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Shun Thai Rubber Gloves Industry Public Company Limited Annual Report for the year 2010

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Contents

Page

Mission Statement & Corporate Value 3

Message from The Board of Directors 4

General Information 5

Executive Summary 7

Summary of Financial Statement of The Company 9

Characteristics of the Business Operations 18

Risk Factors 28

Shareholding and Management Structures 32

Internal Audit 55

Related Transactions 57

Financial Report for 2008 65


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Mission Statement & Corporate Value

Mission Statement

“Emphasizing on higher-than-standard products to satisfy the clients by the research and development of the production effectiveness to increase our product quality with decreasing production costs.”

Corporate Value

Global customer satisfaction

Do it right first time and every time

Total Commitment

Competitiveness & Excellence in conforming to customer requirements

Environment friendly & Social responsibility


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Message from The Board of Directors

In 2010, the world economic situation was fragile and uncertain due to the US economic crisis. However, the demand on rubber gloves has been increasing in the coming year even though production costs, especially latex and chemical product prices, are rising due to higher and fluctuating oil prices. Even with severe competition and high production costs of rubber gloves industry, the company has implemented the management policies including sale and production strategies in line with market directions and its business. With all that is said, the company will still be committed to the quality policy and care for the environment. We will also be committed to establishing partnerships both domestically and internationally for basis of distribution of our products. We also are emphasizing on the research and development of new products and increase the production effectiveness to increase yield per unit along with decreasing production cost. We are also managing risks occurred from the variability of the raw material pricing and the currencies. As a company, we are adhering to good business conduct by conducting business in the open with transparency; all processes are audited by the auditing committee comprising of third party individuals to inspect the company financial reports to ensure good internal control and effective risk management.

The Board of Directors would like to express our gratitudes to the shareholders,

business partnership, private and public sectors as well as the financial institutions in continual supports resulting in the growth and development of our company; thus, enabling our continuing success in the business world. The company pledges its management control so that all are equally and fairly benefited. Board of Director Shun Thai Latex Gloves Industry Public Company Limited


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General Information

Name of Company Shun Thai Rubber Gloves Industry Public Co., Ltd.

Company registration No. 0107544000086 (former No. PLC 669)

To do the Business Doing the main business as a manufacturer, distributor and exporter of rubber

gloves for medical field, household, industry, etc.

Number and type of outstanding shares of the Company Registered capital 499,453,373 baht, par value 1.00 baht, paid-up shares

499,453,373 baht. Securities Registrar

Address of head office and plant situated No. 9, Village 4, Ka Ched Sub-district, Mueang District, Rayong Province 21100 Tel. (038) 634-072-3, 634-481-6 Fax (038) 634-001, 634-480.

www.shunthais.com

Location of branch office No. 14, Village 4, Ka Ched Sub-district, Mueang District, Rayong Province 21100 No. 52/18, Village 4, Ka Ched Sub-district, Mueang District, Rayong Province 21100 No. 52/19, Village 4, Ka Ched Sub-district, Mueang District, Rayong Province 21100 Tel. (038) 634-072-3, 634-481-6 Fax (038) 634-001, 634-480. 238/9, Ratchada Pisek Road, Huai Khwang District, Bangkok metropolis 10320 Tel. (02) 274-0951 and Fax (02) 274-0950

http://www.shun/


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Securities Registrar Thailand Securities Depository Co., Ltd. 62 The Stock Exchange of Thailand Building, 4, 6-7 floors, Ratchada Pisek Road, Khlong Toei, Bangkok 10110 Tel. (02) 359-1200-1 Fax (02) 359-1269

Auditor Miss Waleerat Akkarasrisawad, C.P.A (Thailand) No. 4411 Baker Tilly Audit and Advisory Services (Thailand) Limited Level 21/1 Sathorn City Tower, 175 South Sathorn Road, Sathorn, Bangkok 10120 Tel. (02) 2679-5400 Fax (02) 2679-5008

Legal Counsel Mr. Suphan Jirathiwattanakul Suphan Jirathiwattanakul Law Office 49/6, Rim Nam Road, Tha Pra Du Sub-district, Muang District, Rayong Province 21000 Tel. (01) 943-1915 Fax (038) 871-148

Secretary and Investor Relation Miss Sureeporn Sandsang 238/9, Ratchada Pisek Road, Huai Khwang District, Bangkok metropolis 10320 Tel. (02) 274-0951 Fax (02) 274-0950 Email : [email protected]

mailto:[email protected]


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Executive Summary

Overall Performance and Important Events

According to the General Meeting No . 1/2010, dated April 9, 2010, the meeting passed the resolution for the company to reduce registered share capi tal resulting from the unpaid- up shares which were not exercised through right issue and warrant of the company . The amount of unpaid- up shares arising from right issue and non- exercised warrant were 13,894,793 and 189,309,467 shares, respectively . Then the total amount of shares which were not exercised were 203,204,260 shares with the registerd capital and paid-up capital of THB 702,657,633 and 499,453,373, respectively.

Hence , the company ’s paid up capital , according to the General Meeting No . 1/2010 was THB 499,453,373. In addition, the meeting also passed the resolution for the company to amend Clause 4 of the Memorandum of Association of the Company to conform with the registered capital . The amendment had been processed by the administration of the company through the Ministry of Commerce . In May 2010, the company received the remaining amount of USD 20,000 paid up according to the sale of Bemark Shun Thai Co., Ltd. which was joint venture capital with Italian partner. With regard to the 2010 overall performance, the company had the total income of THB 1,035 million, an increase of THB 297.28 million or 40.28%. Selling and administrative expenses were at THB 1,079.26 million, an increase of THB 338.24 million or 45.65%. The net loss was recorded at THB 68.66 million, an increased of THB 40.55 million. The total assets were THB 649.68 million, a decrease of THB 139.78 million or 17.71% while its total liabilities were THB 623.72 million or a decrease of Baht 71.12 million or 10.24%. The shareholders’ equity was recorded at THB 25.96 million, a decrease of THB 68.66 million or 72.56%.

The company had higher revenue, provided that in 2010 the company’s revenue came from sales of rubber gloves by an increase of THB 283.45 million or 39.42% and sales of latex by an increase of THB 143.33 million or 154.82%.


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The increase on cost of sales was due to lower production volumes, in amount of 40.13 million pieces compared to 2009, higher latex prices which was the raw material for rubber glove production to the average of THB 69.45/kilogramme or an increase of 65% whereas the price of palm kernel shell, fuel for stream production, was also increased to the average of THB 2.63/kilogramme, an increase of THB 0.08 or 3% compared to the previous year, including lower fixed costs, variable costs and selling and administrative expenses, resulting in increased loss compared to that of the previous year. A decrease of THB 139.78 million in 2010, compared to the previous year, in the total assets contributed to the changes of repayment process implemented by the company which could reduced the amount of THB 16.54 million for trade receivables. In addition, the inventories were also reduced to THB 106.58 million due to a decrease of the company’s stocks for reproducing process. With regard to lower liabilities, the company tried to release all possible inventories and was then able to repay debts on latex purchase, short-term loan and accrued interest to related companies. Then, in 2009, the company made a contract on debt restructuring to extend the repayment periods, to 28 periods, without interest. In 2009, the decrease in the shareholders’ equity was derived from an retaining loss of THB 508.52 million, and in 2010 the company suffered an additional loss of THB 68.66 million. Then, the company’s retaining loss was totally THB 577.18 million and the shareholders’ equity decreased to tha amount of THB 25.96 million.


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Summary of Financial Statement of the Company

Total Assets

Total Sales

Million Baht

Million Baht


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Shareholders’ Equity

Million Baht


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Financial summary (Thousand : Baht)

Item 2010 2009 2008 2007 2006 Profit & loss a/c

Income

Domestic sales 127,885 86,952 174,935 82,853 33,765

Foreign sales 881,455 638,030 621,893 751,352 517,276

Sales 1,009,340 724,982 796,828 834,205 551,041

Other incomes 26,016 13,096 22,094 9,555 7,514

Total incomes 1,035,356 738,078 818,922 843,760 558,555

Expense

Cost of sales 1,015,043 645,425 782,410 834,193 616,832

Expense on sales & administration 60,193 59,095 47,352 60,246 49,924

Interest payment 24,754 25,166 33,790 41,413 29,668

Excess costs from reduction for production capacity 0 0 0 0 69,005

Loss on impairment of assets 0 23,910 0 0 0

Provision for doubtful accounts 4,029 4,849 33,068 -308 16,410

Provision for loss on decline in value of inventories 0 7,744 9,666 3,200 19,722

Share of loss from investments recorded 0 0 0 39 1,076

Total expenses 1,104,019 766,189 906,286 938,783 802,638

Net profit (loss) before taxes -68,663 -28,111 -87,364 -89,167 -244,083

Corporate tax 0 0 0 0 0

Net profit (loss) -68,663 -28,111 -87,364 -89,167 -244,083


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(Thousand : Baht)

Item 2010 2009 2008 2007 2006 Balance sheet

Trade account receivables (net) 84,359 102,084 116,069 204,493 131,128

Inventories (net) 196,937 303,518 155,299 216,570 151,097

Total Current Assets 27,728 425,536 286,321 434,477 309,469

Land, buildings & equipment (net) 340,656 355,160 410,728 451,094 452,846

Total assets 649,680 789,461 717,491 905,148 784,594

Bank overdrafts & short-term loans from financial institutions

301,453

290,326

338,398

412,392

300,901

Trade account payables 193,154 219,304 92,449 241,357 170,789

Total current liabilities 129,115 650,314 561,149 783,036 549,019

Long-term loans 0 41,766 31,014 62,094 87,330

Total liabilities 623,722 694,840 594,879 846,069 636,349

Issued and paid-up share capital 499,453 499,453 499,393 410,631 410,631

Premium on common shares 103,688 103,688 103,628 41,494 41,494

Deficit -577,183 -508,521 -480,410 -393,046 -303,879

Total equity 25,958 94,621 122,611 59,079 148,246

Total liabilities and equity 649,680 789,461 717,491 905,148 784,594

Statement of cash flows

Cash flows from operating activities 96,395 47,410 6,880 -28,624 35,321

Cash flows from investing activities -33,605 -814 -7,446 -40,923 -165,191

Cash flows from financing activities -71,436 -39,849 2,621 71,210 128,980

Cash and cash equivalents at end of year 4,315 12,961 6,214 4,159 2,496

Share Information

Book value per share (baht) 0.16 0.50 0.17 0.15 0.37

Dividend per share (baht) - - - - -

profit (loss) per share (baht) Fully Diluted -0.137 -0.09 -0.19 -0.22 -0.59


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(Thousand : Baht)

Analysis of Financial Ratio 2010 2009 2008 2007 2006

Liquidity Ratio

Current Ratio (time) 0.58 0.65 0.51 0.55 0.57

Quick Ratio (time) 0.18 0.19 0.23 0.28 0.26

Account Receivable Turnover (time) 0.85 7.10 6.87 4.08 3.08

Average Debt Collection Time (days) 34.91 51.41 53.13 89.46 116.90

Current Finished Goods Turnover (time) 0.44 2.90 4.62 5.11 27.28

Profitability Ratio

Gross profit ratio (%) -0.32% -0.41% -6.72% -5.72% -11.94%

Net profit ratio (%) -6.88% -3.88% -10.96% -10.69% -43.70%

Return on the equity ratio (%) -15.27% -29.71% -71.25% -150.93% -97.12%

Financial Policy Ratio

Debt to equity ratio (time) 10.43 7.34 4.85 14.32 4.24

Interest coverage ratio (time) -2.75 -0.12 -1.59 -1.15 2.19

Dividend payment ratio (%) 0.00% 0.00% 0.00% 0.00% 0.00%

With regard to the financial statements of the company during the year 2006 – 2010, the auditing reports of the auditors and the auditor’s names are as follows.

Auditor’s name : Financial Statements As of December 31 , 2006 Mr. Apichart Sayasit Authorized Auditor No. 4229 M R and Associate Co., Ltd.

Auditor’s name : Financial Statements As of December 31 , 2007 and 2008 Mr. Somchai Kurujitkosol Authorized Auditor No. 3277 S.K. Accountant Services Co., Ltd.

Auditor’s name : Financial Statements As of December 31 , 2009 and 2010 Miss Waleerat Akkarasrisawad Authorized Auditor No. 4411 Baker Tilly Audit and Advisory Services (Thailand) Limited.


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For the year ended December 31, 2010, the auditor presented the opinion without condition but had the notice that the financial statements were accurate in line with generally accepted accounting standards. The company had the liquidity problem and was not able to pay debts to creditors which were its related companies. Later, the contract on debt restructuring, including default on debt made by related companies, was made. The aforementioned factors indicated significant uncertainty and doubtfulness on the company’s sustainable operation. The company’s sustainable operation mainly depended on its successful business in the future and sufficient cash flow from operation.

Audit Fee In 2010, the company paid the audit fee to the auditors of Baker Tilly Audit and Advisory

Services (Thailand) Limited, and non-audit service fees such as accommodation, travel and allowance fees for auditors working at the company’s head office, Rayong Province, as mentioned in the table below.

Detail Year 2010

Baker Tilly Year 2009 Baker Tilly

Year 2008 S.K.

Year 2007 S.K.

1. Audit Fee 950,000.- 930,000.- 800,000.- 800,000.-

2. Non-audit Service Fee 68,770.- 55,270.- 171,600.- 151,130.-

Total 1,018,770.- 985,270.- 971,600.- 951,130.-


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Explanation on Financial Statements and the Performance

Overall Performance In 2009, sales trend improved dramatically as the clients made payment to the company in time. The company was also tried to expand its market share domestically, which most of the new clients paid for the products in cash. Then, the account receivables had been decreased compared to the previous year. The company emphasized on high-profit products and improved its production process. The company also developed its production process, including budget controls to lower production costs but maintained the same quality level. The company produced latex for rubber glove production so it was able to control cost of raw materials more efficiently.

