12. Financial Condition and Operating Results

  The corporate accounting period begins on November 1 and ends on
  October 31 in the next year.

12.1) Review Report of Independent Auditor

1)  Auditor

  Year 2005 Miss Praphasri Leelasupha Certified Public Accountant
  Registration No. 4664

  Sam Nak-Ngan A.M.C. Co., Ltd.

  Year 2006 Miss Praphasri Leelasupha Certified Public Accountant
  Registration No. 4664

  Sam Nak-Ngan A.M.C. Co., Ltd.

  Year 2007 Miss Praphasri Leelasupha Certified Public Accountant
  Registration No. 4664

  Sam Nak-Ngan A.M.C. Co., Ltd.

  Year 2008 Miss Praphasri Leelasupha Certified Public Accountant
  Registration No. 4664

  Sam Nak-Ngan A.M.C. Co., Ltd.

2)  Summary of the audit report over the past three years

  Year 2005 The Auditor reviewed corporate financial statements.
  Unqualified opinions and comments are as follows:

  The financial statements as of October 31, 2004 shown for comparison
  were audited by another auditor from the same firm. Qualified opinions
  relating to non-observation of the inventory counting as at the end of
  the year 2002.

  Year 2006 The Auditor reviewed corporate financial statements as
  unqualified opinions.

  Year 2007 The Auditor reviewed corporate financial statements as
  unqualified opinions.

  Year 2008 The Auditor reviewed corporate financial statements as
  unqualified opinions.

  The Auditor clarified the scope of their responsibilities that
  financial statements of the three overseas subsidiaries, which were
  included in this corporate financial statement, were not audited by
  them. As of October 31, 2008, according to the financial statements of
  the subsidiaries, the total assets were THB 3,403.62 million and the
  total income was THB 30.22 million. Net loss totaled THB 34.97
  million. The financial statements of the subsidiaries were audited by
  other certified public accountants. The Auditor received a report from
  the other certified public accountants and presented parts of the
  report related to monetary amounts of transactions of the subsidiaries
  which were included in the consolidated financial statement. The
  amounts presented were based on the other certified public
  accountants' report.

12.2) Percentage of Shareholding in the Subsidiaries and Consolidated
Financial Statements Preparation Criteria

(Refer to the attached financial statements for detail.)

The 2006 financial statement as of October 31, 2006 included 11
subsidiaries, the 2007 financial statements as of October 31, 2007
included 12 subsidiaries while the 2008 financial statements as of
October 31, 2008 included 14 subsidiaries as shown in the following
tables:

Table 12.1: Percentage of Shareholding in Subsidiaries

  ---------------------------------------- -------------- ---------- ----------
                                           Percentage of             
                                           Shareholding              

                                           2006           2007       2008

  Thai Sugar Terminal Public Company       23.82          23.82      23.82
  Limited                                                            

  Tamaka Sugar Industry Co.,Ltd.           90.21          90.21      90.21

  New Krung Thai Sugar Factory Co.,Ltd.    91.06          91.06      93.01

  New Kwang Soon Lee Sugar Factory         96.85          96.85      98.61
  Co.,Ltd.                                                           

  KSL Real Estate Co.,Ltd.                 80.31          80.31      80.31

  KSL Export Trading Co.,Ltd.              78.32          78.63      79.11

  KS LAXMI Co.,Ltd.                        100.00         100.00     100.00

  Khon Kaen Sugar Power Plant Co.,Ltd.     100.00         100.00     100.00

  Khon Kaen Alcohol Co.,Ltd.               100.00         100.00     100.00

  KSL Agro Co.,Ltd.                        100.00         100.00     100.00

  Savannakhet Sugar Co.,Ltd.               80.00          97.00      97.00

  Koh Kong Plantation Co.,Ltd.             -              50.00      50.00

  Koh Kong Sugar Industry Co.,Ltd.         -              -          50.00

  Wynn In Trading Co.,Ltd.                 -              -          100.00
  ---------------------------------------- -------------- ---------- ----------

NOTE:

(1) Although the Company only has 23.82 percent shareholding in Thai
Sugar Terminal Public Company Limited, the Company has controlling power
in that particular company. Thai Sugar Terminal Public Company Limited
is, therefore, considered a corporate subsidiary.

