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Date/Time
12 Oct 2017 17:02:00
Headline
Clarification of the financial statements Q2 as of June 30, 2017 as requested by the Stock Exchange of Thailand
Symbol
MAX
Source
MAX
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Subject                                  : Clarification of the financial 
statements Q2 as of June 30, 2017 as requested by the Stock Exchange of Thailand
Description                              :
-Translations-
Ref:     69/2017
Date:     12 October 2017
Subject:     Clarification of the financial statements Q2 as of June 30, 2017 as 
requested by the Stock Exchange of Thailand
Attention:     The President
    The Stock Exchange of Thailand
Reference:    Letter of SET no. BorJor. 403/2017, dated 21 September 2017, Re: 
Clarification of the financial statements Q2 as of 30 June 2017

According to Max Metal Corporation Public Company Limited ("the Company"), it 
has submitted its reviewed financial statements for the second quarter ended 30
June 2017, which has been audited by a certified public accountant to the Stock
Exchange of Thailand. It appears that on 6 June 2017, the Board of Directors
approved the investment in HNC Power Company Limited (HNC), a manufacturer and
supplier of palm oil, in the proportion of 60% value of 280 million baht
(transaction size 46.24%), with the goodwill of 132 million baht. Later, as of
30 June 2017, after the investment in such a Company is less than 1 month, HNC
defaulted on short-term loans to financial institutions, including being sued
for damages for breach of contract of crude palm kernel oil in 2 cases and was
sued for damages for an offense arising from the use of cheque 1 case. The
Company does not disclose such material information in the asset acquisition
Information.
Therefore, in order to provide investors with full and clear information to make
a decision to invest in the Company's securities, the Stock Exchange of
Thailand ("SET") would like the Company to clarify additional information and
disseminate such information through the SET as follows:
1.     Debts defaulted and the lawsuit was filed for HNC
1.1 According to Note 15, defaulted liabilities of HNC Power Company Limited 
("HNC") are due to the removal of trade receivables to reduce sales to a
financial institution. Later HNC received payment from such trade receivables
but did not bring such money to pay debts to the financial institutions.
Therefore, the repayment condition of the whole amount of 6.85 million baht has
been breached. Currently, HNC is negotiating with the financial institution.
The SET would like the Company to clarify the additional information as follows:
1.1.1     Why accounts receivable at HNC sale to financial institutions did not 
take money directly to pay financial institutions? The normal process of
factoring but brings the money to repay to the HNC. Also identify why the HNC
did not repay to the financial institution? As a result, broke the terms to
repayment of short-term loans.
According to the factoring transaction above, as the HNC had submitted the 
account receivable's documents to the financial institution without assignment
agreement with the customer and without direct agreement with the creditor, then
the receivable documents still showed that HNC still had claims to the debtor
as the source of repayment. Therefore, when the account receivable was due, the
debtor repaid directly to HNC, and as at that moment, HNC had some liquidity
problems, then it needed to use that fund as its working capital instead of
repayment to the financial institution creditor.
  
1.1.2     The impact of default and a way to prevent it from happening again.
Impact:    HNC has to repay its debt to the financial institution creditor and is 
unable to sale its account receivables to the creditor. During the negotiation,
the penalty interest is 1.75% per month, or a total of Baht 1.06 million as of
30 September 2017 (principle amount of Baht 6.07 million), which can be waived
after the negotiation is completed.
Prevention:    HNC has to prepare operating plan to improve working capital 
management's efficiency in order to reserve enough cash on hand for its working
capital, and try to extend the credit line with other financial institutions for
 its business expansion

1.1.3     The progress of debt negotiation with financial institutions
HNC is currently repay its debt at Baht 50,000 per month, and negotiating in 
repayment the whole amount which is expected to be finished in October 2017. The
outstanding debt consists of Baht 6.70 million of principle, accrued interest
of Baht 0.11 million, and penalty fee as of 30 September 2017 of Baht 1.06
million. During the negotiation, HNC has repaid 2 installments totaling of Baht
0.10 million. For the debts with other financial institution, are still active.