Performance

Total Revenue

In 2010, the company had total revenues of THB 1,035 million compaared toTHB 724.98 million in 2009 or equivalent to an increase of 42.76% because it mainly had revenue from sales of rubber gloves at the proportion of 97%. Cost of Sales and Expenses

In 2010, the company’s cost of sales reached THB 1,015 million compared to THB 645.43 million or 57.26% due to an increase of price of latex which was a main raw material of rubber gloves. Its average price moved to THB 69.45/kilogramme compared to THB 41.53/kilogramme in the previous year while price of nitrile also increased to THB 38.37/kilogramme compared to THB 35.40/kilogramme in 2009.


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Selling and administrative expenses was recorded at THB 64.22 million compared to THB 95.60 million in the previous year, a decrease of 32.82%, due to investment depreciation of THB 1.25 million, inventory depreciation of THB 7.7 million, asset depreciation of THB 23.91 million, and foreign exposure of THB 9.47 million. Net profit (loss)

The company recorded the net loss of THB 68.66 million compared to THB 28.11 million in the previous year or an increase of 144.25% due to higher cost of sales of THB 20.01 million, derived from higher price of latex which was the main raw material for rubber glove production.

In addition , the price of palm kernel shell, fuel for rubber glove production, moved to THB 2.63/kilogramme, from THB 2.55 compared to the same period of the previous year and the company also recorded more losses of THB 41.43 million on sales of obsoleted rubber gloves, including an increase of THB 7.22 million or 19.33% on expenses on sales and administration compared to the previous year.

Financial Status

Assets

In 2009 and 2010, the company had the total assets of THB 789.46 and 649.68 million, respectively. Most of the assets comprised of trade account receivables, inventories, and fixed assets.

In 2010, trade account receivables – net was at THB 84.36 million, decreased from that (THB 102.08 million) in 2009 or 17.36% because the clients made payment to the company in time. The company was also tried to expand its market share domestically, which most of the new clients paid for the products in cash, resulting in lower trade account receivables.

Net inventories was recorded at THB 196.94 million, a decrease of 35.11% compared to the 2009 figure (THB 303.52 million).


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The fixed assets – net were THB 355.16 and 340.65 million in 2009 and 2010, respectively. The company set asset impairment evaluated by an external independent evaluator and the asset’s value decreased due to the usage period, resulting in a decreased value of fixed assets of 4.26% in 2010.

Liabilities

The total liabilities were THB 623.72 million compared to that of THB 694.84 million in 2009 or a decrease of 10.24%. Most of the current liabilities were loans for export – packing credit to increase liquidity of the company. In addition, the company’s trade account payables decreased from THB 219.3 million in 2009 to THB 193.25 million in 2010, resulting in lower amount of liabilities. Shareholders’ Equity

In the General Meeting No . 1/2010, dated April 9, 2010, the meeting passed the resolution for the company to reduce registered share capital resulting from the unpaid- up shares which were not exercised through right issue and warrant of the company . Then the total amount of shares which were not exercised were 203 ,204 ,260 shares with the registerd cap ital and paid- up capital of THB 702,657,633 and 499,453,373, respectively. Hence, after reducing registered share capital according to the General Meeting No . 1/2010, the company’s registered and paid-up share capital was THB 499,453,373.


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Characteristics of the business operations Shun Thai Rubber Gloves Industry Public Company Limited (“the company”) has started its business since 1998 and has been registered as the public company on September 4, 2001. Its core business is manufacturing, selling and exporting rubber gloves. Rubber gloves are classified by use into 3 categories as follows: 1. Medical glove which is divided into 2 types as follows:

Surgical gloves for surgery purpose. This glove is thin, durable, long (covering elbow), 100% antiseptic by Gamma ray, and 1-time use for germ protection. The package is carefully done and for convenient use.

Examination gloves for general examination purpose, comprising powdered gloves and non-powdered gloves. The production of this glove concerns convenience of use i.e. easy to put on - take off and easy unpacking. This anbi glove fitting both hands is thin, fit, short (covering wrist), not expensive, and 1- time use for avoiding spread of germ.

2. Household glove is in big size, strong and durable, proper use for water or detergent, long-time use, beauty in design and soft touch. The package is carefully done to attract customers.

3. Industrial glove is in big size, strong, highly durable and worthy of use. The package does not emphasize on beauty. This glove is proper for use in industrial factories such as food processing industry or instant food process, etc. In addition, rubber gloves may be categorized by customer needs into 2 categories, namely, powdered glove and non-powdered glove. For powered glove, the company may use protein content up to 50 micrograms in compliance with the international standards. Non-powdered glove is favorite among persons allergic to powder protein or persons hating powder dirty. The company’s products are certified by the international standards and are contained in package sizes and by quantity specified by customers, mainly under their trademarks. 90% of the products are imported to Europe, Latin America, the US, and Asian countries such as Japan, Korea, China, etc., while the rest of 10% are sold domestically via distributors and the company.


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The gloves produced by the company are classified into medical devices according to the Thai Food and Drug Administration, therefore, manufacturing and exportation must be approved according to the standards of the FDA so that products produced comply with the quality and safety requirements. The company products have already been approved and certified according to various international standards.

Product standard is settled to international standard. Our company used as a guide and reference in glove manufacturing. Our company's products received standard :

No. Product Standards Meaning

1 Ministry of Public Health Standards Ministry of Public Health Standards

2 Thai Industrial Standards Institute Thai Industrial Standards Institute

3 Standards EN455 British Standard – Medical Gloves for Single Use

4 Standards ASTM 3577, 3578, 6319 Standard Specification for Rubber Surgical Glove (3577) Standard Specification for Rubber Examination Glove (3578)

5 Standards ISO 11193, 10282 International Standard -Single Use Medical Examination Gloves (11193) International Standard - Single Use Sterile Rubber Surgical Gloves-Specification (10282)

In addition, the company is awarded the factory standard by several institutions and also the Good Performance Exporter of Thailand Award by Thai Government. Therefore, the company has been granted the Good Exporter Level from the Revenue Department. The followings are the details.


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No. Receive Standards Meaning Year Certified Standards

1 ISO 9001 International Standard- Quality Management System

2002 TUV Rheinland

2 ISO 13485 under CMDCAS Control standard on medical device production and permitted to export rubber gloves to Canada.

2005 TUV Rheinland

3

GMP : Good Manufacturing Practice

Good Manufacturing Practice 2006

Ministry of Public Health

4 MDD : Medical Device Directive

Medical Glove European Standards 2007 TUV Rheinland

5

510K

Standards USA FDA

-

FDA (U.S. Food and Drug Administration)

6

Health Canada

Medical Canada Standards

2009

Therapeutic Products Directorate Medical Devices Bureau Canada


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Quantity Rubber Gloves Order Shipment for the year 2006 - 2010, for the year 2010 total 835 million prices

Quantity Rubber Glove Order Shipment Year 2006-2010

Quantity Rubber Glove Order Shipment

Million Prices

Million Prices


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Sales and Distribution Channel

The company has establish marketing strategies in defining customers or targeted group, a critical variable in determining business status, to decrease pressure from cost of production and prices. Therefore, the company implements the policy of product distribution to foreign market with the total of 88.44% of total sales volume. Exports can be broken down to main groups as :

Strategies and Marketing Competition

Marketing Strategies

- Purchase orders will be received 1 to 3 months in advance in order to estimate production costs more accurately. Selling prices will be set reasonably to gain profit and to compete with competitors, resulting in accurate production plans.

- For price setting, the factors taking into consideration included costs of raw materials, foreign exchange rates, order quantity, and glove sizes. In addition, the price must be profitable but competitive price.

- The company’s distributuion channels comprised of distributors and its direct sales, a proportion of 60 : 40. The foreign clients will be divided in small groups to minimise risks.

- The company developed new products to add values to its products , including trying to keep good relationships with existing clients and also finding new ones.


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Competition

The domestic competition was the competition between producers and importers which were direct sales or sales through distribution channels as there were few buyers . In the overall picture, the demand on rubber gloves in 2009 was higher than that in 2008 even with natural disaster, including political uncertainty. Demand for rubber gloves was necessary for medical devices, especially food and serviees industries, including electronics industry, resulting in more sales for the company.

For international sales, demand for rubber gloves was also increased due to better global economic condition. Then, the people needed rubber gloves for more concerns on the spread of germs.

The appreciation of Thai Baht was also thr risk which weakened the company’s revenue and competitive advantages, especially clients in the North America, Europe, and Japan. The manufacturers from Malaysia, China, and Indonesia were our main competitors as their standards were improved dramatically.

In the second half of 2010, the company was not able to export rubber gloves to North America as FDA took months for its quality investigation. Therefore there were less demand for ruuber glove.

However, the company has developed quality of products in accordance with international standard consistently, as well as built its own brands worldwide.

Product Supply

Production of Rubber Gloves

Presently, the company has 2 plants with 15 production lines for rubber gloves production, which are divided as follows: - First plant with 7 production lines (1st – 7th sets) for rubber gloves production, maximum capacity of 32 million pieces / month - Second plant with 8 production lines (8th – 15th sets) for rubber gloves production, maximum capacity of 55 million pieces / month


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Production of Latex and Steam In 2008, the company started producing latex used for rubber glove production. In 2010, the company’s production costs decreased from that of the previous year due to high quality of latex with cheaper prices. However, the company has faced the liquidity problem so it had to purchase latex from other suppliers.

Since there was natural disaster in 2010 resulting in less supply of latex, latex price was increased and fluctuated rapidly. However, its price produced by the company was still lower thanthe market price. Location of Raw Material and Raw Material Supplier

As the proportion of the total production costs in 2010, the major raw materials for rubber glove production, in amount of THB 852 million, consisted of the following items.

The company purchases concentrated latex from producers in the Rayong, Chantaburi and Songkla provinces; all concentrated latex used are from the domestic market. The company has defined purchasing policy for latex to the lowest price offer, however, the company also insists on the individual supplier latex quality.


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The company has a policy on purchasing latex from a supplier offering the lowest price with high quality. Latex prices depend on market prices in that period. The company will compare quotations of suppliers in the same time period. The comparison is in accordance with its policy on best price with best quality by comparing market prices with purchase prices of at least 3 suppliers and also compared to the fair price quoted by Bangkok Rubber Research Institution.

Price of Concentrated Latex 60% (January - December ) Year 2006 - 2010

Environmental Concern The production process of making latex gloves is environment friendly, only in the cleaning process for the used formers which clean by water and its solutions that may have some dirty particles along with. In cleaning this used water, we have additional standard process for water treatment to meet acceptable standard before releasing those treat water into the public area. The company’s production process complied with standards of medical industry such as ISO 11193, EN 455, and ASTM 3577. The company has been granted by the Food and Drug Adminstration to be the rubber glove producer for surgery, including other standards such as ISO 9001, ISO 13485, and GMP.


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Research and Development The company has given great importance to our research and development project to increase the company’s product values and to manufactures products that answer various customer requirements. Our R&D team, cooperating with our customer in a partnership, is currently conducting researches for new products and further exploring researches in terms of safety, decreasing risks of fatality due to allergic reactions of proteins in the rubber glove. Currently our company has been able to produce rubber gloves with low amount of proteins according to the international standards and have been certified by the United States Food and Drug Administration agency


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Revenue Structure

Compare sales of rubber Glove Year 2001-2010

Percentage Sales of rubber Glove Year 2001 - 2010

Million Baht


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Risk Factors

1. Production Risk

Risk on Price Fluctuation of Raw Materials and Fuel

Latex 60% Latex 60% is the major raw material for rubber glove production, provided that its prices have been increasing and fluctuating. From average prices during 1997 – 2001, its prices moved between THB 20.84 – 25.75/ kilogramme, and had been changing since 2004 with an average price of Baht 39.99/ kilogramme. In 2006, an average price was recorded at Baht 57.12/ kg and jumped to the maximum at Baht 62.37/ kilogramme in 2008, before dropped to Baht 41.53/ kilogramme in 2009. In 2010, the lowest and highest latex prices were at THB 56.20/kilogramme and THB 80.13/kilogramme, respectively, so the production costs were fluctuate and unpredictable. The average price was THB 69.45/kilogramme which had been increased more than 65% since 2009. To mitigate risk on raw material prices, the company, then, decided to have its own latex production plant to supply latex for its glove production and to control quality and prices of raw materials simultaneously. However, the company has ordered latex from other suppliers by making forward contracts and distributed its orders to several suppliers. With this strategy, the company was able to estimate its production costs at a certain level and to reduce the risk on price fluctuation. The comparison is in accordance with its policy on best price with best quality by comparing market prices with purchase prices of at least 3 suppliers and also compared to the fair price quoted by Rubber Research Institution of Thailand, Bangkok. In addition, prices of chemical products, which were another main components of glove production, have been rising as same as that of the major raw material. The company had higher production costs and such uncertainty of raw material prices affected its sales and production plans.


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Palm Kernel Shell

Replacing bunker oil which prices have been increasing consistently, palm kernel shell has been used as fuel for stream production since 2008. Presently, the company ordered palm kernel shell from suppliers in Malaysia and Indonesia. During the rainy season, sometimes supply of palm kernel shell was shortage and the products were not able to be transported. In addition, there was policy implemented by Malaysia government to replace bunker oil with palm kernel shell. Then, its demand has been increased.As a result, an average price increased from THB 2.34/kilogramme to THB 2.55/kilogramme in 2009 and to THB 2.63/kilogramme, or an increase of 3%.

However, to resolve the problems mentioned above, the management set the risk management by making 90-day forward contracts and store palm kernel shell sufficiently for its production during the rainy season, including seeking any other fuel to replace palm kernel shell if its price still continued to increase.

Moreover, price of chemical products, raw material for rubber glove production, also increased at the rate of 17.29%, resulting in higher cost of sales of the company. The company then tried to reduce such risk by controlling all production processes such as using chemical products to replace latex, higher production capacity, lower electricity consumption, and steam utilisation.