(2) Thai Sugar Terminal Public Company Limited, a KSL subsidiary listed
by the SET as TSTE, has five subsidiaries:

TSG Assets Company Limited operates real estate rental. TSTE holds
79.78% shares.

TSG Property Company Limited sells, buys, rents out and develops real
estate. TSTE holds 62.07% shares.

TS Flour Mill Company Limited rents out real estate and manufactures
wheat flour. TSTE holds 98.82% shares.

TS Warehouse Company Limited stores and transfers goods. TSTE holds
64.13% shares.

TS Transport and Logistics Company Limited provides transport service
and security service. It also manufactures plastic sacks. TSTE holds
77.44% shares.

For detail refer to listed company information on รThai Sugar Terminal
Public Company Limited (TSTE).

12.3) Income Statements

In 2008, the Company and its subsidiary generated revenue from their
operations amounted to THB 11,355 million, increasing from that in the
previous year by 24 percent. The operating costs amounted to THB 8,395
million, increasing from that in the previous year by 23 percent.
Selling and administrative expenses amounted to THB 1,446 million, 67
percent increase from the previous year. The corporate income tax
amounted to THB 313 million, 5 percent decrease from the previous year.
The net profit increased by 3 percent from THB 836 million in 2007 to
THB 860 million in 2008.

Table 12.2 : Consolidated Profit and Loss in year 2008, 2007, 2006

[]

In terms of the Company’s revenue structure, in 2008 revenue from sales
of sugar and molasses amounted to THB 8,255 million, representing 72
percent of the total revenue. Revenue from sales of ethanol and Benzene
amounted to THB 850 million, representing 7 percent of the total
revenue. Revenue from bio-fertilizer sales (in-house production)
amounted to THB 39 million. Electricity sales, which company power plant
distributes to Electricity Generating Authority of Thailand according to
the firm contract, amounted to THB 366 million, accounting for 3 percent
of the total revenue. Revenue from sale of wheat flour totaled THB 1,042
million, accounting for 9 percent of the total revenue. The rest of the
revenue was generated from service provision, property leasing, sale of
electricity with a non-firm contract, gasoline sold to sugarcane farmers
(trading), sugarcane harvesting service, fertilizer sold to sugarcane
farmers (trading), and other sources such as interest received and
miscellaneous revenues.

Table 12.3 : Consolidated Revenue Structure in 2006, 2005 and 2004

[]

According to the Company’s revenue structure, an increase in total
revenue in 2008 compared to that in 2007

(1) Income from sugar and molasses sales increased due to the fact that
    the Government raised domestic sugar selling prices for THB 5 per
    kilogram at the middle of the previous year. The THB 5 raised was
    contributed to the Cane and Sugar Fund to ensure stability of the
    domestic cane and sugar industry. Also, sales of sugar increased by
    16.8 percent, from 537,110 tons in 2007 to 627,341 tons in 2008. The
    average price in 2008, however, decreased by 3.1 percent, from THB
    12,955 per ton to THB 12,553 per ton.

(2) Income from ethanol and gasoline sales increased by 149 percent.
    Ethanol sales increased from 18.9 million liters in 2007 to 50.4
    million liters in 2008. The increase in sales in 2008 was due to the
    rise of oil prices and the Government's promotion of the use of
    alternative energy. Subsequently, domestic demand for gasohol
    increased. Furthermore, in 2008 the Company began to export ethanol
    amounting to 41 percent the total sales. The average selling price
    of ethanol in 2008 is 6.5 percent lower than that in 2007.

(3) Sales of electricity according to the firm contract with the EGAT
    increased by 19.7 percent from 114,419 Mw-hr to 136,997 Mw-hr. The
    average selling price increased from THB 2,527 per Mw-hr to THB
    2,668 per Mw-hr.

(4) The wheat flour mill of a subsidiary started its production later in
    2007, and reached its full capacity in 2008. Corporate income from
    sales of wheat flour increased from THB 224 million in 2007 to THB
    1,042 million in 2008.