1.2     According to Note 28 to the financial statements there appears lawsuits, 
HNC was sued for 3 lawsuits totaling 10.25 million baht as follows:
-    The lawsuit for breach of sales contracts of crude palm kernel oil, sued for 
8.17 million baht. HNC received 2.17 million baht in advance; the shipment is
incomplete because the parties did not pay the contract.
-    The lawsuit for breach of sales contracts of crude palm kernel oil, sued for 
1.08 million baht. The compromise agreement signed by HNC agreed to pay within
12 months, monthly 50,000 baht.
-    The lawsuit sued for damage base offense due to the use of cheque of 1 million
 baht, HNC has partially repaid, 0.3 million baht.
The SET asked the Company to explain about more information for each case as 
follows:
1.2.1     Cause and date of breach of contract until the cause of the lawsuit.
1.2.2     Summary of the essence of each contract; does the contract parties 
identify relationships with directors, executives and major shareholders of the
Company and its subsidiaries, turnover and payment terms etc.
1.2.3     Describe the damage from breach of the contract of trading.
1.2.4     HNC is currently trading transactions, crude palm kernel oil with 2 
customers or not. If there is no inter-transaction, it will affect the future
earnings of HNC significantly or not. How?
As the question No. 1.2.1 to 1.2.4 involve in such cases consequently, then the 
company would like to clarify in each case as follows;
1.    The lawsuit for breach of sales contracts of crude palm kernel oil for 8.17 
million baht
Cause of breach:    As the HNC had entered to contracts of trading of crude palm 
kernel oil amount of Baht 9.30 million where another party paid an advance
payment amount of Baht 2.17 million, was not meet the advance amount of the
contract of Baht 9.30 million to be paid on 31 March 2016. As the buyer did not
pay the remaining advance payment as agreed and HNC was unable to deliver its
goods as well due to HNC had already use the advance payment as its working
capital
Date:    21 March 2016 as the last advance payment received
Party:    Chumporn Palm Oil Industry Public Company Limited
Relationship:    Regular customer, there is not any relationship to the directors, 
managements of the company and its subsidiaries
Amount:    Baht 9.30 million
Payment Condition:    Before goods delivery
Damage:    Only affect the trading between the counter party
Current Transaction:    None
Effect to HNC's Revenue:    There is not any significant effect due to HNC has many
customers in its portfolio and is still be able to manage is sales through its
existing customers
Status:    Already signed a compromise agreement on 15 September 2017, the details 
of the agreement are as follows;
1) A total principle of Baht 2.70 million
2) No interest during repayment period
3) The repayment shall be paid at the end of each months as follows;
     (1) October - December 2017 by Baht 200,000 per month
     (2) January - February 2018 by Baht 400,000 per month
     (3) March 2018 by Baht 1,300,000
Source of repayment:    Cash flows from operation and credit form other financial 
institutions

2.    The lawsuit for breach of sales contracts of crude palm kernel oil for 1.08 
million baht
Cause of breach:    As the nature of trading is the seller has to deliver its good 
in the future with the buyer has to pay deposit of the goods at agreement date
and the remaining price at receipt of goods. So HNC had a guarantee agreement
for the advance payment amount of Baht 1.0 million, the same amount to the
deposit paid from the buyer, but HNC was unable to deliver its goods to meet the
agreement due to its liquidity problems and had to use its cash for working
capital
Date:    28 April 2016
Party:    OPG Tech Co., Ltd.
    The board of directors of OPG Tech Co., Ltd. consists of;
1.    Mr. Seth  Pattanamas
2.    Mr. Somprasong  Srichai
3.    Mr. Prasert  Kanmotarn
4.    Mr. Pornsak  Amornsri
5.    Mr. Pongtarn  Pitchajamnong
6.    Mr. Apitsit  Rujikiatkamjorn
7.    Mr. Prapat  Apichonpakdee
8.    Mr. Sarawut  Bussayarat
9.    Mr.Pipop  Intaratat
    The major shareholders OPG Tech Co., Ltd. as of 29 April 2017, consists of;
    Name    Shares    %
    1.    Mr. Seth  Pattanamas    688,020    27.52
    2.    Mr. Somprasong  Srichai    677,700    27.11
    3.    Mr. Pornsak  Amornsri    139,660    5.59
    4.    Mr. Prasert  Kanmotarn    139,660    5.59
    5.    Mr. Pongtarn  Pitchajamnong    133,170    5.33
    6.    Mrs. Kainsiri  Kanmotarn    125,690    5.03
    7.    Other minor shareholders    596,100    23.83
    Total    2,500,000    100.00
Business:    Produce and distribute of palm oil
Relationship:    Regular customer, there is not any relationship to the directors, 
managements of the company and its subsidiaries
Amount:    Baht 1.00 million
Payment Condition:    Within 28 April 2016
Damage:    Only affect the trading between the counter party
Current Transaction:    None
Effect to HNC's Revenue:    There is not any significant effect due to HNC has many
customers in its portfolio and is still be able to manage is sales through its
existing customers
Status:    Already signed a compromise agreement on 3 April 2017, which HNC will 
repay its debt to count party amount of Baht 1.08 million within 30 May 2018