2. Risks in business activities

Risks in Trade Barriers

Like other glove exporters, in 2009 the company faced the difficulty on glove export to the US since U.S. Food and Drug Administration (FDA) inspected the quality of rubber gloves, to be sold in the US, of all importers. The delivery to customers was 1-month delayed and the company cannot record such sales as its revenue so the business risk has been arising.

For short-term resolution, the management has managed this risk by requesting FDA to accelerate its inspection and notification process so that customers would receive products more rapidly and were able to serve their customers in time.


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In the early of 2010, the the company wa still facing difficulties according to the standards implemented by US FDA. The clients then changed their orders to other rubber glove producers, resulting in higher stocks and decrease in sales of the company.

The investigation made by US FDA was implemented to all rubber glove producers who imported into the USA. Even the company’s products has passed its standards, the US FDA has sill randomly investigated all rubber gloves imported into the USA to maintain its standards for all times.

Hence, the company decides to expand its markets by seeking various types of rubber gloves , including rubber gloves for food industry , electronics industry , medical services , and sales through various distribution channels to reduce risks associated as mentioned above.

The company’s long term risk management covers technology and production process improvement according to the international standards and will be able to compete in the market.

3. Financial Risk

Risks from foreign exchange

Since the company’s main revenue came from foreign sales, 90% of the revenue was in foreign currencies. Therefore, significant currency fluctuation will affect its operation inevitably.

The company has managed the currency risk by making forward currency contracts with domestic banks, on monthly basis. This is considered another money management strategy mitigating risks related to foreign exchange fluctuations.

Risk on unsettled payment of customers

In 2010, allowance for doubtful debts increased by THB 4.03 million compared to the previous year, resulting in the total amount of THB 55.26 million partly due to the appreciation of Thai Baht affected the repayment capability of foreign clients. Presently, the company has followed up and negotiated with such foreign customers so that they will be about to repay debts payable to the company otherwise they were unable to submit new orders to the company.


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Hence, the company will export the products according to the clients who had already pay back all debts/trade receivables. For new clients, the trade process was made in terrms of L/C At sight, D/P At sight, or payment before delivery. These processe could reduce the company’s trade receivables and also doubtful debts.

Each individual customer is selected by its reputation and financial status. In addition, the company examines some customers via the EXIM Bank and grants 60-day credit terms. The company sets allowance for doubtful debts if any customer has not made the payment within granted credit terms. This rule will prevent any risk arising from customers unable to repay debts.


32

Shareholding and Management Structures

Securities

The company has registered capital 499,453,373 Baht, paid-up shares 499,453,373 Baht, par value 1.00 Baht,

Shareholders

First 10 major shareholders on March 15, 2011

No. List of Shareholders / ShareholderGroup Share ( % )

1 THAI HUA RUBBER PUBLIC COMPANY LIMITED 188,090,124 37.66%

2 MISS DEONG CHEW MING, ESTHER 42,834,750 8.58%

3 MR. LIN FU LAI 38,273,179 7.66%

4 THAI HUA HOLDING COMPANY LIMITED 33,205,316 6.65%

5 MR. PORKUAN KITTISRISWAI 25,739,548 5.15%

6 THAI NVDR COMPANY LIMITED 19,647,318 3.93%

7 MR. EKACHAI TANGSAJATAM 14,925,050 2.99%

8 MR. CHALIT JESADAVISUT 14,537,280 2.91%

9 MR. WINYOO JESADAVISUT 13,149,999 2.63%

10 MR. WITHOON JESADAVISUT 13,149,999 2.63%

11 OTHER SHAREHOLDERS 95,900,810 19.201%

รวม 499,453,373 100.00%

Source: Thailand Securities Depository Co., Ltd.

Dividend payment policy

The company has dividend payment policy on 50 percent of profit after tax each year.


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Management

The company has set its organizational structure as the following chart.


34

The Board of Directors

Name & Surname Age Address Education

Amount Meeting

(5)

Ratio (%)

Working until the present

time Working background & workplace

1. Mr. Ong Siew Kwee

41 No.9 Village 4 S. Kached D. Muang P. Rayong

21100

Bachelor’s Degree Majoring in Economics

from the National University of Singapore

Training

International Professional Managers’ Association

(IPMA) American Association of Financial Management

(AAFM)

3 - 2009 - Present

Present

Chairman of Executive Director Shun Thai Rubber Gloves Industry PLC.

Chairman & CEO ERC Holdings Pte Ltd.

Griffin Capital Management Pte Ltd.


35


Amount Meeting

(5)

Ratio (%)



2. Mr. Anan Jesadavisut

56 No.9 Village 4 S. Kached D. Muang P. Rayong

21100

Master’ Degree in Economics

Ramkamheng University

Bachelor’s Degree in Economics

Ramkamheng University, Public Admin course from

NIDA

Thai Institute of Directors Association (IOD)

DCP 23/2002

5 0.038 2009 - Present

1997 - 2008

1985 - 2001

Deputy Chairman Shun Thai Rubber Gloves Industry PLC.

Managing Director

Shun Thai Rubber Gloves Industry PLC.

Deputy Managing Director Thai Hua Rubber PLC.

*The authorized person on behalf of the company


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Amount Meeting

(5)

Ratio (%)



3. Mr. Lin Fu Lai 56 No.9 Village 4 S. Kached D. Muang P. Rayong

21100

Diploma from Cheng Sing College

Taiwan

1 7.663 2009 - Present

2002 - 2009

Director Shun Thai Rubber Gloves Industry PLC.

Chairman of Executive Director


*The authorized person on behalf of the company

.


37


Amount Meeting

(5)

Ratio (%)



4. Dr. Sanit Samosorn 70 No.5/39 Muang Thong

Thani S. Bang Phud D. Pak Kred

P. Nonthaburi 11120

PhD. Funded by SECRCA University of The Philippines

at Los Banos

Thai Institute of Directors Association (IOD)

DAP 29/2004

5 - 2001 - Present

1999 - Present

1996 - 1998

1987 - 1995

Chairman of Audit Committee and Independent Director


Managing Director of TRI Global Ltd.

Dep. Dir-Gen of Agriculture

Director of Institute of Rubber Research


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Amount Meeting

(5)

Ratio (%)



5. Asso. Prof. Krit Phurisinsit

61 No.14 Sukhumvit 49

(Off 6) Soi Prompak

Khlong Toei Nua D. Wattana Bangkok 10110

B.S.B.A (Michigan) U.S.A. MS. In Economic (Texas) U.S.A.

Honor society in Economics

(Omicron Delta epsilon) U.S.A. Lecturer (Texas) U.S.A.

Thai Institute of Directors

Association (IOD) DAP 36/2005 ACP 11/2006 SFE 3/2009

4 0.223 2002 - Present

2005 - Present

2003 - Present

1973 - Present

1997 - 1998

Audit Committee and Independent Director Shun Thai Rubber Gloves Industry PLC.

Chairman of Audit Committee and

Independent Director Thanapat Property Development PLC.

Vice president for Office of Regional Campus

Administration Amnatcharoen Province Ramkamheng University

Asso. Prof. Industrial Economics Faculty

Ramkamheng University

Consultant of Minister of University


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Amount Meeting

(5)

Ratio (%)



6. Asso. Prof. Suphol Ingprasarn

73 No. 36/1 Village 2

S. Toknong D. Kalang

P. Janthaburi 22110

Bachelor’s Degree Thammasart University

5 - 2008 - Present

1968 - 1999

Audit Committee and Independent Director Shun Thai Rubber Gloves Industry PLC.

Asso. Prof. Ramkamheng University


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Amount Meeting

(5)

Ratio (%)



7. Mr. Ong Siew Bok 38 No.9 Village 4 S. Kached D. Muang P. Rayong

21100

Bachelor’s Degree Degree in Mechanical Engineering from the

Queensland University of Technology

Brisbane, Australia

4 - 2009 - Present

2001 - Present

1999 - 2001

Managing Director Shun Thai Rubber Gloves Industry PLC.

Director of Sales and Operations Aerosonics Pte Ltd.

Assistant Sales and Service Manager JCS Automation Pte Ltd.

*The authorized person on behalf of the Company **The established Managing Director for The meeting of The Board of Director No.3/2010 at July 13, 2010 Effective July 13, 2010

Source: Shareholder List issued by Shun Thai Rubber Gloves Industry Plc. As of March 15, 2011


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Company structure consisted of 3 sets of the boards as follows :


The board of directors on December 31, 2010 consisted of 7 directors as follows:

1. Mr. Ong Siew Kwee Chairman of Executive Director 2. Mr. Anan Jesadavisut Deputy Chairman 3. Mr. Ong Siew Bok Director 4. Mr. Lin Fu Lai Director 5. Dr. Sanit Samosorn Chairman of Audit Committee & Independent Director 6. Asso. Prof. Krit Purisinsit Audit Committee & Independent Director 7. Asso. Prof. Suphol Ingprasarn Audit Committee & Independent Director

Note : Miss Sureeporn Sandsang (Manager of Investor Relation Department) acts as the secretary of the Board of Directors of the company

Directors authorized to sign on behalf of the Company

Mr. Anan Jesadavisut or Mr. Lin Fu Lai or Mr. Ong Siew Bok is the director who signs and affixes the authorized seal of the Company.

Scope of authority of the Board of Directors

1. Duties of the Board of Directors The Board of Directors has worked with knowledge, ability and experience to benefit the

business operations of the Company, and comply with the objective, regulations of the Company, including the resolutions of the meetings of the shareholders. It is careful to protect the interests of the Company and is responsible for the shareholders.


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2. Providing review and approval for the appropriate policies. The Board of Directors is responsible for review and approval on the policy and direction

of the operation proposed by the managing director. Except the following matters the Board of Directors has to receive approval from the meeting of the shareholders before operation. e.g. the matters that the law stipulates the meeting of the shareholders must approve them first.

3. Good Corporate Governance of The Board of Director Our Board of Directors carefully look after the management team in order to efficiently

comply with the agreed policies and particularly in screening all important issues that may related to any people that may or may not in compliance with the regulation of Thai Stock Exchange Market.

Anyhow if necessary for some important issues, our board agreed to contract/ employ professional consultants to help in those needed business transactions especially for the areas that may have serious impact to our business performance.

4. To meet the standards of audit system In order to properly control and audit all the business transactions, our management with its

clear scope of internal audit, we have audit division in order to verify and audit all the internal business transaction. This audit will strictly verify and work closely with the audit committees.

5. Business Ethics and Code of Conducts The Board of Director shall provide the compliance manual of the Company on Business

Ethics and Code of Conduct for the management and the employees to be used as a guideline within the organization.


Mr. Anan Jesadvisut, Deputy Chairman, has been act as Managing Director of the company until July 13, 2010. Mr. Ong Siew Bok will be Managing Director afterwards according to the resolution approved by the Board of Directors’ Meeting No. 3/2009 dated July 13, 2010.


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Scope of authority of the Board of Executives Director

1. It has the authority to order planning and operation of the Company to comply with the policies prescribed by the Board of Directors.

2. It has the power to approve on investment projects value not exceeding 10 million baht.

3. It has the power to appoint and manage the department level and up for the benefit and efficiency of the good management and transparency, e.g. consideration on quality control of the product, etc.

4. It has the power to prescribe the fringe benefits of the employees to be suitable with the situations, traditions and consistent with the applicable laws.

5. It has the power to approve provision for bad debts/doubtful debts and file a lawsuit in transaction cases for the obligation from 500,000 baht but not exceeding 2 million baht. Nevertheless, the approvals above shall not include the approvals on items that the executives or conflicting person with vested interest or conflict of interest in any forms with the Company or its affiliates. It includes the specified items that need prior approval from the shareholders to do the interconnected and acquisition or disposal of key assets to be consistent with the requirements of SET

Audit Committee

The Audit Committee consists of 3 persons as follows:

1. Dr. Sanit Samosorn, Chairman of Audit Committee & Independent Director 2. Asso. Prof. Krit Purisinsit, Audit Committee & Independent Director 3. Asso. Prof. Suphol Ingprasarn, Audit Committee & Independent Director


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Scope of Authority of the Audit Committee

1. Make sure that the Company prepares the financial statement correctly and frankly sufficiently, and coordinate with the external auditor and the executive, who has the duty to prepare the financial statement on quarterly and annual basis.

2. Make sure that the Company has the internal audit and inspection sufficiently and effectively.

3. Consider, select and propose the auditor of the Company including his remuneration. 4. Review the operations of the Company to comply with the laws on securities and

Stock Exchange of Thailand (SET), regulations of the (SET) or laws involving the business of the Company.

5. Consider disclosing the information of the Company in case there is an interconnected item or items that may have conflict of interest to be correct and complete.

6. Prepare the report on supervision activities of the Audit Committee by disclosing in the annual report of the Company, which such report shall sign by the chairman of Audit Committee. Such items shall consist of the following items:

a. A comment on preparation process and disclosure of information in the financial report of the Company.

b. A comment on adequacy of the internal control system of the Company.

c. Reasons to believe that the auditor of the Company is suitable to be re-appointed another term.

d. Other repots that it deems the general shareholders and investors should know under the scope of duty and responsibility assigned by the Board of Directors.


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Managing Director

Scope of power and duty of the managing director

1. Indicating/determining Mission, Objective, and Policy of the company including regulating performance, production, customer relation, project planning and be response to the Board of Directors.

2. Authorizing expenses in accordance with the Board of Directors resolutions, including actual expenses or any actual payments.

3. Considering investment, including permanent assets of the company and proposing to the Board of Directors.

4. Considering capital raising to propose to the Board of Directors.

5. Appointing, hiring, laying off and determining salaries, bonus for managers, or below

6. Authorizing allowances for doubtful accounts / debts, but no more than THB, 0.5 m.

7. Acting on behalf of the company.

8. Appointing advisors being, necessary to the operations of the company.

9. Operating for general management / administration of the company.

Nevertheless, approval of the managing director above does not include items that make the managing director or persons with conflict of interest of having vested interest in other forms with the Company or its affiliates need to seek approval from the shareholders. Including the specified items for the interconnected items that derived or acquire of important assets of the Company or its affiliates to seek approval to be consistent with the requirements of the SET on such matters.


