ADVANCED INFO SERVICE PUBLIC COMPANY LIMITED AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS JUNE 30, 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 and six-month periods ended June 30, 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 period and reflect the management's current assessment of the possible impact of this economic situation on the financial position of the Company and its 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 and six-month periods ended June 30, 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 and six- month periods ended June 30, 1998 and 1997 include the financial statements of the Company and its only subsidiary, Shinawatra Paging Company Limited, which the Company has 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 June 30, 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 for the operations of pager service 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 June 30, book values of the aforementioned equipment and other assets, which have been transferred or have to be transferred to the Telephone Organization of Thailand, presented in the financial statements are as follows: Million Baht Type of Concessions' Consolidated Company's Separate Projects Expiry Date Balance Sheets Balance Sheets 1998 1997 1998 1997 Cost of mobile phone service network September 30, 2015 26,783.57 17,932.25 26,783.57 17,932.25 Cost of pager service network June 11, 2005 809.21 887.05 - - Total 27,592.78 18,819.30 26,783.57 17,932.25 The aforementioned equipment and other assets are presented as costs of mobile phone and pager networks under concession agreements under other assets 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 June 30 are summarized as follows: - Accounts and notes receivable in Note 7 to the financial statements include balances with related parties as follows: Million Baht Consolidated Company's Separate Balance Sheets Balance Sheets 1998 1997 1998 1997 The parent company 0.24 0.45 0.10 0.17 A subsidiary company - - 0.02 0.01 Other related companies 1.72 1.84 0.76 0.44 Total 1.96 2.29 0.88 0.62 - Accounts payable and accrued expenses in Note 12 to the financial statements include balances with related parties as follows: Million Baht Consolidated Company's Separate Balance Sheets Balance Sheets 1998 1997 1998 1997 The parent company 28.16 131.94 28.16 131.94 A subsidiary company - - 0.21 0.21 Other related companies 51.27 136.70 45.35 131.60 Accrued interest expense on bonds payable to a major shareholder of the parent company 46.38 - 46.38 - Accrued interest expense on bonds payable to executives of the parent company and directors of a subsidiary company 0.55 - 0.55 - Total 126.36 268.64 120.65 263.75 - 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 129.06 - 129.06 - Other related companies 123.18 - 123.18 - Total 252.24 - 252.24 - - Short-term loan and advances to related parties comprise: Million Baht Consolidated Company's Separate Balance Sheets Balance Sheets 1998 1997 1998 1997 Short-term loan to an other related company 4.00 4.50 - - Advances to the parent company 8.62 53.71 8.62 53.71 Advances to a subsidiary company - - 0.06 - Advances to other related companies 9.38 116.88 0.95 0.33 Amounts received from customers on behalf of the Company and subsidiary such as deposits, registration fees, service fees and sales of pagers 69.37 189.71 63.17 189.71 91.37 364.80 72.80 243.75 Less Allowance for loss on collection of advances to related parties 0.37 0.37 0.37 0.37 Total 91.00 364.43 72.43 243.38 Short-term loan to an other related company represents loan 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. Advances to an other related company in the consolidated balance sheets as at June 30, 1997 amounting to approximately Baht 97.16 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 0.03 0.27 0.03 0.26 Advances from other related companies 10.68 17.08 2.98 9.31 Amounts received from customers on behalf of an other related company relating to sales of pagers 13.11 - - - Total 23.82 17.35 3.01 9.57 Advances from parent and other related companies mainly derived from 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 June 30, 1998 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 June 30, 1998 represent unsecured bonds totaling 3,000,000 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 June 12, 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, whereas the latter has been appointed as bonds registrar and has been authorized to offer and to sell the said long-term unsecured bonds, 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 June 30, are summarized as follows: Million Baht Consolidated Company's Separate Financial Statements Financial Statements 1998 1997 1998 1997 The parent company Revenues - Service 0.68 1.08 0.50 0.85 - Sales of pagers 0.09 0.03 - - Expenses - Rental and other services 25.48 30.87 25.48 30.87 - Consulting and management services 38.86 42.00 38.86 42.00 Purchases of equipment for general operations - 0.22 - 0.22 Purchases of equipment for the operations of mobile phone and pager networks - 16.15 - 16.15 Subsidiary company Revenues - Service - - 0.08 0.08 Expenses - Rental and other services - - 0.61 0.62 Other related parties Revenues - Service 3.59 3.27 3.08 2.92 - Sales of pagers 2.71 1.24 - - - Interest 0.02 3.36 - - Expenses - Rental and other services 168.79 94.25 152.32 81.38 - Advertisement 6.53 90.50 1.36 89.38 - Consulting and management services 2.50 - - - - Interest on bonds payable to a major shareholder of the parent company 88.79 - 88.79 - Million Baht Consolidated Company's Separate Financial Statements Financial Statements 1998 1997 1998 1997 - Interest on bonds payable to executives of the parent company and directors of the subsidiary company 0.77 - 0.77 - Purchases of equipment for general operations 3.00 61.00 3.00 61.00 Purchases of equipment for the operations of mobile phone and pager networks 1.35 27.66 1.35 27.66 Significant transactions with related parties for the six-month periods ended June 30, are summarized as follows: Million Baht Consolidated Company's Separate Financial Statements Financial Statements 1998 1997 1998 1997 The parent company Revenues - Service Income 1.73 2.33 1.35 1.63 - Sales of pagers 0.09 0.03 - - Expenses - Rental and other services 50.72 59.68 50.72 59.68 - Consulting and management services 82.52 84.00 82.52 84.00 - Interest expense on bonds payable to the parent company 13.84 - 13.84 - Purchases of equipment for general operations - 0.35 - 0.35 Purchases of equipment for the operations of mobile phone and pager networks - 210.05 - 210.05 Purchase of computer software 65.00 - 65.00 - Subsidiary company Revenues - Service Income - - 0.17 0.18 Expenses - Rental and other services - - 1.20 1.14 Other related parties Revenues - Service Income 6.67 5.82 5.64 5.16 - Sales of pagers 5.45 1.24 - - - Interest 0.38 8.17 - - Expenses - Rental and other services 355.46 216.39 324.85 189.37 - Advertisement 13.58 167.33 6.69 166.13 - Consulting and management services 5.00 - - - - Interest on bonds payable to a major shareholder of the parent company 185.21 - 185.21 - - Interest on bonds payable to executives of the parent company and directors of the subsidiary company 1.31 - 1.31 - Purchases of equipment for general operations 4.15 63.37 4.15 63.37 Purchases of equipment for the operations of mobile phone and pager networks 132.90 32.81 132.90 31.40 (More)