3.    The lawsuit sued for damage base offense due to the use of cheque of 1 
million baht
Cause of breach:    As the HNC had paid its cheque to guarantee the advance payment
amount of Baht 1 million in accordant to trade agreement which HNC needs to
issue a cheque at the same amount of deposit to guarantee for good delivery, but
later HNC was unable to deliver its good as contracted then the customer
deposit its cheque and HNC was unable to pay the cheque due to the most of cash
was already used as working capital
Date:    30 April 2016
Party:    OPG Tech Co., Ltd.
Relationship:    Regular customer, there is not any relationship to the directors, 
managements of the company and its subsidiaries
Amount:    Baht 1.00 million
Payment Condition:    Within 28 April 2016
Damage:    Only affect the trading between the counter party
Current Transaction:    None
Effect to HNC's Revenue:    There is not any significant effect due to HNC has many
customers in its portfolio and is still be able to manage is sales through its
existing customers
Status:    Partially repaid of Baht 600,000 and the preliminary examination is 
postponed to 4 December 2017

However, as all 3 cases that HNC is unable to meet the agreements by using the 
advance payment or deposit form customer as a working capital and unable to
deliver goods as contracts, was due to the increase in cost of raw material. In
case of HNC produces and sales at the price in agreements, it would cause
losses. In addition, as HNC had insufficient working capital, it might not be
able to bear too much losses. Therefore, HNC had to use a limited working
capital in production its good that can sell at market price which already
increase as well as cost of raw material, and repaid to the benefit more to HNC.
However, after MAX became HNC's shareholder, and has a policy to create
creditability to the customers and business parties by avoiding any breach of
agreement anymore.

As a total repayment to the debtors of all 3 cases amount of Baht 3.98 million, 
has to be paid by installments within 31 May 2018 in accordant to compromise
agreements amount to Baht 250,000 - 450,000 per month. The source of long-term
fund for repayment and working capital will come from credits from financial
institutions which is currently in the processes of seeking approval from
financial institutions, which can be used its land and plants that have not any
obligation as collaterals. For short-term, if the defaulted debts are
necessarily to be repaid to become active, and the need of working capital
during the credit approval process of financial institutions, HNC may request
financial support from MAX. As the joint venture between MAX and HNC is based on
both have different duties and responsibilities, which MAX has to responsible
financial support and HNC and its managements responsible for business
operation. Then, as the short-term objective is to resolve all defaulted debts
to become active, and generate more income and profit in order to achieve its
plan. If there is any necessity need of fund during the debtors' consideration,
MAX may consider providing financial support to HNC. The financial support will
be in form of loan with interest and repayment condition similar to other
financial supports to others MAX's subsidiaries. The short-term financial
support to HNC may not be on shareholding proportion but will contain a
condition that HNC has to repay its debt to MAX first after the approval from
financial institutions. However, in consideration of additional investments
(CPOA factory and 4 MW bio-gas power plant of Baht 560 million investment), will
 be invested and given financial support in shareholding proportion