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Executives

Executive officers of the Company consist as follows: 1. Mr. Anan Jesadavisut Acting Chief Executive Officer (Operating until July 31, 2010) 2. Mr. Ong Siew Bok Managing Director (Effectively on July 27, 2010) 3. Mr. Porkuan Kittisriswai Technical Director (Plant) (Operating until August 1, 2010) 4. Mrs. Srijai Lourritthikrai Human Resources Director 5. Mr. Hew Seng Yep Marketing Director 6. Mrs. Ratchakul Jittrasirinuwat Accounting and Financial Section Manager 7. Mr. Chan Gog Run Plant Director

(Effectively on August 21, 2010) 8. Ms. Naritsara Sornluksup Marketing Section Manager 9. Ms. Nisanat Kungpibal Production Section Manager 10. Ms. Kanika Kongsupjaroen Packing Section Manager 11. Ms. Janchen Wattanapichitpong Quality Section Manager 12. Mrs. Kongtong Ludlaydee Purchase Section Manager 13. Ms. Sureeporn Sadsang Investor Relation Manager


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Recruitment of directors and executives

The Company has on recruitment committee, as the recruited persons to be appointed the directors shall be considered from the qualifications, knowledge, experience and time to attend the meetings with the board of directors regularly. Nevertheless, the meeting of the shareholders shall appoint the directors using the majority votes according to the criteria and method as follows:

1. One shareholder shall have one vote equal to one share.

2. One shareholder can use the total votes s/he has according to (1) to elect one or several persons to be the directors, but cannot divide the votes to one more or less than others.

3. The persons with the highest votes shall be appointed the directors equal to the number of the directors should be elected for the time. In case the elected persons received equal votes more than the number required in that election, the Chairman shall make the casting vote. In each annual general meeting (AGM) one-third of the directors shall be rotated, If the number of the directors cannot be divide into three parts the nearest number of one-third directors shall be retired. In the first and second year after listing as a public company, drawing lots shall be used to retire the directors. While the years after that the longest serving directors shall be retired, although the rotated directors may be re-elected again.

Corporate Governance

1. Policies of control The company’s directors realizes the significance of the effective business control in that it seeks to ensure the transparency of the business, helps accelerate the company’s abilities to compete, and helps increase the confidence of shareholders, investors and other relevant parties. The company, thus, drafted and determined the policies and direction for its operation in which were crucial to the controlling and internal auditing system to guarantee that the executives would effectively follow such policy. The policies are made for the long-term benefits of the shareholders under the laws and business ethic.


48

2. Shareholders: rights and equivalence All shareholders will have all the rights including the right to attend the shareholder meeting and right to vote in accordance with the Public Company Limited act, the company’s regulations and other relevant rules of the Stock Exchange of Thailand.

3. Right of stakeholder The company realizes the right of all stakeholders including the internal stakeholder - such as officers, the executives of the company and its minor companies-, and the external stakeholder -such as competitors, creditors, government sectors, and other relevant departments. This is because the company also realizes the importance of the endorsement of stakeholder, which helps expedite the company’s competitiveness, and generates the profits as the long-term success of the company.

4. Meeting of the shareholders For the respect of the shareholder meeting, the company has strictly followed the Public Company Limited act, the company’s regulations and the rules of the Stock Exchange of Thailand. In addition, the meeting is conducted in regard to the following principles:

All directors pay close attentions to the participation of the shareholders; In the meeting, the shareholders have a full right to express their opinions, to raise

questions, and to suggest in the appropriate time. The significant opinions, questions, and suggestions will be recorded and included in the minute of the meeting.

5. Leadership and vision The broad of the directors is responsible for determining and approving of the company’s

vision, mission, strategies, objectives, business plans and budget, including controlling the operational departments to follow the approved business plans and budget effectively to ultimately proliferate the economic value to the business and to assure the utmost security to the shareholders.

The broad also provides the effective internal controlling system, internal auditing and risk management system. The follow-up of such system operations is also the constant issue raised in the directorial meeting.


49

6. Conflict of interests The company’s broad of directors has followed the rules and regulations of the Stock Exchange of Thailand for the matter of the inter transaction, the acquiring and purchasing of the registered asset including the connected transaction by disclosing the complete and clear information every time when making any transaction with whom may have conflict of interests. The company has, however, prioritized the total benefits of the company. Every performed operation of the company was made cautiously, honestly, rationally and independently in concert to the good ethic. The price and condition of the transactions were also disclosed under the same conditions of transactions made with the outsiders including the contracts values, the parties to the contracts, rationale and necessity of the contracts as reported in the annual report and the 56-1 form.

In addition, the executives and relevant parties for their own sake have never misused the company’s internal information. All the directors prioritize their career ethics and agree to show the report of their existing asset including of the spouse’s and child who has not become sui juris in accordance with the regulations set by the Stock Exchange of Thailand. No record shown that the directors and executives of the company have sold or purchased the company’s asset during a month the financial budget was publicized. Besides none of the company’s internal information sharing by the executives and departments- has been given to the outsiders or irrelevant parties.

7. Business ethics The company has set the code of conduct for the directors, managerial departments and

officers to be used as a guideline to accomplishing the company’s appointed goals honestly and straightforwardly to both the company itself and all stakeholder, public and society. The company has constantly communicated with its officers and followed up the result of the code. The punishment was also specified.


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8. Balance of authorization of the non-executive director The company’s broad of the directors consists of 7 persons, categorized as follows:

Executive directors 1 person Non-executive director 3 persons Independent directors 3 persons

The company’s broad of the directors will appoint 3 Audit Committee, selected from the independents directors, to remain for the 3-year term and when the term ends the same direct may remain working. The scope of the inspection directors’ operation has clearly been specified in writing.

9. Merging and diverging of position The presidential director is, according to the Stock Exchange of Thailand’s definition, an

independent director and has no relation to the management in order to distinctively separate the business control and the usual management.

10. Executives’ salary Director’s salary The Company has a clear and transparent criterion used in determining

the directors’ salary in which is in the same level with the industrial section and is highly enough to maintain the qualified directors. The salary was already approved in the shareholder meeting. In addition, the audit directors would be given more salary as the responsibility soars

Manager’s salary the company’s broad of directors, which are based on the company’s operating result and each manager’s operational performance, in accordance with the principles and policies makes the manager’s salary.

In 2010 the salaries in number were as follows: Remuneration for directors was the resolution of the Ge neral Shareholders Meeting No . 1/2009 by no more than THB 2 million.


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Remuneration for the Board of Directors and Audit Committees

No. Names Position

The Board of Directors Year 2010

Audit Committee Year 2010

Meeting 5 times

Remuneration Baht

Meeting 4 times

Remuneration Baht

1 Mr. Ong Siew Kwee Chairman of Executive Director 3/5 42,000 - -

2 Mr. Anan Jesadavisut Deputy Chairman 5/5 50,000 - -

3 Mr. Lin Fu Lai Director 1/5 10,000 - -

4 Dr. Sanit Samosorn Chairman of Audit Committee

5/5 50,000 4/4 56,000 & Independent Director

5 Asso. Prof. Krit Purisinsit Audit Committee


6 Asso. Prof. Suphol Ingprasarn Audit Committee


7 Mr. Ong Siew Bok Managing Director 4/5 40,000 - -

TOTAL 282,000 126,000

Note : - Mr. Ong Siew Bok has benn appointed as Managing Director according to the

meeting of The Board of Director No.3/2010 dated July 13, 2010 effectively July 13, 2010

Manager The number of the company’s managers, according to the Securities and Exchange

Commission (SEC), consists of the managing director and the next 4 executives. By counting the next 4 executives in the year 2010, the company had 13 executives and paid the 7,718,200.00 baht executives’ salary.


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11. Directorial meeting In 2010 there were 5 directorial meetings and there were 4 audit committee meeting each

was held with the complete broad of the directors. The meeting details were recorded in writing and were collected, after approved by the broad, to be later examined by the directors and other relevant parties when requested.

12. Controlling and internal auditing system The company’s broad of directors has evaluated the adequacy of the internal auditing

system by employing the Stock Exchange of Thailand’s appraisal form, and concluded that the internal auditing system was adequate and appropriate to the company’s businesses. The system could be briefed as follows:

(1) Organization and environment the company has improved its managerial structure to make it fit best with the expansion of the business, and has clearly set the scope of its responsibilities especially in production and purchasing including modifying the regulations to accommodate the ongoing changing situation;

(2) Risk management the company has paid its attentions to the risks caused by both internal and external factors namely production risk, financial risk including credit providing. The company has arranged hearings on the issue on regular basis;

(3) Control of the operation of management the company has arranged the operational authorization by separating the approval responsibility and asset maintenance responsibility to ensure that no significant issues would be ignored;

(4) Information and communication the company had provided the way to report managerial information to its executives constantly and in no time. The communicative system will be updated frequently;

(5) Follow-up and evaluation the internal audit department has been assigned to made constant evaluations of the company’s internal controlling system to appraise its efficiency and effectiveness to check if it meets the operational objectives


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13. Report of the broad of the directors The broad of the directors is responsible for the company’s total financial budgets and

financial information exhibited in the annual report. Such financial budget was made in accordance with the nationwide accepted and standardized auditing policy- by selecting the most appropriate and most used policy- together with cautious judgment and evaluation including the disclosure of crucial information in remark in the financial budget.

The directors has also sought to ensure that the effective internal controlling system would remain to guarantee the accuracy, completeness and adequacy of auditing information to maintain the company’s asset and prevent any plausible deceitfulness or misuse in the company’s operation.

In so doing, the board of the directors has, thus, assigned audit committees who were non-executives to be in charge of the evaluation of the financial report and internal controlling system. The opinions of the audit committees were already shown in the annual report.

The audit committees pointed out that the company’s internal controlling system were satisfactory in overall. The committees verified the reliability of the company’s financial statement as of December 31, 2010.

14. Investor relations

The company has realized the importance of its information –both financial and non financial- in that the information would have impacts upon investor’s decision-making and stakeholder. The company accordingly emphasized on the disclosure of true, reliable, constant and punctual company-related information. For the matter of the relations of the investors, the company has not yet established particular departments to be put in charge of the issue since the communicative activities were still below. For more information, investors may contact the Investor Relation Department Tel. 02 – 274 – 0951, Fax. 02 – 274 – 0950, Website: www.shunthais.com and E-mail address: [email protected]

http://www.shunthais.com/

mailto:[email protected]


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Human resource

A) As of December 31, 2010, the current numbers of the company’s officers are 838, male 388, and female 450, classified into Thai nationality 461 and others 377. The officers classified by main functions are as the following:

1. Management 84 persons 2. Production 754 persons B) Total salaries The Company total salaries of the company’s officers in the year 2010 as: - salaries + daily wages 111.71 million baht The company provides other welfares such as uniform, accommodation, employee bus, food allowance, and transportation and accommodation allowance to employees as well. C) Policy on Human Resource Development The company has supported all levels of employees of each group on training and seminars, offered both inside and outside the company, relating to government rules and regulations, production safety and environment, skill development, laws, as well as rules and regulation of public act and securities act, etc. This is to facilitate and benefit the company’s operation and the better development. During the past 3 years, the company has never had any labor dispute as well as significant change on the number of employees.


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Internal Audit Board of Directors The Board of Directors assigned the Audit Committee to evaluate the internal control of the company. The responsible department is the Internal Audit Department. The Board of Directors enhances all levels of employees to be aware of ethics and morality by recognizing importance of the internal control and audit. The Board has set in place the efficient internal control and audit system through the whole organization but, in the same time, maintained the flexibility of the operation. With this system, employees are able to control, supervise, evaluate and verify their own operation, including preventing any illegal action as well. Audit Committee The Audit Committee is responsible for considering the sufficiency of the company’s internal control. Its duties cover reviewing performance of the Internal Audit Department, considering important notes to the financial statements and verifying the accountability of the financial statements to ensure the compliance with accounting standards, notifications of Office of Securities and Exchange Commission, notifications of Stock Exchange of Thailand and related laws. If the Audit Committee has recommendations or finds any significant faults, it will report to the Board of Directors for revision and improvement. Internal Audit Department The Internal Audit Department has performed its duties on examining and evaluating the efficiency of the internal control system independently, including providing recommendations for work improvement. Department meetings on result notification are held every month. The Internal Audit Department also coordinates with the management and proposes the company’s risk management guidelines. The Internal Audit Department proposes the Audit Committee the quarterly reports on sales volume, production, latex purchase, etc, and inter-transaction with related persons or companies, including significant events affecting the company’s operation.


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The Board of Directors ensures the internal control system of the company since clear responsible employees are assigned to all working processes. Authorities of authorized persons by transaction value are set in place. The internal audits are conducted and the audit results are reported consistently, transparently, efficiently and effectively by the Internal Audit Department, in order to prevent potential fraud. In addition, the Board of Directors believes that the internal control system is sufficient, proper and efficient in terms of organization and environment, risk management, control of the management’s operation, information technology and data communication, the company’s monitoring and evaluation.


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Related Transactions Detail of Inter-

Company Transaction

Person/ Juristic Person with Mutual

Benefit

Relationship Value of Inter-Company Transaction

(Thousand Baht)

Necessity and Reasonability of Inter- Company Transaction

2009 2010

1. Purchase of latex 60%

- Thai Hua Rubber PLC.

Was a major shareholder holding shares of 37.66 percent as at March 15, 2010 and had related persons. - Normal sales transactions

130,432

36,657

Latex purchase depends on market prices. The company compares quotations of at least 3 suppliers at the same time and compare with standard prices of Rubber Research Institute of Thailand, Bangkok. This is in accordance with the policy on price and purchase. Thai Hua Rubber PLC offers credit terms, 30 – 60 days, to the company, provided that such credit terms are longer than that of other suppliers. The Audit Committee had opinions that purchased prices were reasonable compared with those of other suppliers in the same time period.