(5) In 2007, the Company earned extra income from the 70:30
    profit-sharing system amounted to THB 246 million. In 2008 there was
    no income from the same source. At the beginning of sugarcane
    crushing season in 2007, the Government announced the provisional
    sugarcane price of THB 800 per ton and provisional sugar processing
    return of THB 342.86 per ton of sugarcane. (Calculation is based on
    estimation.) Then, after the end of season, the final sugarcane
    price and final sugar processing return are calculated based on
    actual data and announced by the government. The Cane and Sugar Act
    states that if the provisional sugarcane price and provisional sugar
    processing return are lower than the final sugarcane price and final
    sugar processing return, sugar mills are required to pay the
    difference between provisional sugar cane price and final sugar cane
    price to sugarcane farmers. If, however, the provisional sugarcane
    price and provisional sugar processing return are higher than the
    final sugarcane price and final processing return, the Cane and
    Sugar Fund is required to payback the difference between provisional
    sugar cane price and final sugar cane price to sugar mills and
    compensates for the difference between provisional sugar processing
    return and final sugar processing return to sugar mill which expects
    to get the return at the provisional price. In 2007, due to strong
    currency in THB and significantly drop in world sugar prices, the
    final sugarcane price and final sugar processing return were lower
    than the provisional sugarcane price and provisional sugar
    processing return. According to the law, the Cane and Sugar Fund was
    required to pay the differences back to the Company. The different
    amount required to pay back for the sugarcane was reflected in the
    financial statement as part of sugar production cost and the
    difference of the sugar processing return was reflected as extra
    income. The total extra income was THB 246 million.

Table 12.4 : Sales and Sale Volumes from sugar, molasses, ethanol and
electricity (firm contract)

[]

Table 12.5 : Amount of Cane Crushed

[]

The total amount of sugarcane crushed in 2008 increased from that in
2007 by 9 percent, from 5,265,362 tons to 5,737,019, as a result of
sufficient rain in late 2007. The total amount of sugarcane crushed in
2006 and 2005 were relatively low due to droughts.

To facilitate analysis and calculation of the corporate financial ratio
compared to corporate revenues (earnings from sales of sugar and
molasses, and service provision), the Company has revised its profit and
loss statements as shown in Table 12.6. Annual profit and loss
statements and gross margin are presented. The Company’s gross profit
margin generated from sales and services increased to 24.6 percent in
2008. Net profit margin reduced to 8.0 percent due to the fact that that
the Government raised domestic sugar selling prices for THB 5 per
kilogram at the middle of the previous year. The THB 5 raised was
contributed to the Cane and Sugar Fund to ensure stability of the
domestic cane and sugar industry. Therefore, in the financial statements
the increased income was realized by THB 5 per kilogram ( THB 496
million), and the increased expense was realized by THB 5 per kilogram.
The amount contributed to the Cane and Sugar Fund was shown as increased
selling and administrative expense (THB 340 million) and increased cost
pf sales ( THB 156 million).

To enable comparison of the previous operation results, the Company
removed the THB 5 / kilogram increased domestic selling price and THB 5
/ kilogram increased expense. As shown in table 12.6, gross profit
margin generated from sales and services increased slightly from 21.7
percent to 22.4 percent in 2008. The increase was from better operating
results of sugar, ethanol and electricity businesses. However, the wheat
flour production business yields low gross profit margin. Overall, the
Company’s gross profit margin slightly improved.

Table 12.6 Consolidate income statement in new format for calculating
financial ratio (2207, 2006, 2005)

[]

The corporate selling and administrative expenses consists of three main
parts:

(1) Selling expenses included transport and exporting expenses. In 2008,
selling expenses increased by 75 percent from those in 2007 due to
increases in total amounts of sugar and molasses sold and selling
expenses from ethanol export, sale of fertilizer, and sale of wheat
flour.

(2) Contribution to the Cane and Sugar Fund consists of 2 parts: First
part was the money from THB 5 / kilogram increased domestic selling
price from the middle of 2008 which was contributing fund, and second
part was the difference from the VAT adjusted. Originally, controlled
prices of sugar included VAT, but now controlled prices of sugar do not
include VAT. The difference in this sugar price are required by cabinet
to contribute to the Cane and Sugar Fund . Financial statements of years
2006, 2007 and 2008 recorded the second part. To enable comparison
between operating results of 2008 and the year before, the first part
was separated. This expenses from the second part depends on domestic
sugar sales which decreased from that in the previous year due to that
domestic sugar quota had decreased and the Company's cane crush market
share also decreased.

