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AVANGARDE RESOURCES BHD. (422507-D)

contents

2 Corporate Information 3 Corporate Structure 4 Profile of Board of Directors 5 Corporate Governance 9 Statement of Internal Control 10 Chairman’s Statement 11 Audit Committee Report 13 Financial Statements 2003 & 2004 14 Financial Statements 2003 67 Financial Statements 2004 117 List of Properties 118 Analysis of Shareholdings 120 Notice of Annual General Meeting 121 Form of Proxy


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CORPORATE INFORMATION BOARD OF DIRECTORS Dato’ Dr. Abdul Razak Bin Abdul Chairman

Non-Independent Non-Executive Director Tuan Haji Tamunif Bin Mokhtar Managing Director Dato’ Haji Abu Bakar Bin Mohamed Director Hamidun Bin Masuod Independent Non-Executive Director Ahmad Bin Abu Bakar Independent Non-Executive Director COMPANY SECRETARIES

Tan Kai Jong Tan Lin Hong

REGISTRARS

Bina Management (M) Sdn Bhd Lot 10, The Highway Centre Jalan 51/205 46050 Petaling Jaya Selangor Darul Ehsan Tel : 03-77843922 Fax: 03-77841988

AUDITORS

Kreston John & Gan Chartered Accountants, 160-2-1, Kompleks Maluri Jalan Jejaka 55100 Kuala Lumpur

REGISTERED OFFICE

2nd Floor, 17 & 19, Jalan Brunei Barat, Pudu 55100 Kuala Lumpur Tel: 03-21422153 Fax: 03-21441854

PRINCIPAL PLACE OF BUSINESS

No. 16-3, Jalan USJ 21/6, 47630 UEP Subang Jaya Selangor Darul Ehsan Tel: 03-80249970 Fax: 03-80249831

STOCK EXCHANGE LISTING

Second Board of the Bursa Securities Malaysia Berhad


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CORPORATE STRUCTURE

Avangarde Resources Bhd.

P.C. Building Systems

Align Metro

Sdn Bhd

Malaysian Copper Tube

Sdn Bhd

Jayarena Construction

Sdn Bhd

CAP EAST Plantation

SARL

30% 60%

60%

100%100%

100%

99%

Royong BersatuSdn Bhd


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PROFILE OF BOARD OF DIRECTORS DATO’ DR. ABDUL RAZAK BIN ABDUL, age 56, is the Director of ARB having been appointed to as ARB Director on 9 January 2006. Dato’ Dr. Abdul Razak Bin Abdul graduated with a Diploma in Banking at Institut Teknologi MARA. He obtained a Bachelor of Science (Econs) from Wilmington College, OHIO; a MBA (Finance) from New York University; a Ph.D (International Business), from Katholiek University of Leuven, Belgium. He is also a director of several private limited and public listed companies in Malaysia. No conflict of interest with the Group and has no family relationship with any other director or major shareholder of the Group. Nor has been convicted for offences within the past ten years other than for traffic offences, if any. TUAN HAJI TAMUNIF BIN MOKHTAR, aged 42, is the Managing Director of ARB having been appointed to his current position on 28 May 1998. He has been a Director of JCSB since 3 February 1994 and was appointed the Managing Director of JCSB on 30 August 1995. He was also appointed to the Board of Directors of PCBSSB, AMSB, MCTSB and RBSB on 30 September 1996, 12 April 1996, 30 September 1996 and 23 January 2001 respectively. Tuan Haji Tamunif graduated with a Diploma in Quantity Surveying from MARA Institute of Technology, Malaysia in 1985. He is also a director of several private limited companies in Malaysia. No conflict of interest with the Group and has no family relationship with any other director or major shareholder of the Group. Nor has been convicted for offences within the past ten years other than for traffic offences, if any.

DATO’ HAJI ABU BAKAR BIN MOHAMED, aged 64, is the Director of ARB having been appointed to his current position on 23 September 1998. He was appointed to the Board of Directors of JCSB on 18 September 1998. He is currently responsible for the overall administration and human resources management of the Company. Dato Haji Abu Bakar graduated with a Diploma in Small Scale Industries Management from the Research Institute of Management Science, Netherlands in 1970. Presently, he holds directorship several private limited company in Malaysia. No conflict of interest with the Group and has no family relationship with any other director or major shareholder of the Group. Nor has been convicted for offences within the past ten years other than for traffic offences, if any. ENCIK HAMIDUN BIN MASUOD, aged 53, is the Independent Non-Executive Director of ARB having been appointed to his current position since 11 March 1997. Encik Hamidun graduated with a Diploma of Quantity Surveying from the Insitute Teknologi Kebangsaan, Malaysia (now known as Universiti Teknologi Malaysia) in 1974 and subsequently he obtained a Bachelor of Science (Quantity Surveying) from Thames Polytechnic, United Kingdom in 1977. Presently, he holds directorship in several public listed companies in Malaysia, namely, FA Peninsular Berhad and Concrete Engineering Products Berhad. He is also a director of several private limited companies in Malaysia. No conflict of interest with the Group and has no family relationship with any other director or major shareholder of the Group. Nor has been convicted for offences within the past ten years other than for traffic offences, if any. ENCIK AHMAD BIN ABU BAKAR, aged 51, is the Independent Non-Executive Director of ARB having been appointed to his current position since 29 June 2002. Encik Ahmad is a Chartered Accountant of the Malaysian Institute of Accountants. Presently, he also holds directorship in Johore Tenggara Oil Palm Berhad. He is also a director of several private limited companies in Malaysia. No conflict of interest with the Group and has no family relationship with any other director or major shareholder of the Group. Nor has been convicted for offences within the past ten years other than for traffic offences, if any.