1.3     Before investing in HNC, did the Company investigate with due diligence of 
HNC? How? Why did you not know HNC had defaulted on debt repayments with
financial institutions and had many lawsuits filed? The Board of Directors has
taken into account the impact and damages of such cases in the valuation of the
business, and the agreed acquisition price for HNC or not to maintain the
maximum benefit of the Company and its shareholders. How?
As the company had engaged due diligence of HNC completely both in legal and 
accounting which appeared that HNC has defaulted its debt to a financial
institution creditor and also has had some lawsuits sued and claims appeared in
its financial statements already. The legal due diligence result regarding
lawsuits and consolidated financial statements of HNC Power Co., Ltd. as of 30
June 2017 can be summarized as follows;

No.    Case No.    Type    Province    Date    Litigant     Amount     Status     Records in 2016 
financial reports     Note to   financial reports
1    Undecided case No. Phor.Bor. 4456/2559    Civil    Nontaburi    17/11/2016    OPG Tech 
Co., Ltd.    1,000,000.00     As of 3 April 2017, agreed to repay within 12 month at
Baht 50,000 each, started from 30 June 2017 onward    Deferred income of goods of
Baht 1,000,000    Note 11 in 2016 financial reports
2    Undecided case No.  Or.5604/2559    Criminal (Cheque)    Krabi    21/11/2017    OPG Tech 
Co., Ltd.    1,000,000.00     Preliminary examination was postponed to 4 December
2017, and partially repayment of Baht 600,000
    Deferred income of goods of Baht 1,000,000    Note 11 in 2016 financial reports
3    Undecided case No.         Por. 481/2560    Civil    Nontaburi    14/3/2017    Chumporn 
Palm Oil Industry PCL.    8,174,905.62     As of 15 September 2017, agreed to repay
totally of Baht 2,700,000 with installment of Baht 200,000 per month for 6
months, start from 31 October 2017 onward    Deferred income of goods of Baht  Baht
 2,172,780    Note 11 in 2016 financial reports
4    Undecided case No.         Phor.Bor. 394/2560    Civil    Nontaburi    8/2/2017    BMW 
Leasing (Thailand) Co., Ltd.    753,883.00     Examination of the witnesses for
prosecution and defense on 16 November 2017     Other accrued expenses    Note 11 in
2016 financial reports

As the legal due diligence has not found any case other than 4 cases above, all 
cases already appeared in the 2016 financial statements which the company used
for shares valuation. The board of directors has already considered all these
matters and damages from these claims of all cases. As the financial advisor has
evaluated business value by totaling all debts in 2016 financial statements to
be deducted from the shares' value. Then the shares' price the company actually
paid was already reflected all debts and damages from these claims. In addition,
if there is any debts or claims other than those appeared in HNC's financial
statements as of 2016 or increase from the accounting due diligence, the seller
will be responsible for those amount. Therefore, all the debts and claims
appeared in Q2/2017 financial statements of the company is already in the due
diligence reports and all debts and claims were included in the shares valuation
 already.

