ADVANCED INFO SERVICE PUBLIC COMPANY LIMITED AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS MARCH 31, 1998 AND 1997 (UNAUDITED) NOTE 1 - ECONOMIC ENVIRONMENT AND BASIS OF PRESENTATION Since July 1997, certain Asia Pacific countries, including Thailand, have experienced economic difficulties relating to currency devaluation and slowdown in growth. Accordingly, the Thai government sought assistance from the International Monetary Fund to alleviate the economic crisis and improve the economy over time. The financial statements for the three month period ended March 31, 1998 have been presented on a going concern basis and in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding year and reflect the management's current assessment of the possible impact of this economic situation on the financial position of the Company and subsidiary. The operations of the Company and its subsidiary since July 1997 have been affected and may continue to be influenced for the foreseeable future by the economic conditions in Thailand and the Asia Pacific Region in general. The ultimate effect that these uncertainties will have on stated values or classifications of assets and liabilities at the balance sheet date cannot presently be determined. The financial statements for the three month period ended March 31, 1998 therefore may not necessarily include all adjustments that might ultimately result from these economic conditions due to such adjustments being both uncertain and unquantifiable. The accompanying interim consolidated financial statements of Advanced Info Service Public Company Limited and its subsidiary and the separate interim financial statements of Advanced Info Service Public Company Limited have been prepared in conformity with generally accepted accounting principles and in accordance with the requirements of the Stock Exchange of Thailand. The consolidated financial statements for the three month periods ended March 31, 1998 and 1997 include the financial statements of the Company and Shinawatra Paging Company Limited with 59.99% shareholding in such company. All significant intercompany transactions between the Company and its subsidiary have been eliminated in the preparation of these consolidated financial statements. NOTE 2 - GENERAL INFORMATION Advanced Info Service Public Company Limited and its subsidiary are parts of the Shinawatra Computer and Communications Group. Shinawatra Computer and Communications Public Company Limited is the parent company of Advanced Info Service Public Company Limited with 54.34% and 57.69% shareholding as at March 31, 1998 and 1997, respectively. The Company and its subsidiary are principally engaged in four main business operations; the operations of a 900-MHz CELLULAR TELEPHONE SYSTEM under a concession received from the Telephone Organization of Thailand, under an agreement dated March 27, 1990; the operations of a DIGITAL DISPLAY PAGING SYSTEM under a concession received from the Telephone Organization of Thailand, under an agreement dated December 19, 1989; pagers rental and the trading of pagers. Under the aforesaid agreements made with the Telephone Organization of Thailand, the Company and its subsidiary have to pay annual fees to the Telephone Organization of Thailand based on certain percentage of certain service income or at the minimum fees as specified in those agreements, whichever is higher. However, under the letter dated March 4, 1997 from the Telephone Organization of Thailand, no annual fee will be charged to the subsidiary company as from March 1, 1997 since the said fee has been waived by the Telephone Organization of Thailand, while the said subsidiary has to reduce fee of pager service charging to its customers. In addition, the Company and its subsidiary, according to the aforesaid agreements, have to transfer their ownership of certain equipment and other assets procured by the Company and its subsidiary for the operations of a 900-MHZ CELLULAR TELEPHONE SYSTEM and a DIGITAL DISPLAY PAGING SYSTEM to the Telephone Organization of Thailand on the dates of their completion of installation. As at March 31, book values of the aforementioned equipment and other assets presented in the financial statements are as follows: Million Baht Consolidated Company's Separate Balance Sheets Balance Sheets 1998 1997 1998 1997 Book values of equipment and other assets which have been transferred to and/or ready to be transferred to the Telephone Organization of Thailand 24,670.95 16,516.43 23,835.29 15,702.28 Costs of equipment and other assets under construction and installation 748.05 159.62 747.57 159.42 Total 25,419.00 16,676.05 24,582.86 15,861.70 The aforementioned equipment and other assets are presented as costs of mobile phone and pager networks under concession agreements in the balance sheets and amortized over the remaining period of each agreement. Periods of concessions obtained from the Telephone Organization of Thailand have been granted until September 30, 2015 for Advanced Info Service Public Company Limited, and until June 11, 2005 for Shinawatra Paging Company Limited. NOTE 3 - TRANSACTIONS WITH RELATED PARTIES The accompanying consolidated financial statements of Advanced Info Service Public Company Limited and its subsidiary and the separate financial statements of Advanced Info Service Public Company Limited include transactions with related parties. The basis of transactions occurred among the Company and related parties is similar to the basis of those transactions dealt with non-related parties. Outstanding balances with related parties as at March 31 are summarized as follows: Accounts and notes receivable in Note 7 include balances with related parties as follows: Million Baht Consolidated Company's Separate Balance Sheets Balance Sheets 1998 1997 1998 1997 The parent company 0.08 0.39 0.08 0.21 A subsidiary company - - 0.02 0.04 Other related companies 8.57 1.04 0.57 0.67 Total 8.65 1.43 0.67 0.92 Accounts payable and accrued expenses in Note 13 include balances with related parties as follows: Million Baht Consolidated Company's Separate Balance Sheets Balance Sheets 1998 1997 1998 1997 The parent company 32.57 181.83 32.57 181.83 A subsidiary company - - - 0.17 Other related companies 165.33 80.11 164.09 75.67 Accrued interest expense on bonds payable to a major shareholder of the parent company 33.84 - 33.84 - Accrued interest expense on bonds payable to executives of the parent company and directors of a subsidiary company 0.54 - 0.54 - Total 232.28 261.94 231.04 