLOW FOR FINANCING ACTIVITIES

The net cash flow from financing activities amounted to Baht 329.74
million. The Company increased its capital by way of private placement
and ESOP, and the paid-up capital of the Company increased from Baht
483.65 million to Baht 605.55 million. Funds were mainly utilized in the
above investment activities. The Company also repaid a short term loan
to financial institution to release a piece of land for its condominium
project.

PROFITABILITY ANALYSIS

The Company managed to get the approval of USD 13 million loan for plant
construction and equipment of its gold mine project in December 2004.
The Company has now commenced the construction of infrastructure and
preparation for the plant foundation construction. It is expected that
the commercial production shall commence by the end of 2005. The
Company’s profitability shall definitely improve once its gold mine
starts operations.