2.    Progress on investment in PPTC Company Limited (PPTC)
-    5 August 2016, the Board of Directors approved the investment in PPTC Company 
Limited ("PPTC") at the proportion of 21.50% with an investment value of 454
million baht. The Company evaluated PPTC based on the assumption of commercial
income from March 2016, and the Company expects an investment return of 15.5%
(Equity IRR).
-    8 August 2016, the Company had a deposit of 100 million baht and 354 million 
baht and will be paid the remainder when the trading day is complete, which was
expected to be transferred within a month of PPTC shares in December 2016.
-    6 October 2016, the shareholders approved the investment in PPTC.
-    20 January 2017, the Company announced that the PPTC trading has not been 
completed due to awaiting approval from PPTC financial institution creditors,
which was expected to be approved by February 2017.
-    12 April 2017, the Company announced that the PPTC trading has not been 
completed due to awaiting approval from PPTC financial institution creditors,
which was expected to be approved within the second quarter of 2017.
According to Note 13 to the financial statements which indicated that currently,
PPTC trading is in the process of transferring ownership of the investment. The
Company has paid a deposit of 100 million baht for more than one year. The SET
would like the Company to clarify the additional information as follows:
2.1 Status, progress and progress of the investment in PPTC, including timing, 
is expected to complete the transaction.
At present, Prida Pramote Co., Ltd ("Seller") has a notification letter dated 19
September 2017, to the company to cancel the sale and purchasing agreement.
Therefore, the Board of Directors' Meeting of the company No. 13/2017, held on
27 September 2017 has considered and acknowledged the cancellation of the
investment in PPTC, and approve the engagement of memorandum of cancellation.
The Seller has signed memorandum of cancellation on 27 September 2017 and the
company already received back the deposit amount of Baht 100 million on 27
September 2017 by a cheque dated 26 September 2017. The cancelation is a result
from the financial institution creditor has not given a consent to the seller to
proceed the transaction within the period of sale and purchase agreement as the
information disclosed in the company's news of the Cancellation of investment
in PPTC Company Limited. As the company has a letter to the seller to ask for
the reason that the debtor has not consented within given period, the seller has
clarified that the seller cancelled the of sale and purchase agreement in
accordant to the agreement. For the reason why the debtor has not given consent,
the seller believes that it is the consideration process of the debtor, which
the seller is unable to perceive the processes in details and the specific
reason in its consideration.
In conclusion, at present, the seller wants to cancel the sales and purchase 
agreement and is not willing to sell those shares to the company by its right in
accordant to the agreement; if the debtor has not consented within 31 December
2016, but the seller can exercise its right to cancel the sales and purchase
agreement on 19 September 2017. However, during that period, the seller had
tries to cooperate with their debtors for approval as both seller and buyer are
truly willing to sales and purchase PPTC's shares, there is not any intension to
cancel the agreement. As the condition was met, but the seller had not decided
to cancel the agreement immediately due to the consent from creditor was not
finalized and still wanted to sell those shares as the agreement as both buyer
and seller were keep preparing for shares transfer by studying related
agreements from the creditors and prepared for responsibilities after the shares
transfer when the consent given from the creditor. Therefor the seller had not
cancelled the agreement immediately after 31 December 2016 until the creditor's
consideration was final.
Therefore, it is rightful for the seller to cancel the agreement, and the 
company has to collect the deposit as soon as possible, which would be repaid
after the signing of memorandum of cancelation. In entering the memorandum of
cancelation, the company has considered and has opinion that both the company
(Buyer) and Prida Pramote (Seller) have not breached the agreement, if the
company avoided the signing of memorandum of cancelation will create risk of
receiving back the deposit in the future, and may also cost additional expenses
and time, and the chance of losing the case is higher as the seller has not
breached the agreement as it's clearly stated in the agreement that it's right
of the seller to cancel the agreement if the debtor has not given the consent
within 31 December 2016. Therefore, the company entered the memorandum of
cancelation and already received back the deposit in full amount of Baht 100
million.

2.2 In cases the Company has paid a deposit of 100 million baht from 8 August 
2016 but not yet received the return on investment as planned, they have asked
to describe the opinion of the Board of Directors that: is PPTC trading price
reasonable? Since the value of the transaction was assessed on 26 May 2016, the
Company has hired Wealthiest BCA Co., Ltd. as the appraiser, including financial
summary and the results of PPTC for the year 2016, and the latest installment
of the year 2017, which includes the comparative analysis with estimates that
the Company has disclosed to the SET.
Due to the notification of PPTC's shares sales and purchase cancellation, then 
the board of directors has not further considered the matter of PPTC trading
price reasonable, and its financial status and operating result in 2.2. For the
receiving back of deposit amount of Baht 100 million without any return from
investment, the board of directors already considered the matters and as the
amount of Baht 100 million was paid in form of deposit in the shares sales and
purchase agreement, not an investment in PPTC, and the seller has not breached
the agreement. Therefore the company (Buyer) has not any claims for damage or
interest from the deposit, and would receive back only deposit amount.

Please be informed accordingly

Yours sincerely,

(Mr. Itthichai  Arungsrisangchai)
Chief Executive Officer


                         Signature ___________________________
                                    ( Mr. Itthichai  Arungsrisangchai )
                                    Chief Executive Officer
                         Authorized to sign on behalf of the company

______________________________________________________________________
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