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CORPORATE GOVERNANCE The Board of Directors fully appreciates the importance of adopting high standards of corporate governance within the Group, as required under the Bursa Malaysia Securities Berhad (“Bursa Securities”) Listing Requirements. The Board is pleased to provide the following statement, which outlines the main corporate governance practices that were in place as set out in Part 2 of the Code except for the following: -

Best practice provision Details Reasons

AAVII

Nomination of a Senior Independent Non-Executive Director

The Board feels that with the separation of the role of Chairman and the Group Executive Director, it is not necessary to nominate a recognised Senior Independent Non-Executive Director other than the Chairman.

THE BOARD OF DIRECTORS Composition The Board of Directors comprises three (3) executive directors and two (2) independent non-executive directors in 2003 and two (2) executive directors and two (2) independent non-executive directors in 2004 of which the non-executive directors have contributed significantly towards performance monitoring, control as well as governance. Meetings During the year ended 31 December 2003 and 31 December 2004, the Board has met a total of four (4) times each whereby their attendances are as follow:

Name Attendance

Tuan Haji Tamunif Bin Mokhtar

2003 2004

3/4 3/4 Lee Man Thong @ Lee Mun Thong (deceased 16-05-2003) - - Dato Haji Abu Bakar Bin Mohamed 4/4 4/4 Hamidun Bin Masuod 4/4 2/4 Ahmad Bin Abu Bakar 4/4 4/4

Supply of Information The Chairman ensures that all directors have full and timely access to all information, with the Board papers distributed in advance of the meetings. Prior to the meetings of the Board, comprehensive reports including agenda and other reports relevant to the issues of meeting were circulated to all Directors at least three (3) working days in advance to enable the Directors, where necessary, be properly briefed before any such meeting. All Directors have access to the advice and services of the Company Secretary and may seek independent advice should the need arises.


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Appointment to the Board The Board has a Nomination Committee comprising two (2) independent non-executive directors who are empowered to recommend to the Board over the appointment of new directors. Re-election The Articles of Association provides that at least one-third of the Board is subject to retirement by rotation at each Annual General Meeting whereby each retiring director shall be those who have been in office since their last election and shall be eligible for re-appointment. The election of each director is voted on separately. Directors Training As an integral part of the appointment process, the Nomination Committee ensures that there is an orientation and education programme for new Board members. Directors will also receive further training from time to time, particularly on relevant new laws and regulations and changing commercial risks. DIRECTORS’ REMUNERATION Details of the Directors’ Remuneration The objective of the remuneration policy practiced by the Remuneration Committee is to ensure that the Company attracts and retains the directors needed to run the Company successfully. The Remuneration Committee recommends to the Board the remuneration framework for directors’ as well as the remuneration packages to the Board. The directors’ fees and emoluments are endorsed by the Board for the approval by shareholders of the Company at Annual General Meeting (AGM). In addition, the independent non-executive directors to the Board are paid a meeting allowance for each meeting they attended, except the executive directors, which the Board considers part of their duties within the Board. Details of the nature and amount of each major element of the remuneration made available from the Company and its subsidiaries during the financial year are as follows: - (a) Aggregate remuneration of Directors categorised into appropriate components: -

2003

Fees

RM’000

Salaries RM’000

Benefits-In-Kind

RM’000

Total

RM’000

Executive directors 29 442.5 - 471.5 Non-executive directors 24 - - 24

2004

Fees

RM’000

Salaries RM’000

Benefits-In-Kind

RM’000

Total

RM’000

Executive directors 24 287 - 311 Non-executive directors 13 - - 13


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(b) The number of Directors of the Company whose total remuneration falls within the following band: -

2003

Number of Directors Range of remuneration Executive Non-Executive RM0 to RM50,000

-

2

RM50,001 to RM100,000 1 (Note 1) - RM100,001 to RM150,000 1 - RM150,001 to RM200,000 - - RM200,001 to RM250,000 - - RM250,001 to RM300,000 1 -

θ Note 1 : the number is inclusive of an executive director that deceased within the financial period. 2004

Number of Directors Range of remuneration Executive Non-Executive RM0 to RM50,000

-

2

RM50,001 to RM100,000 - - RM100,001 to RM150,000 1 - RM150,001 to RM200,000 1 - RM200,001 to RM250,000 - - RM250,001 to RM300,000 - -

SHAREHOLDERS The company recognised the importance of communication with its shareholders through the annual report and AGM. It has also been the Company’s practice to send notice of Annual General Meeting and related papers to shareholders at least fourteen (14) working days before the meeting. ACCOUNTABILITY AND AUDIT Financial Reporting In presenting the annual financial statements and quarterly reports to the Bursa Securities and the annual report to shareholders, the directors have taken appropriate steps to present a clear, balanced and understandable assessment of the Group’s position and prospects. The Board is also assisted by the Audit Committee to oversee the Group’s financial reporting process and the quality of its financial reporting.