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Detail of Inter-Company

Transaction


Benefit


(Thousand Baht)


2009 2010

- D.S. Rubber & Latex Co., Ltd.

Had persons related with Thai Hua Rubber PCL. - Sales transaction - Interest payment rised by late payment

25,640 -

43,224 4

A local latex supplier in Rayong Province so it can save more transport costs than other suppliers.

Price proposal was in accordance with a market price at that time. The company compares quotations of at least 3 suppliers at the same time and compare with standard prices of Rubber Research Institute of Thailand, Bangkok. This is in accordance with the policy on price and purchase.

The inter-company transactions were in accordance with normal business practices and the Audit Committee had opinions that purchased prices were reasonable compared with those of other suppliers in the same time period.


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Transaction


Benefit


(Thousand Baht)


2009 2010

- Tribeca Enterprise Co., Ltd.

Had persons related with Thai Hua Rubber PCL. - Sales transaction

-

1,802

A local latex supplier in Rayong Province so it can save more transport costs than other suppliers.

Price proposal was in accordance with a market price at that time. The company compares quotations of at least 3 suppliers at the same time and compare with standard prices of Rubber Research Institute of Thailand, Bangkok. This is in accordance with the policy on price and purchase.

The inter-company transactions were in accordance with normal business practices and the Audit Committee had opinions that purchased prices were reasonable compared with those of other suppliers in the same time period.


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Transaction


Benefit


(Thousand Baht)


2009 2010

2. Lending - Thai Hua Rubber PLC.

- Was a major shareholder and had related persons. - Loans - Loan interest - Short term loans

65,898 84

85,000

27,498 4,388

75,000

The company borrowed from Thai Hua Rubber PLC and such loan was used as working capital and for latex purchase, at the interest rate of 5.85% annually. (Average MLR of Thai banks during the date of making contracts) Loans of THB 65.90 million in 2009 was debts resulting in debt restructuring agreement and repaid by amortisation until 2011. Hence, inter-transactions in 2010 was outstanding according to the agreement


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Transaction


Benefit


(Thousand Baht)


2009 2010

3. Lease of Tripakee Building (2nd Floor) located at 238/9 Ratchadapisek Road, Huay Kwang District, Bangkok

Tribeca Enterprise Co., Ltd.

Had persons related with Thai Hua Rubber PCL.

162 162 The company leased an area of 184 sq.m. of Tripakee Building and used such area as its Bangkok Office because of good location, convenient transportation. The lease and service contract was made. The Audit Committee examined and had opinions that the leased price was reasonable and close to general lease prices of nearby areas.


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Necessity and reasonableness of transactions Product trading or inter-company transactions of the company have been done under normal business practices, aiming at the maximum benefit of the company. The company has the policy on determining trading prices at market prices as trading with third parties, so that the company can operate effectively in controlling the quality of raw materials or products for sales. This is to bring the highest satisfaction of customers and obtaining or enhancing business relations in the future.

Approval Measure or Procedure of Inter-Company Transaction The Meeting of the Board of Directors No. 7/2551 on 13th August 2008 had a resolution to prepare the report on transactions exceeding 5 million baht. This report will be presented in the Meeting of the Board of Director quarterly. Accordingly, the company will comply with the Securities and Stock Exchange laws, and regulations, orders, or schedules of the Stock Exchange of Thailand and the Office of the Securities and Exchange Commission.

Policy or Tendency of Inter-Company Transaction in the Future The policy on carrying out inter-company transactions in the future will be determined by the Board of Directors. The Board assigned the management to approve transactions with normal trade agreement, which a reasonable man makes with general parties in a same situation and with equal bargaining power, and to ensure transactions in fair prices according to normal business practices. The Audit Committee will participate in considering necessity and reasonability, including price policies and inter-transaction procedures as well.


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Report of the Audit Committee

The Audit Committee consists of 3 persons as follows

1. Dr. Sanit Samosorn, Chairman of Audit Committee & Independent Director

2. Asso. Prof. Krit Purisinsit, Audit Committee & Independent Director 3. Asso. Prof. Suphol Ingprasarn, Audit Committee & Independent Director

The Audit Committee which comprises of non-executive directors has duties and responsibilities on

verifying the accuracy and sufficiency of the financial statements, proper and effective internal control, the compliance with laws and relevant regulations stipulated by the Stock Exchange of Thailand and/ or the Office of Securities and Exchange Commission. The Audit Committee also considers, selects and proposes the auditor’s fee and discloses the company’s information in case of connected transactions or transactions with conflict of interest to enhance accuracy, completeness and transparency.

The Audit Committee approved audit targets, plans and scopes, as well as recognized the audit result

report, provided recommendations to the Internal Audit Department. In addition, the Audit Committee also collaborated with the management to ensure the efficient and accurate supervisory system in compliance with related regulations.

The Audit Committee reviewed the company’s financial statements and discussed on the financial

statements and the sufficiency of the internal control system, including considering the auditor’s notices. The Audit Committee also proposed recommendations and auditor names and auditing fees to the Board of Directors in order to propose to the shareholders’ meeting.


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The company has given great importance to and conducted its business under good corporate governance. The company has complied with rules and regulations of government agencies, and enhanced the operation in line with the good corporate governance in terms of transparency, equality treatment of shareholders, priority to all stakeholders’ rights, and complete, verifiable and accurate information disclosure, leading to the maximum benefit of shareholders and all stakeholders.

Dr. Sanit Samosorn Chairman of Audit Committee & Independent Director


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Financial Statements For each of the years ended December 31, 2010 and 2009

and Report of Certified Public Accountant


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REPORT OF CERTIFIED PUBLIC ACCOUNTANT

To the Shareholders of Shun Thai Rubber Gloves Industry Public Company Limited I have audited the accompanying balance sheets in which the equity method is applied and the separate balance sheets of Shun Thai Rubber Gloves Industry Public Company Limited as at December 31, 2010 and 2009, and the statements of income in which the equity method is applied and the separate statements of income, the statements of changes in shareholders’ equity in which the equity method is applied and the separate statements of changes in shareholders’ equity, and the statements of cash flows in which the equity method is applied and the separate statements of cash flows for each of the years then ended. The management of the Company is responsible for the correctness and completeness of information presented in these financial statements. My responsibility is to express an opinion on these financial statements based on my audits.

I conducted my audits in accordance with generally accepted auditing standards. Those standard requires that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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. I believe that my audits provide a reasonable basis for my opinion.

In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Shun Thai Rubber Gloves Industry Public Company Limited as at December 31, 2010 and 2009, and the result of its operations and its cash flows for each of the years then ended in conformity with generally accepted accounting principles.


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Without qualifying my opinion, I draw attention to Note 1 to the financial statements, based on the financial statements in which the equity method is applied and the separate financial statements for the year ended December 31, 2010, the Company had net loss of Baht 68.7 million and based on the financial statements in which the equity method is applied and the separate financial statements for the year ended December 31, 2009, the Company had net loss of Baht 29.7 million and Baht 28.1 million, respectively. As at December 31, 2010 and 2009, the Company had total current liabilities higher than total current assets of Baht 330.8 million and Baht 224.8 million, and had deficit of Baht 577.2 million and Baht 508.5 million, respectively. Moreover, the Company faced with the liquidity problem and could not repay to a related company creditor so the Company entered into the amendment of restructuring agreement and defaulted the payment on short-term loan from a related company as discussed in Notes 4 and 14 to the financial statements. These matters indicate material uncertainties which may cast substantial doubt about the Company’s ability to continue its operations as a going concern. Thus, the Company’s ability to continue its operations as a going concern may significantly depend on the Company’s success in future operations and can generate sufficient cash flows from operations. The financial statements for each of the years ended December 31, 2010 and 2009 have been prepared on the accounting basis that the Company will continue its operations as a going concern. Accordingly, such financial statements do not include any adjustments relating to the realization of the carrying value and classification of the assets or the amount and classification of liabilities that might be necessary should the Company be unable to continue its operations as a going concern.

(Ms. Waleerat Akkarasrisawad) Certified Public Accountant Registration No. 4411 Baker Tilly Audit and Advisory Services (Thailand) Ltd. Bangkok February 3, 2011


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SHUN THAI RUBBER GLOVES INDUSTRY PUBLIC COMPANY LIMITED

BALANCE SHEETS As At December 31 , 2010 and 2009

ASSETS

In Baht

Financial Statements in which Separate Financial

the Equity Method is Applied Statements

Notes 2010 2009 2010 2009

CURRENT ASSETS

Cash and cash equivalents 4,315,204 12,961,331 4,315,204 12,961,331

Trade account receivables - net 5, 12 84,358,775 100,980,835 84,358,775 100,980,835

Other receivable from related company 4 - 1,102,720 - 1,102,720

Inventories - net 6 196,937,086 303,518,124 196,937,086 303,518,124

Other current assets 5,887,290 6,973,093 5,887,290 6,973,093

Total Current Assets 291,498,355 425,536,103 291,498,355 425,536,103

NON-CURRENT ASSETS

Investments in restricted fixed deposits 12, 23 13,392,790 3,359,369 13,392,790 3,359,369

Investment held for sale - net 7 - 1,324,000 - 1,324,000

Long-term investment in other company

(general investment) - net 8 2,486,568 2,486,568 2,486,568 2,486,568

Property, plant and equipment - net 9, 12, 13 340,656,281 355,160,387 340,656,281 355,160,387

Intangible asset - net 10 366,595 406,373 366,595 406,373

Assets not used in operations - net 11 - - - -

Other non-current assets 1,279,361 1,188,492 1,279,361 1,188,492

Total Non-Current Assets 358,181,595 363,925,189 358,181,595 363,925,189

TOTAL ASSETS 649,679,950 789,461,292 649,679,950 789,461,292

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


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SHUN THAI RUBBER GLOVES INDUSTRY PUBLIC COMPANY LIMITED BALANCE SHEETS

As At December 31 , 2010 and 2009

LIABILITIES AND SHAREHOLDERS’ EQUITY

In Baht



Notes 2010 2009 2010 2009

CURRENT LIABILITIES

Bank overdrafts and short-term loans

from financial institutions 5, 9, 12 301,452,777 290,325,571 301,452,777 290,325,571

Defaulted short-term loan from related company 4 65,000,000 75,000,000 65,000,000 75,000,000

Trade account payables

- Related companies 4 103,674,069 85,705,716 103,674,069 85,705,716

- Other companies 83,091,725 133,598,568 83,091,725 133,598,568

Payables to contractors 6,487,846 - 6,487,846 -

Current portion of liabilities under finance lease contracts 9 1,318,623 1,211,064 1,318,623 1,211,064

Current portion of long-term loan from financial institution 9, 13 4,268,197 12,600,000 4,268,197 12,600,000

Current portion of restructured debts from related company 4, 14 27,497,926 38,400,000 27,497,926 38,400,000

Current portion of long-term loan from related company 4 10,000,000 - 10,000,000 -

Accrued expenses 4 12,964,762 10,667,037 12,964,762 10,667,037

Other current liabilities 6,524,427 2,805,882 6,524,427 2,805,882

Total Current Liabilities 622,280,352 650,313,838 622,280,352 650,313,838

NON-CURRENT LIABILITIES

Liabilities under finance lease contracts - net 9 1,441,842 2,760,465 1,441,842 2,760,465

Long-term loan from financial institution - net 9, 13 - 4,268,197 - 4,268,197

Restructured debts from related company - net 4, 14 - 27,497,926 - 27,497,926

Long-term loan from related company - net 4 - 10,000,000 - 10,000,000

Total Non-Current Liabilities 1,441,842 44,526,588 1,441,842 44,526,588

Total Liabilities 623,722,194 694,840,426 623,722,194 694,840,426



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SHUN THAI RUBBER GLOVES INDUSTRY PUBLIC COMPANY LIMITED BALANCE SHEETS

As At December 31 , 2010 and 2009

In Baht

Financial Statements in which Separate Financial the Equity Method is Applied Statements

Notes 2010 2009 2010 2009

SHAREHOLDERS' EQUITY

Share capital

- Authorized share capital, common share 499,453,373 shares

in 2010 and 702,657,633 shares in 2009 at Baht 1 par value 15 499,453,373 702,657,633 499,453,373 702,657,633

- Issued and paid-up share capital,

common share 499,453,373 shares at Baht 1 per share 499,453,373 499,453,373 499,453,373 499,453,373

Premium on common shares 103,688,297 103,688,297 103,688,297 103,688,297

Deficit (577,183,914) (508,520,804) (577,183,914) (508,520,804)

Shareholders' Equity - Net 25,957,756 94,620,866 25,957,756 94,620,866

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 649,679,950 789,461,292 649,679,950 789,461,292



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SHUN THAI RUBBER GLOVES INDUSTRY PUBLIC COMPANY LIMITED STATEMENTS OF INCOME

For Each of The Years Ended December 31, 2010 and 2009

In Baht



Notes 2010 2009 2010 2009

REVENUES

Revenues from sales 1,009,340,288 724,981,757 1,009,340,288 724,981,757

Other income 4 26,016,463 13,096,833 26,016,463 13,096,833

Total Revenues 1,035,356,751 738,078,590 1,035,356,751 738,078,590

EXPENSES

Cost of sales 4 1,015,042,600 645,425,201 1,015,042,600 645,425,201

Selling expenses 12,936,802 10,442,867 12,936,802 10,442,867

Administrative expenses 4 31,635,167 26,910,625 31,635,167 26,910,625

Management benefit expenses 20 10,635,760 11,011,642 10,635,760 11,011,642

Allowance for doubtful accounts 5 4,029,306 4,848,894 4,029,306 4,848,894

Allowance for loss on decline in value of inventories 6 - 7,744,221 - 7,744,221

Allowance for loss on impairment of investments 7, 8 - 2,207,016 - 1,259,019

Allowance for loss on impairment of assets 9 - 23,910,000 - 23,910,000

Loss on foreign exchange - net 4,985,940 9,471,112 4,985,940 9,471,112

Total Expenses 19 1,079,265,575 741,971,578 1,079,265,575 741,023,581

Loss from Operations (43,908,824) (3,892,988) (43,908,824) (2,944,991)