(3) Administrative expenses increased by 16 percent because new ventures
in 2008 required more personnel, and machinery removal and relocation.

Regarding interest and taxes, the Company had increased interest burden
from investment in projects requiring more loans. Tax expense decreased
as in 2008 the Company business which received tax exemption, resulted
in improved operating results. Therefore, despite the increase in
profit, tax expenses reduced.

From the factors mentioned above, the Company’s net profit margin
decreased, from 9.9 percent in 2007 to 8.4 percent in 2008. As its total
income increased by 21 percent, the net profit increased by 3 percent,
from THB 836 million in 2007 to THB 860 million in 2008.

12.4) Balance Sheet

Table 12.8 : Balance Sheet of the Company in 2008, 2007, 2006

[]

In 2008, the Company and its subsidiaries had the total assets of THB
16,985 million. Current assets totaled THB 4,481 million. Non-current
assets totaled THB 12,504 million. In 2007, the Company and its
subsidiaries had the total assets of THB 13,877 million. Current assets
totaled THB 3,598 million. Non-current assets totaled THB 10,279
million. An important part of an increase in the current assets was due
to higher cash reserve to support the economic recession. The recession
might affect liquidity in the market. More sales resulted in more
accounts receivable and inventory.

Increased non-current assets were from increased lands, buildings and
machinery (net) by 21 percent which were partly used in sugarcane
plantation and sugar mill projects in Laos and Cambodia. As the projects
are partially funded by loan, the Company's total liabilities increased
from 55 percent, from THB 4,213 million to THB 6,528 million in 2008.
Equity increased by 8 percent from THB 9,664 million to THB 10,457
million in 2008. The Company’s book value increased from THB 5.32 per
share in 2007 to THB 5.44 per share in 2008.

12.5) Cash Flow

Table 12.9 : Cash Flow of the Company in 2008, 2007, 2006

[]

In 2008, the Company had cash flow from its operations before change in
working capital (operating assets and liabilities) totaled THB 1,321
million. Since accounts receivable and inventory increased, net
operating cash flow remaining amounted to THB 949 million. This was
significantly higher than operating cash flow remaining in 2007 totaling
THB 155 million. In 2007, accounts receivable increased as compensation
had not yet been paid by the Cane and Sugar Fund. Part of the
compensation should be paid to the Company in 2009.

Cash paid in investing activities totaled THB 2,288 million. An amount
of THB 2,398 million was invested in lands, buildings and machinery
(net) used in sugarcane plantation and sugar mill projects in Laos and
Cambodia.

Regarding the Company’s financing activities, in 2008 the Company
received the net cash of THB 1,541 million from short and long term
loans, and issuing bills of exchange and debentures. Some of the cash
was used for dividend payments from the mother company and dividend
payments made to minority shareholders.

12.5) Financial Ratio

Chart 12.10 : Financial Ration on year 2008, 2007, and 2006

[]

In 2008, the Company had on-going projects resulting in an increase in
non-income generating assets. Expenses related to investing activities
increased resulted in decreased return on investment ratios, such as ROA
and ROE. D/E increased. In terms of liquidity, the Company had improved
inventory as shown in less days of inventory. Collection periods,
however, were longer. Regarding the Company's operating results, the
Company had higher gross profit margin, but lower net profit. This was
partially caused by a THB 5 increase in domestic selling prices of sugar
for contribution to the Cane and Sugar Fund. Also, selling and
administrative expense increased.

The Company’s book value increased from THB 5.32 per share in 2007 to
THB 5.44 per share in 2008. Earning per share was close to that in the
year before. Dividend payout ratio (previous year) was 41 percent.

12.6) Audit Fees

Khon Kaen Sugar Industry Public Co., Ltd. was responsible for audit fees
(excluding its subsidiaries) in 2006 totaled THB 890,000, in 2007
totaled THB 925,000 and in 2008 totaled THB 1,017,500.