257.67 Balances with related parties which are included in deposits received from customers comprise: Million Baht Consolidated Company's Separate Balance Sheets Balance Sheets 1998 1997 1998 1997 The parent company 56.04 - 56.04 - Other related companies 20.25 - 20.25 - Total 76.29 - 76.29 - Short-term loans and advances to related parties comprise: Million Baht Consolidated Company's Separate Balance Sheets Balance Sheets 1998 1997 1998 1997 Short-term loans to other related companies 4.50 99.50 - - Advances to the parent company 8.62 55.75 8.62 55.75 Advances to a subsidiary company - - 0.03 0.04 Advances to other related companies 21.62 108.33 1.10 1.56 Amounts received from customers on behalf of the Company and subsidiary such as deposits, registration fees, service fees and sales of pagers 167.01 169.35 136.44 169.35 201.75 432.93 146.19 226.70 Less Provision for loss on collection of advances to related parties 0.37 0.37 0.37 0.37 Total 201.38 432.56 145.82 226.33 Short-term loans to other related companies represent loans with interest at the approximate minimum rate of bank overdraft and loan from bank. Advances to parent and other related companies in the consolidated balance sheets and advances to a subsidiary in the Company's separate balance sheets mainly derived from payments made by the Company and its subsidiary on behalf of those companies. Short-term loans and advances to an other related company in the consolidated balance sheets as at March 31, 1997 amounting to approximately Baht 184.79 million, had been financially supported by the shareholders of the said related company based on their proportionate shareholdings. Advances from related parties comprise: Million Baht Consolidated Company's Separate Balance Sheets Balance Sheets 1998 1997 1998 1997 Advances from the parent company 0.08 5.08 0.08 5.08 Advances from related companies 87.18 31.67 1.17 0.99 Total 87.26 36.75 1.25 6.07 Advances from parent and other related companies mainly derived from purchases of fixed assets from an other related company by a Company's subsidiary, and payments made by those companies on behalf of the Company and its subsidiary. Balances with related companies in the Company's separate financial statements do not represent balances with the subsidiary company . Short-term Bonds: Short-term bonds at March 31 represent unsecured bonds totaling 20,000 units, Baht 1,000 per unit, invested by executives of the parent company and directors of a subsidiary company. The said short-term bonds are repayable on January 26, 1999 with interest rate at the average rate of Minimum Loan Rate of the Thai Farmers Bank Public Company Limited and the Bangkok Bank Public Company Limited. Under the agreements between the Company and the Thai Farmers Bank Public Company Limited, whereas the latter has been appointed as bonds registrar and has been authorized to offer and to sell the said short-term unsecured bonds, the Company agrees to pay fees and other expenses to the said bank as prescribed in those agreements. Long-term Bonds: Long-term bonds at March 31, 1998 represent unsecured bonds totaling 2,000,000 units, Baht 1,000 per unit, invested by a major shareholder of the parent company. The said long-term bonds are repayable as from December 15, 2000 through January 26, 2001. Interest rate of the said bonds is at the average rate of Minimum Loan Rate of the Thai Farmers Bank Public Company Limited and the Bangkok Bank Public Company Limited. Under the agreements between the Company and the Thai Farmers Bank Public Company Limited, the Company agrees to pay fees and other expenses to the said bank as prescribed in those agreements. Significant transactions with related parties for the three month periods ended March 31, 1998 and 1997 are summarized as follows: Million Baht Consolidated Company's Separate Financial Statements Financial Statements 1998 1997 1998 1997 The parent company Costs of rental and other services 25.24 28.81 25.24 28.81 Costs of consulting and management services 43.67 42.00 43.67 42.00 Purchases of equipment for general operations - 0.13 - 0.13 Purchases of equipment for the operations of mobile phone and pager networks - 193.91 - 193.91 Service Income 1.06 1.25 0.84 0.78 Interest expense on bonds payable 13.84 - 13.84 - Subsidiary company Costs of rental and other services - - 0.59 0.51 Service Income - - 0.09 0.10 Other related parties Costs of rental and other services 186.67 122.14 172.52 108.00 Cost of advertisement 7.05 76.82 5.33 76.75 Million Baht Consolidated Company's Separate Financial Statements Financial Statements 1998 1997 1998 1997 Costs of consulting and management services 2.50 - - - Purchases of equipment for general operations 1.15 2.38 1.15 2.38 Purchases of equipment for the operations of mobile phone and pager networks 131.55 5.16 131.55 3.75 Service Income 3.08 2.55 2.56 2.25 Sales of pagers 2.74 - - - Interest income 0.18 4.80 - - Interest expense on bonds payable to a major shareholder of the parent company 96.42 - 96.42 - Interest expense on bonds payable to executives of the parent company and directors of the subsidiary company 0.54 - 0.54 - Transactions other than those mentioned previously are as follows: - The Company has issued a Letter of Comfort to a bank to support credits obtained by a subsidiary in the amount of Baht 75 million. - The Company has entered into agreements with other related companies relating to the construction and installation of equipment for the operations of mobile phone network and to receive satellite transponder services. As at March 31, 1998, the Company was committed to pay for the construction, installation and transponder services in the total amount of Baht 254.32 million. - The Company has entered into agreements with its parent company to receive consulting and management services for periods ranging from 10 months to 12 months with options to renew. The Company is committed to pay service fees in respect of the said agreements amounting to approximately Baht 11.57 million per month. - The Company and its subsidiary have entered into lease and related service agreements with other related companies covering their office spaces and cars for periods ranging from 2 months to 17 years with options to renew. The Company and its subsidiary are committed to pay monthly rental and service fees in respect of the said agreements as follows: Million Baht Per Month Advanced Info Service Public Company Limited 16.75 Advanced Info Service Public Company Limited and subsidiary 19.78 (More)