Share of Loss of Associated Company 7 - (677,294) - -

Loss before Finance Costs (43,908,824) (4,570,282) (43,908,824) (2,944,991)

Finance Costs 4 (24,754,286) (25,166,140) (24,754,286) (25,166,140)

NET LOSS (68,663,110) (29,736,422) (68,663,110) (28,111,131)

Basic Loss per Share (Baht) (0.137) (0.060) (0.137) (0.056)

Weighted Average Number of Shares (Shares) 499,453,373 499,428,551 499,453,373 499,428,551



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SHUN THAI RUBBER GLOVES INDUSTRY PUBLIC COMPANY LIMITED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Financial Statement in which Equity Method is Applied) For Each of The Years Ended December 31, 2010 and 2009

Financial Statements in which the Equity Method is Applied (In Baht)

Issued and Premium on

Paid-up Common

Note Share Capital Shares Deficit Net

Balance as at January 1, 2009 499,393,373 103,628,297 (478,784,382) 124,237,288

Increase in share capital 15 60,000 60,000 - 120,000

Net loss - - (29,736,422) (29,736,422)

Balance as at December 31, 2009 499,453,373 103,688,297 (508,520,804) 94,620,866

Net loss - - (68,663,110) (68,663,110)



(THE SEPARATE FINANCIAL STATEMENT)


Separate Financial Statements (In Baht)

Issued and Premium on

Paid-up Common

Note Share Capital Shares Deficit Net

Balance as at January 1, 2009 499,393,373 103,628,297 (480,409,673) 122,611,997

Increase in share capital 15 60,000 60,000 - 120,000

Net loss - - (28,111,131) (28,111,131)


Net loss - - (68,663,110) (68,663,110)




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SHUN THAI RUBBER GLOVES INDUSTRY PUBLIC COMPANY LIMITED STATEMENTS OF CASH FLOWS


In Baht



2010 2009 2010 2009

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss (68,663,110) (29,736,422) (68,663,110) (28,111,131)

Adjustments to reconcile net loss to net cash

provided by operating activities

Depreciation and amortization 45,929,876 46,912,677 45,929,876 46,912,677

Allowance for doubtful accounts 4,029,306 4,848,894 4,029,306 4,848,894

Allowance for loss on decline in value of inventories - 7,744,221 - 7,744,221

Allowance for loss on impairment of investments - 2,207,016 1,259,019

Allowance for loss on impairment of assests - 23,910,000 - 23,910,000

Gain on sales of investments - (739,200) - (739,200)

Gain on disposal of fixed assets (2,425) (196,088) (2,425) (196,088)

Unrealized loss on foreign exchange 4,170,112 5,786,658 4,170,112 5,786,658

Share of loss of associated company - 677,294 - -

Interest expense 24,739,243 25,166,140 24,739,243 25,166,140

Profit from Operations before Changes

in Operating Assets and Liabilities 10,203,002 86,581,190 10,203,002 86,581,190

Decrease (Increase) in Operating Assets:

Trade account receivables 8,246,902 3,729,754 8,246,902 3,729,754

Other receivable 1,102,720 (1,102,720) 1,102,720 (1,102,720)

Inventories 106,581,038 (155,962,918) 106,581,038 (155,962,918)

Other current assets 1,085,803 1,448,612 1,085,803 1,448,612

Other non-current assets (90,869) (588,001) (90,869) (588,001)

Increase (Decrease) in Operating Liabilities:

Trade account payables (32,362,750) 121,652,848 (32,362,750) 121,652,848

Accrued expenses (2,089,775) 3,665,994 (2,089,775) 3,665,994

Other current liabilities 3,718,545 (11,571,237) 3,718,545 (11,571,237)

Net Cash Provided by Operating Activities 96,394,616 47,853,522 96,394,616 47,853,522



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SHUN THAI RUBBER GLOVES INDUSTRY PUBLIC COMPANY LIMITED STATEMENTS OF CASH FLOWS (Continued)


In Baht



2010 2009 2010 2009

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from disposal of investment held for sale 1,324,000 - 1,324,000 - Decrease (increase) in investments in restricted fixed deposits (10,033,421) 11,412,570 (10,033,421) 11,412,570

Purchases of fixed assets (24,794,650) (13,165,607) (24,794,650) (13,165,607)

Purchases of intangible assets (103,500) (443,900) (103,500) (443,900)

Proceeds from disposal of investments - 739,200 - 739,200

Proceeds from disposal of fixed assets 2,429 200,211 2,429 200,211

Net Cash Used in Investing Activities (33,605,142) (1,257,526) (33,605,142) (1,257,526)



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SHUN THAI RUBBER GLOVES INDUSTRY PUBLIC COMPANY LIMITED STATEMENTS OF CASH FLOWS (Continued)


In Baht



2010 2009 2010 2009

CASH FLOWS FROM FINANCING ACTIVITIES:

Increase (decrease) in overdrafts and short-term loans

from financial institutions 11,127,206 (48,072,118) 11,127,206 (48,072,118)

Proceeds from short-term loans from related companies - 75,000,000 - 75,000,000

Repayments of short-term loans from related companies (10,000,000) (17,600,000) (10,000,000) (17,600,000)

Repayments of liabilities under finance lease contracts (1,211,064) (1,434,459) (1,211,064) (1,434,459)

Repayments of long-term loans from financial institution (12,600,000) (45,284,189) (12,600,000) (45,284,189)

Proceeds from restructured debts from related company - 14,055,735 - 14,055,735

Repayments of restructured debts from related company (38,400,000) - (38,400,000) -

Proceeds from long-term loans from related company - 10,000,000 - 10,000,000

Proceeds from increase in share capital - 120,000 - 120,000

Interest paid (20,351,743) (26,634,024) (20,351,743) (26,634,024)

Net Cash Used in Financing Activities (71,435,601) (39,849,055) (71,435,601) (39,849,055)

NET INCREASE (DECREASE) IN CASH AND

CASH EQUIVALENTS (8,646,127) 6,746,941 (8,646,127) 6,746,941

CASH AND CASH EQUIVALENTS

AT BEGINNING OF YEAR 12,961,331 6,214,390 12,961,331 6,214,390

CASH AND CASH EQUIVALENTS AT

END OF YEAR 4,315,204 12,961,331 4,315,204 12,961,331

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION :

1. Cash and cash equivalents consisted of:

Cash on hand 465,987 135,464 465,987 135,464

Cash in banks

- Savings deposits 2,212,359 1,093,540 2,212,359 1,093,540

- Current accounts 1,636,858 11,732,327 1,636,858 11,732,327

Total 4,315,204 12,961,331 4,315,204 12,961,331

2. Property, plant and equipment acquired by means of:

- Payables to contractors 6,487,846 - 6,487,846 -

- Finance lease contracts - 2,056,075 - 2,056,075

- Cash payment 24,794,650 13,165,607 24,794,650 13,165,607

Total 31,282,496 15,221,682 31,282,496 15,221,682


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SHUN THAI RUBBER GLOVES INDUSTRY PUBLIC COMPANY LIMITED NOTES TO FINANCIAL STATEMENTS

As of December 31, 2010 and 2009 1. GENERAL Shun Thai Rubber Gloves Industry Public Company Limited (“the Company”) was incorporated as a limited company in Thailand on May 24, 1988 and was transformed to be the Public Company on September 4, 2001, which was the date that the Company’s common shares have been approved to be a listed security in the Stock Exchange of Thailand. The Company engaged in manufacturing of rubber gloves for medical profession and industry and manufacturing of latex. The registered address of the Company is located at 9 Moo 4, Tambon Kached, Amphur Muang, Rayong Province, Thailand. As at December 31, 2010 and 2009, the Company’s major shareholder is Thai Hua Rubber Public Company Limited who holds 37.66% of shareholding. As at December 31, 2010 and 2009, the Company’s financial positions are as follows:

In Million Baht Financial Statements in which Separate Financial the Equity Method is Applied Statements 2010 2009 2010 2009 Deficit 577.2 508.5 577.2 508.5 Total current liabilities higher than total current assets 330.8 224.8 330.8 224.8


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Moreover, for each of the years ended December 31, 2010 and 2009, the Company’s results of operations are as follows:

In Million Baht



2010 2009 2010 2009

Net loss 68.7 29.7 68.7 28.1

The Company faced with the liquidity problem and could not repay to a related company creditor so the Company entered into the amendment of debt restructuring agreement as discussed in Note 14 and defaulted the payment on short-term loan from a related company as discussed in Notes 4. These matters indicate material uncertainties on the Company’s ability to continue its operations as a going concern. Thus, the Company’s ability to continue its operations as a going concern may significantly depend on the Company’s success in future operations and can generate sufficient cash flows from operations. The financial statements in which the equity method is applied and the separate financial statements for each of the years ended December 31, 2010 and 2009 have been prepared on the accounting basis that the Company will continue its operations as a going concern. Accordingly, such financial statements do not include any adjustments relating to the realization of the carrying value and classification of the assets or the amount and classification of liabilities that might be necessary should the Company be unable to continue its operations as a going concern. 2. BASIS OF FINANCIAL STATEMENT PREPARATION The statutory financial statements are prepared in Thai Baht and in the Thai language in conformity with generally accepted accounting standards in Thailand. Accordingly, the financial statements in which the equity method is applied and the separate financial statements are intended solely to present the financial position, results of operations and cash flows in accordance with accounting principles generally accepted in Thailand.


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The accompanying financial statements are prepared under the historical cost convention except for those specified in the notes to the financial statements. For the convenience of readers, an English translation of the financial statements has been prepared from the Thai language financial statements, which are issued solely for domestic financial reporting purposes. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash and Cash Equivalents Cash on hand is kept for general use purpose within the Company. Cash equivalents are savings deposits and current accounts, highly liquid investments that are readily convertible to known amount of cash that are subject to an insignificant risk of change in value.

Accounts Receivable and Allowance for Doubtful Accounts Accounts receivable are stated at invoice amount net of allowance for doubtful accounts.

The Company provides an allowance for doubtful accounts equal to the estimated collection losses that may be incurred in the collection of all receivables. The estimated losses are based on historical collection experience coupled with a review of the current status of existing receivables.

Inventory Valuation The Company values its inventories at the lower of cost or net realizable value, whichever is lower by using the following methods:

Finished goods and work in process - at cost (first-in, first-out method) Raw materials and factory supplies - at average cost method

Cost comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of overheads based on normal operating capacity.

Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.


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Investments in Shares Investment in associated company in the separate financial statements of the Company is accounted for using the cost method. Investment in associated company in the financial statements in which the equity method is applied is accounted for using the equity method. Investments in non-marketable equity securities, which the Company holds as other investments, are valued at cost net of allowance for impairment loss. Investments that are expected to be sold in foreseeable future are classified as investments held for sale. Immediately before classification as held for sale, investments are remeasured in accordance with the Company’s relevant accounting policies. Thereafter, the investments are measured at the lower of their carrying amount and fair value less cost to sell. Any impairment losses on initial classification as held for sale and subsequent gains or losses on remeasurement are recognized in the statement of income. However, gains are not recognized in excess of any cumulative impairment loss.

Property, Plant and Equipment Land is stated at cost. Plant and equipment are stated at cost less accumulated depreciation and impairment losses. When assets are sold or retired, their cost and accumulated depreciations are eliminated from the accounts and any gain or loss resulting from their disposal is included in the statements of income.

Depreciation Depreciation of plant and equipment is calculated by reference to their costs on a straight-line basis over the following estimated useful lives:

Years

Land improvements 20 Buildings and building improvements 20 Machinery and equipment 2 to 15 Furniture, fixtures and office equipment 5 Vehicles 5


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Intangible Assets Intangible assets that are acquired by the Company are stated at cost less accumulated amortization.

Amortization is charged to the statement of income on a straight-line basis from the date that

intangible assets are available for use over the estimated useful lives of the assets, unless such lives are indefinite. Intangible assets with an indefinite useful life are not amortized but are systematically tested for impairment at each balance sheet date. The estimated useful lives are as follows:

Years Software licenses 3

Impairment of Assets The Company reviews the impairment of assets whenever events or changes in circumstances indicate that the recoverable amount (the higher of asset’s selling price or value in use) of assets is below the carrying amount. The review is made for individual assets or for the cash-generating unit. If the carrying value of an asset exceeds its recoverable amount, the Company recognizes the impairment losses by reducing the carrying value of the asset to its recoverable amount and recording the devaluation in statements of income or reducing revaluation increment in assets in case that those assets were previously revalued. The reversal of impairment losses recognized in prior years is recorded as part of other income or as a revaluation increment in assets when there is an indication that the impairment losses recognized for the assets no longer exist or are decreased. Such a reversal should not exceed the carrying amount that would have been determined (net of the associated depreciation or amortization). Provision A provision is recognized when the Company has a present legal or constructive obligation as a result of a past event and it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. A provision is reviewed at the balance sheet date and adjusted to reflect the current best estimate. Where the effect of the time value of money is material, the amount of a provision is the present value of the expenditures expected to be required to settle the obligation.


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Use of Estimates In order to prepare financial statements in conformity with generally accepted accounting standards in Thailand, the management needs to make estimates and set assumptions that affect income, expenditure, assets and liabilities in order to disclose information on the valuation of assets, liabilities and contingent liabilities. Actual outcomes may, therefore, differ from the estimates used.

The estimates and underlying assumptions used in the preparation of these financial statements are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

Revenue Recognition Revenue from the sale of goods is recognized in the statement of income when the significant risks and rewards of ownership have been transferred to the buyer. No revenue is recognized if there are significant uncertainties regarding recovery of the condition due, associated costs, the probable return of goods or the continuing management involvement with the goods.

Interest income is recognized on a time proportion basis that reflects the effective yield on the asset.

Other income is recognized as income on an accrual basis. Repair and Maintenance Expenditures on repair and maintenance are charged to expense at the expenditures are incurred. Expenditures of a capital nature are added to the related plant and equipment. Finance Leases Leases in terms of which the Company substantially assumes all the risk and rewards of ownership are classified as finance leases. Property, plant and equipment acquired by way of finance leases are capitalized at the lower of its fair value and the present value of the minimum lease payments at the inception of the lease, less accumulated depreciation. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to the statement of income.


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Operating Leases Leases of assets under which all the risks and rewards of ownership are effectively retained by the less or are classified as operating leases. Lease payments under an operating lease are recognized as an expense on a straight-line basis over the lease term. Finance Costs Interest expenses and similar costs are charged to the statement of income for the period in which they are incurred, except to the extent that they are capitalized as being directly attributable to the acquisition, construction or production of an asset which necessarily takes a substantial period of time to be prepared for its intended use or sale. The interest component of finance lease payments is recognized in the statement of income using the effective interest rate method. Foreign Currency Transactions Foreign currency transactions throughout the year are recorded in the accounts at the rates prevailing at the dates of transactions. Monetary assets and liabilities denominated in foreign currencies (except certain liabilities in foreign currencies covered by forward exchange contracts) at the end of the years are translated into Baht at the prevailing rates at that date. Gains or losses from translations are credited or charged to the statements of income. Liabilities covered by forward exchange contracts are recorded at the forward contract rates. The difference between the current exchange rate (at the contract date) and the forward rate is deferred and amortized to the statement of income by the straight-line method over the terms of the forward exchange contracts. Income Tax The provision for income tax is based on the amount currently payable according to the Revenue Code. However, no income tax is payable for the years 2010 and 2009 since the Company has net loss from operations. Basic Loss per Share Basic loss per share is determined by dividing the net loss by the weighted average number of shares outstanding during the year.


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4. TRANSACTIONS WITH RELATED PARTIES Significant portions of the Company’s assets, liabilities, revenues and expenses arose from transactions with related parties. These parties are related through common shareholdings and/or directorships. The significant transactions with related parties as included in the financial statements are determined at the prices in line with those occur in the normal course of business based on the market price in general or the price as stipulated in the agreement if no market price exits for comparison.

The significant transactions between the Company and its related parties, which included in the statements of income for each of the years ended December 31, 2010 and 2009, are as follows:

Financial Statements in which the Equity Method is Applied / Separate Financial Statements

Credit Term Policy of In Thousand Baht

(Days) Pricing 2010 2009

Other income (Sales of by products)

Related company - Thai Hua Rubber Public Company Limited 30 Market price 5,339 5,047

Purchases of raw materials Related companies - Thai Hua Rubber Public Company Limited 60 Market price 36,657 130,432 - D.S. Rubber & Latex Co., Ltd. 30 Market price 43,224 25,640 - Tri Beca Enterprise Co., Ltd. Cash Market price 1,802 - Total 81,683 156,072

Rental expense Related company - Tri Beca Enterprise Co., Ltd. - Negotiated agreement 162 162

Finance costs (on delay payment for purchases of raw materials) Related company - D.S. Rubber & Latex Co., Ltd. - Negotiated Agreement 4 -

Finance costs (from loan) Related company - Thai Hua Rubber Public Company Limited - Negotiated Agreement 4,388 2,620


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The outstanding balances with related parties as at December 31, 2010 and 2009 are as follows:

In Thousand Baht Balance as at Balance as at December 31, 2009 Increase Decrease December 31, 2010

Other receivable

Related company - Thai Hua Rubber Public Company Limited 1,103 - 1,103 - Defaulted short-term loan from Related company - Thai Hua Rubber Public Company Limited 75,000 - 10,000 65,000

Trade account payables

Related companies - Thai Hua Rubber Public Company Limited 85,706 36,657 27,369 94,994 - D.S. Rubber & Latex Co., Ltd. - 43,224 35,422 7,802 - Tri Beca Enterprise Co., Ltd. - 1,802 924 878 Total 85,706 81,683 63,715 103,674

Accrued interest (included in accrued expenses) Related company - Thai Hua Rubber Public Company Limited 84 4,388 - 4,472

Long-term loan from

Related company - Thai Hua Rubber Public Company Limited 10,000 - - 10,000 Less: Portion due within one year - (10,000) - (10,000) N e t 10,000 (10,000) - -

Defaulted short-term loan from Thai Hua Rubber Public Company Limited is unsecured loan with interest rate 5.85% per annum. This loan is repayable within December 31, 2010. However, the Company defaulted the payment on such short-term loan and is negotiating with such related company for extension the repayment term. Since the short-term loan agreement did not indicate the defaulted interest rate, the Company did not record accrued interest at the rate of defaulted rate in the accounts.

Long-term loan from Thai Hua Rubber Public Company Limited is unsecured loan with no interest bearing. This loan is repayable within April 2011.


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5. TRADE ACCOUNT RECEIVABLES - NET The aging analyses of trade account receivables as at December 31, 2010 and 2009, are as follows:

In Thousand Baht 2010 2009 Within credit term 71,469 72,779 Overdue - Less than 3 months 27,862 30,507 - Over 3 months to 6 months 2,493 - - Over 6 months to 12 months - 183 - Over 12 months 37,793 48,741 Total 139,617 152,210 Less: Allowance for doubtful accounts (55,258) (51,229) Net 84,359 100,981

Allowance for doubtful accounts for the year 4,029 4,533

Reversal of allowance for doubtful accounts for the year - (8,077)

The Company has a credit term with trade account receivables ranging from 15 to 120 days.

During the years ended December 31, 2010 and 2009, the Company additionally provided allowance for doubtful accounts totaling Baht 4.0 million and Baht 4.5 million, respectively. As at December 31, 2010 and 2009, the Company had an allowance for doubtful accounts on trade account receivables of Baht 55.3 million and Baht 51.2 million, respectively. The management believes that such allowance is adequate to absorb possible losses on doubtful accounts.

As at December 31, 2009, the Company had trade account receivables amounting to Baht 33.5

million (2010 : NIL), which were pledged as guaranteed assets for short-term loans from a local financial institution. The Company recorded such short-term loans in the account “Liabilities under the discounted sales of trade account receivables” as discussed in Note 12.


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6. INVENTORIES - NET

In Thousand Baht 2010 2009 Finished goods 43,916 80,569 Work in process 106,010 156,932 Raw materials and factory supplies 88,644 107,650 Total 238,570 345,151 Less: Allowance for decline in value of inventories (41,633) (41,633) Net 196,937 303,518

Allowance for decline in value of inventories for the year - 7,744

The cost of inventories which is recognized as an expense during the years 2010 and 2009 amounted to Baht 1,015.0 million and Baht 645.4 million, respectively. 7. INVESTMENT HELD FOR SALE - NET

Paid-up Percentage Share Capital of Ownership In Thousand Baht (In Thousand Baht) (%) 2010 2009

Bemark & Shun Thai Co., Ltd. Euro 117,300 40 - 2,272 Less: Allowance for impairment of investment - (948) Net - 1,324

In November 2009, the Company entered into an agreement with Ms. Kanitha Matoury to sell the

investment in shares of Bemark & Shun Thai Co., Ltd. of 46,920 shares, in the total amount of U.S. Dollars 40,000 (equivalent to Baht 1.3 million). The Company subsequently received the payment for such disposal of investment in January 2010 of U.S. Dollars 20,000 (equivalent to Baht 0.7 million) and the remaining amount of U.S. Dollars 20,000 will be paid on the date the Company transfers such investment to the buyer. Therefore, the Company classified such investment in associated company as investment held for sale in the


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balance sheet in which the equity method is applied and in the separate balance sheet as at December 31, 2009 and measured it at the lower of carrying amount and fair value less cost to sell. The Company has made an allowance for impairment of this investment in the statement of income in which the equity method is applied and the separate statement of income for the year ended December 31, 2009 at the amount of Baht 1.9 million and amount of Baht 0.9 million, respectively. Subsequently in May 2010, the Company received the remaining amount of U.S. Dollars 20,000 (equivalent to Baht 0.6 million) and derecognized such investment from the account accordingly. 8. LONG-TERM INVESTMENTS IN OTHER COMPANIES (General Investment) – NET

Paid-up Percentage Share Capital of Ownership In Thousand Baht (In Thousand Baht) (%) 2010 2009

Ayudhya Securities Public Company Limited 600,000 0.4 3,205 3,205 Less: Allowance for impairment of Investment (718) (718) Net 2,487 2,487

The net book value of the general investment in shares of Ayudhya Securities Public Company Limited based on the reviewed financial statements for the nine-month period ended September 30, 2010, are lower than their costs by approximately Baht 0.3 million.


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9. PROPERTY, PLANT AND EQUIPMENT – NET

In Thousand Baht

Land and land

improvement

Buildings

and building improvements

Machinery

and equipment

Furniture, fixtures and

office equipment

Vehicles

Construction in

progress

Total

Cost As at January 1, 2009 74,007 151,420 533,368 7,624 4,646 198 771,263 Additions - 795 11,157 281 1,355 1,634 15,222 Disposals - - (3,349) (1,130) - - (4,479) Transfers - 505 361 - - (866) - As at December 31, 2009 74,007 152,720 541,537 6,775 6,001 966 782,006 Additions - 50 13,674 93 - 17,465 31,282 Disposals - - (833) - - - (833) Transfers - 2,156 10,668 - - (12,824) - As at December 31, 2010 74,007 154,926 565,046 6,868 6,001 5,607 812,455

Accumulated Depreciation

As at January 1, 2009 2,035 49,707 300,563 6,978 1,253 - 360,536 Depreciation charge for the year 758 7,265 37,733 313 806 - 46,875 Disposals - - (3,345) (1,130) - - (4,475) As at December 31, 2009 2,793 56,972 334,951 6,161 2,059 - 402,936 Depreciation charge for - the year 739 7,125 36,613 242 1,067 - 45,786 Disposals - - (833) - - - (833) As at December 31, 2010 3,532 64,097 370,731 6,403 3,126 - 447,889 Allowance for Impairment As at January 1, 2009 - - - - - - - - Additions 2,520 8,120 13,270 - - - 23,910 As at December 31, 2009 2,520 8,120 13,270 - - - 23,910 Additions - - - - - - - As at December 31, 2010 2,520 8,120 13,270 - - - 23,910 Net Book Value As at December 31, 2009 68,694 87,628 193,316 614 3,942 966 355,160

As at December 31, 2010 67,955 82,709 181,045 465 2,875 5,607 340,656


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Based on the Company’s current financial position and result of its operations, there is an indicator that its property, plant and equipment may be impaired. Hence, the Company engaged KTAC Appraisal and Services Co., Ltd., an independent appraiser firm, to revalue major portions of its property, plant and equipment for impairment test. According to the report of such independent appraiser firm dated March 10, 2009, which appraised by using the market approach. The Company preliminarily incurred impairment loss on its property, plant and equipment of Baht 33.7 million, which was recorded in the statement of income in which the equity method is applied and the separate statement of income for the three-month period ended March 31, 2009.

Subsequently, the Company reengaged the same independent appraiser firm to review the appraised value (the 1st revaluation) it has done previously and to revalue additional certain assets. According to the results of such revaluation (the 2nd revaluation) by using the market approach, the Company would not have incurred aforesaid impairment losses, whereby such appraiser firm explained the rationales of the significant differences between the 1st revaluation report dated March 10, 2009 and 2nd revaluation report dated August 19, 2009 as follows: 1) There were differences in valuation of machinery which have been modified. For the 1st revaluation,

such appraiser firm revalued machinery based solely on their values from original documents of the machinery.

2) For the 2nd revaluation, such appraiser firm obtained additional documents regarding land development

and improvements, which resulted in the increase in valuation of land. 3) For the 1st revaluation, such appraiser firm surveyed outside the building only and did not obtain any

information on construction costs of building, which made the appraised value of building in the 2nd revaluation increase.

4) There were certain assets additionally revalued, which were not included in the 1st revaluation.


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The details of the 1st and 2nd revaluations are shown below: In Thousand Baht

Appraised Values

Carrying Value

The 1st Appraised

Values Surplus

Deficit (Loss on

Impairment)

The 2nd Appraised

Values

Land and land improvements 71,970 56,460 - (15,510) 74,606 Buildings and building improvements 63,668 90,230 34,032 ( 7,470) 161,308 Machinery and equipment 159,153 159,450 11,037 (10,740) 204,960 Other equipment - - - - 43,700 Total 294,791 306,140 45,069 (33,720) 484,574

Consequently from the above events, the Company engaged another independent appraiser firm, Century 21 Fast and Fair Co., Ltd., to revalue the Company’s assets (the 3rd revaluation). According to its appraisal reports dated October 2, 2009 and October 5, 2009, which appraised by using the market approach, the details are as follows:

In Thousand Baht Appraised Values

Carrying

Value

The 3rd Appraised

Values Surplus

Deficit (Loss on Impairment)

Land and land improvements 71,467 68,947 - (2,520) Buildings and building improvements 92,958 149,485 64,647 (8,120) Machinery and equipment 185,802 194,508 21,976 (13,270) Other equipment 30,589 45,850 15,261 - Total 380,816 458,790 101,884 (23,910)

As a result, the Company recorded allowance for impairment of property, plant and equipment totaling Baht 23.9 million in the financial statements for the year ended December 31, 2009.


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The gross carrying amounts of the Company’s certain fixed assets totalling approximately Baht 138.8 million and Baht 119.5 million were fully depreciated as at December 31, 2010 and 2009, respectively, but these items are still in active use.

The Company has various finance lease contracts with several leasing companies covering certain machinery and vehicles. All of the Company’s land, buildings and improvements that are existing or to be constructed thereon and a portion of machinery and equipment with net book value as at December 31, 2010 and 2009 totaling Baht 318.0 million and Baht 338.2 million, respectively, are mortgaged/pledged as collateral for credit facilities and long-term loans from several local banks as discussed in Notes 12 and 13. 10. INTANGIBLE ASSETS – NET

(In Thousand Baht) Software licences

Cost As at January 1, 2009 - Additions 444 As at December 31, 2009 444 Additions 104 As at December 31, 2010 548 Accumulated Amortization As at January 1, 2009 - Amortization charge for the year 38 As at December 31, 2009 38 Amortization charge for the year 143 As at December 31, 2010 181 Net Book Value As at December 31, 2009 406

As at December 31, 2010 367


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11. ASSETS NOT USED IN OPERATIONS – NET

In Thousand Baht

Cost As at January 1, 2009 20,065 Additions - Disposals (4,478) As at December 31, 2009 15,587 Additions /Disposals - As at December 31, 2010 15,587 Accumulated Amortization As at January 1, 2009 13,494 Additions - Disposals (3,393) As at December 31, 2009 10,101 Additions /Disposals - As at December 31, 2010 10,101 Allowance for impairment As at January 1, 2009 6,571 Additions - Disposals (1,085) As at December 31, 2009 5,486 Additions /Disposals - As at December 31, 2010 5,486 Net Book Value As at December 31, 2009 -

As at December 31, 2010 -

As at December 31, 2010 and 2009, all assets not used in operations are bunker oil boilers which used bunker oil as fuel. Presently, they are not used in operations. The Company recorded allowance for impairment in full.


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12. BANK OVERDRAFTS AND SHORT-TERM LOANS FROM FINANCIAL INSTITUTIONS

Interest rate per annum (%) In Thousand Baht 2010 2009 2010 2009

Bank overdrafts 2.75 - 6.40 6.15 - 7.50 9,393 1,538 Short-term loans from financial institutions 5.125 4.875 - 5.850 46,560 39,780 Packing credits 4.625 - 6.120 4.875 - 5.850 245,500 215,500 Liabilities under the discounted sales of trade account receivables - 4.250 - 4.563 - 33,508 Total 301,453 290,326

As at December 31, 2010, the Company obtained the credit facilities (bank overdrafts, short-term loans and packing credit) from two local banks totaling Baht 525 million and long-term loans from a local bank totaling Baht 50 million. These credit facilities are collateralized by pledging the Company’s fixed deposit amounting to Baht 10 million and mortgaging/pledging the Company’s land, buildings and improvements that are existing or to be constructed thereafter and portion of machinery and equipment as discussed in Note 9, in addition to the guarantee by certain directors of the Company and certain related companies. Moreover, the loan agreements contain conditions and restrictions, such as not to create additional pledge on assets, etc. Under the term of the agreements covering the Company’s liabilities under packin g credits, the Company will receive from the bank the value of the merchandise before shipping the merchandise to customers provided that the Company has a commitment to pay back to the bank upon collection from sales.

Under the term of the agreements covering the Company’s liabilities under the discounted sales of trade account receivables, the Company will receive from the bank a discounted portion of the trade account receivables before the collection date from the customers. The Company has a commitment to pay back to the bank upon collection from the customers as discussed in Note 5.


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13. LONG - TERM LOANS FROM FINANCIAL INSTITUTION – NET

In Thousand Baht 2010 2009 Loan from a local bank 4,268 16,868 Less: Portion due within one year (4,268) (12,600) Net - 4,268

The loan from a local bank with the credit line amounting to Baht 50 million bears interest at MLR. This loan is repayable in 47 monthly equal installments at Baht 1.05 million per month starting from June 2007.

All of the Company’s land, buildings and improvements that existing or to be constructed thereafter and a portion of machinery and equipment are mortgaged/pledged to secure for the loan from bank as discussed in Note 9 in addition to the guarantee by certain directors of the Company and certain related companies. Moreover, the loan agreements contain conditions and restrictions, such as not to create additional pledge on assets, etc.

14. RESTRUCTURED DEBTS - RELATED COMPANY – NET

In Thousand Baht 2010 2009

Thai Hua Rubber Public Company Limited Trade account payable - Latex purchase 10,741 22,741 Short-term loans 16,757 43,157 Total 27,498 65,898 Less: Portion due within one year (27,498) (38,400) Net - 27,498

On August 1, 2009, the Company entered into an amendment of debt restructuring agreement with such related company to extend the repayment period of trade account payable for latex purchase, short-term loans and related accrued interest (up to June 30, 2009) on 28 monthly installments at varying amounts starting August 2009. These restructured debts are non-interest bearing.


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15. SHARE CAPITAL In May 2009, warrant-holders exercised warrants of 60,000 units to purchase common shares of 60,000 shares at Baht 2 per share. The premium on common shares was increased of Baht 60,000. The Company issued and paid-up share capital from Baht 499.4 million (divided into 499,393,373 common shares at Baht 1 par value) to Baht 499.5 million (divided into 499,453,373 common shares at Baht 1 par value). The Company registered the increase in authorized share capital with the Ministry of Commerce on June 1, 2009. At the Ordinary Shareholders’ meeting held on April 9, 2010, the shareholders resolved to approve the decrease in the Company’s authorized share capital by reducing the authorized share capital, which is not exercised by right issue and warrants of the company, of Baht 203,204,260 (divided into 203,204,260 common shares at Baht 1 par value). In this regard, the Company’s authorized share capital will decrease from Baht 702,657,633 (divided into 702,657,633 common shares at Baht 1 par value) to Baht 499,453,373 (divided into 499,453,373 common shares at Baht 1 par value). The Company registered the decrease in share capital with the Ministry of Commerce on May 12, 2010. 16. WARRANTS As at December 31, 2009, the Company has no outstanding warrant since the exercise date was expired on May 14, 2009. After the last conversion, there were unexercised and expired STHAI-W1 and ESOP-W1 of 175,186,928 units and 14,122,500 units, respectively. The Company cancelled the remaining common shares of 189,309,428 shares previously reserved for exercise as discussed in Note 15. 17. REGISTERED PROVIDENT FUND

The Company has established a contributory registered provident fund in accordance with the Provident Fund Act B.E. 2530 based on the approval from the Ministry of Finance on April 23, 2004. Under the plan, members and the Company contribute to the fund at 3% of the employees’ basic salaries. The Company appointed a fund manager to manage the fund in accordance with the terms and conditions prescribed in the Ministerial Regulation No. 2 (B.E. 2532) issued under the Provident Fund Act B.E. 2530. The Company’s contribution for the years 2010 and 2009, which was charged to the statements of income in which the equity method is applied and the separate statements of income amounted to Baht 0.3 million and Baht 0.2 million, respectively.


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18. DISCLOSURE OF FINANCIAL INSTRUMENTS Financial assets and financial liabilities carried on the balance sheet include cash and cash

equivalents, trade account receivables, other receivable from related company, investments in restricted fixed deposits, investment held for sale, investment in other company, defaulted short-term loans and long-term loans from related company, bank overdrafts and short-term loans and long-term loans from financial institutions, trade account payables and liabilities under finance lease contracts. The accounting policies on recognition and measurement of these items are disclosed in the respective accounting policies in Note 3.

Liquidity Risk Liquidity risk arises from the problem in raising funds adequately and in time to meet commitments as indicated in the financial statements. Based on the assessment of the Company’s current financial position and results of operations, the Company has liquidity risk. Hence, the Company entered into the amendment of debt restructuring agreement with a related company to extend the period of repayments. Foreign Currency Risk The Company has commercial transactions in foreign currency, giving rise to exposure risk from changes in foreign exchange rates. Hence, the management considers using forward exchange contracts to mitigate this risk from time to time as appropriate. Credit Risk Credit risk is the risk that a counterparty is unable or unwilling to meet a commitment that it entered into with the Company. The risk is controlled by the application of credit approvals from time to time and monitoring procedures. The carrying amount of accounts receivable recorded in the balance sheet net of allowance for doubtful accounts, if any, represents the maximum exposure to credit risk. Interest Rate Risk Interest rate risk arises from the fluctuation of market interest rates, which may have an impact to current and future operations of the Company. The management considers that the interest rate risk is minimal; hence, the Company has no hedging agreement to protect against such risk.


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Fair Value of Financial Instruments Fair value is defined as the amount at which the instrument could be exchanged in a current transaction between knowledgeable willing parties in an arm’s length transaction. The following methods and assumptions are used to estimate the fair value of each class of financial instruments.

Cash and cash equivalents, trade account receivables and other receivable from related company - the carrying values approximate their fair values due to the relatively short-term maturity of these financial instruments.

Investments in restricted fixed deposits carrying at market floating rate - the carrying values approximate their fair values.

Investment in other company, for which there are no quoted market prices - a reasonable estimate of fair value, which has been calculated, based on the underlying net asset base for such investments, approximate their fair values.

Investment held for sale - the carrying value approximates the fair value.

Bank overdrafts, short-term loans from financial institutions and trade account payables - the carrying amounts of these financial liabilities approximate their fair values due to the relatively short-term maturity of these financial instruments.

Defaulted short-term loans from related company, long-term loans from related company and liabilities under finance lease agreements carrying interest at fixed rate - the fair value could not be calculated appropriately because the market floating rate could not be determined.

Long-term loans from financial institutions carrying interest at floating rate, which are considered to be market rate - the carrying value approximates the fair value.


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19. EXPENSES BY NATURE Significant expenses by nature for each of the years ended December 31, 2010 and 2009 are as follows:

20. MANAGEMENT BENEFIT EXPENSES The monetary management benefit expenses for each of the years ended December 31, 2010 and 2009 are as follows:

In Thousand Baht

Description 2010 2009

Salary 9,422 9,973 Meeting allowances 408 386 Contribution to the Company’s provident fund 106 97 Others 700 556 Total 10,636 11,012

In Thousand Baht

Financial Statements in which the Equity Method is Applied Separate Financial Statements

2010 2009 2010 2009 Raw materials and consumable used 480,095 303,627 480,095 303,627 Change in inventories of finished goods and work in process 87,575 (77,253) 87,575 (77,253) Other production expenses 333,521 312,005 333,521 312,005 Employee benefit expenses 90,329 81,265 90,329 81,265 Depreciation and amortization 45,929 46,913 45,929 46,913 Other expenses 41,817 75,415 41,817 74,467 Total expenses 1,079,266 741,972 1,079,266 741,024


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21. SEGMENT INFORMATION The Company operates in two business segments, which are production and distribution of gloves and latex. Revenues and expenses will relate to business segment and geographical segments as follows:

For each of the years ended December 31, 2010 and 2009, the Company’s sale portions are as follows:

Financial Statements in which the Equity Method is Applied For each of the years ended December 31, (Unit: % per Total Net Sales) 2010 2009 Net foreign sales 87.92 87.99 Net domestic sales 12.08 12.01 Total 100.00 100.00

Financial Statements in which the Equity Method is Applied For each of the years ended December 31, (In Thousand Baht) Manufacturing and

Distributing Manufacturing and

Distributing

Rubber Gloves Latex Total 2010 2009 2010 2009 2010 2009

Revenue from sales 1,002,585 724,982 6,755 - 1,009,340 724,982 Cost of sales (1,009,149) (645,425) (5,893) - (1,015,042) (645,425) Gross profit (loss) margin (6,564) 79,557 862 - (5,702) 79,557

Other income 26,016 13,097 Share expenses (64,223) (96,547) Share of loss of associated company - (677) Finance costs (24,754) (25,166) Net loss (68,663) (29,736)


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22. FOREIGN EXCHANGE FORWARD CONTRACTS As at December 31, 2010 and 2009, the Company had policy to mitigate a foreign exchange rate risk, which occurred from sales of goods in foreign currencies by entering into foreign exchange forward contracts from two financial institutions as follows:

2010 2009 Forward contract value U.S. Dollars 2.7 million U.S. Dollars 0.7 million Euro 0.2 million Equivalent to Thai Baht Baht 98.0 million Baht 23.8 million

23. OTHERS As at December 31, 2010 and 2009, the Company had: a. unused letter of credit amounting to Baht 71.2 million and Baht 10.0 million, respectively. b. letters of guarantee issued by a local financial institution in favor of a government agency amounting to Baht 2.8 million, which are guaranteed by pledging of the investment in fixed deposit amounting to Baht 2.8 million.


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24. NEW THAI ACCOUNTING STANDARDS NOT YET APPLIED

The Company has not applied new Thai Accounting Standards (TAS) that have been issued but are not yet effective as follows:

TAS Topic Effective date TAS 1 (Revised 2009) Presentation of Financial Statements January 1, 2011 TAS 2 (Revised 2009) Inventories January 1, 2011 TAS 7 (Revised 2009) Cash Flow Statements January 1, 2011 TAS 8 (Revised 2009) Accounting Policies, Changes in Accounting Estimates and Errors January 1, 2011 TAS 10 (Revised 2009) Events after the Reporting Period January 1, 2011 TAS 12 Income Taxes January 1, 2013 TAS 16 (Revised 2009) Property, Plant and Equipment January 1, 2011 TAS 17 (Revised 2009) Leases January 1, 2011 TAS 18 (Revised 2009) Revenue January 1, 2011 TAS 19 Employee Benefits January 1, 2011 TAS 21 (Revised 2009) The Effects of Changes in Foreign Exchange Rates January 1, 2013 TAS 23 (Revised 2009) Borrowing Costs January 1, 2011 TAS 24 (Revised 2009) Related Party Disclosures January 1, 2011 TAS 33 (Revised 2009) Earnings per Share January 1, 2011 TAS 36 (Revised 2009) Impairment of Assets January 1, 2011 TAS 37 (Revised 2009) Provisions, Contingent Liabilities and Contingent Assets January 1, 2011 TAS 38 (Revised 2009) Intangible Assets January 1, 2011

The impact that application of the above new Thai Accounting Standards will have on the Company’s financial statements in the period of initial application cannot be reasonably estimated. 25. APPROVAL OF FINANCIAL STATEMENTS The Company’s Board of Directors have authorized these financial statements for issue on February 3, 2011.

aannnnuuaall rreeppoorrtt 22001100shunthaiglove.com/investor relations/annual report 2010...was...

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