Director’s responsibility on preparation of the Annual Audited Financial Statements The Board is responsible for ensuring that the financial statements give a true and fair view of the state of affairs of the Group and of the Company as at the end of the accounting period and of their profit or loss for the period ended.


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The directors have also ensured that all applicable approved accounting standards and suitable policies and the provision of the Companies Act, 1965 have been adhered and applied consistently in making reasonable and prudent judgements and estimates. The directors are also responsible for ensuring that the Company keeps proper accounting records and that such records are disclosed with reasonable accuracy to ensure that the financial statements comply with the Companies Act, 1965.

Internal Control The Board continues to maintain a sound system of internal control to safeguard shareholder’s investment and the Groups assets, which is further elaborated under the Statement of Internal Control by the Directors on page 8 of the Annual Report.

Relationship with the Auditors Key features underlying the relationship of the Audit Committee with external auditors are included in the Audit Committee’s terms of reference.


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STATEMENT OF INTERNAL CONTROL The Board of Directors acknowledges its responsibility for the Group’s systems of internal control which is designed to ensure an effective and efficient operations and internal control, including financial reporting and compliances with the laws and regulations. The key elements of the internal controls implemented throughout the Group’s operations are as follows: - • The Group has a clearly defined management structure and a team of employees that is well

conversant with their specific roles and responsibilities in the organization. • Clearly defined delegation of responsibilities to committees of the Board that includes

appropriate authorisation levels for all aspects of the business. • Management meetings held to review the Group’s performances from the financial and

operational perspective. • The Audit Committee reviews the quarterly financial reports and annual financial statements. • Regular information provided to management, covering financial and operational

performances. • Internal procedures covering significant areas of operations and administration, particularly in

areas pertaining project tender submission and evaluation, and recruitments respectively. The Board recognizes the importance of undertaking formal approach towards risk management and has continued working towards complying with the guidance issued by the relevant authority. However, adherence to the systems of internal control can only provide a reasonable but not absolute assurance against possible risk of material loss.


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CHAIRMAN’S STATEMENT On behalf of the Board of Directors I am pleased to present to you the Annual Reports and the Annual Audited Accounts of Avangarde Resources Berhad and its Group of Companies for the financial years ended 31 December 2003 and 31 December 2004. FINANCIAL RESULTS For the years ended 2003 and 2004, the Group has registered a pre-tax loss of RM127.352 million and RM14.947 million respectively. The losses incurred by the Group are attributed to provision of doubtful debts and writing off of bad debts and amount due from contract customers during the financial years. FUTURE PROSPECTS The Company and its subsidiary, P.C Building Systems Sdn. Bhd. have obtained a Restraining Order from the High Court under Section 176 (10) of the Companies Act, 1965 on 5 April 2006. The Company and its subsidiary are in the process of embarking on a Scheme of Restructuring so as to improve the financial conditions of the Group and at the same time increase the earnings of the Group by having more contract jobs. It has been the Group’s intention to continue as a going concern and is desirous to re-establish its businesses to ensure that the shareholders’ interests are safeguarded. ACKNOWLEDGEMENT On behalf of the Board, I would like to express our appreciation to our shareholders, bankers and business associates for their continued understanding, support and assistance during this period. To our employees, I would like to thank them for their continued effort and dedication in spite of the current operating environment. Thank you.

Dato’ Dr. Abdul Razak Bin Abdul

Chairman


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AUDIT COMMITTEE REPORT Membership The present members of the Committee comprise: - Hamidun Bin Masuod (Chairman, independent non-executive director) Ahmad Bin Abu Bakar (Independent non-executive director) Tuan Haji Tamunif Bin Mokhtar (Executive director) Terms of reference The primary objective of the Audit Committee (“the Committee”) is to assist the Board in fulfilling the fiduciary responsibilities in relation to corporate accounting, internal control systems, external audit findings and processes, management and financial reporting practices of the Group. Details of existing Director’s meeting attendance are as follows:

Name Attendance

2003 2004

Hamidun Bin Masuod 4/4 2/4 Ahmad Bin Abu Bakar 4/4 4/4 Tuan Haji Tamunif Bin Mokhtar 3/4 3/4

Functions In fulfilling its primary objective, the Committee’s functions include the following matters:

• Reviewing the external audit reports to ensure that appropriate and prompt remedial actions are taken by the management on any major deficiencies in controls or procedures that are identified.

• Reviewing assistance given by the Group’s officers to the auditors, difficulties that may be

encountered in the course of the audit work, including any restrictions on the scope of activities or access to required information.

• Reviewing the objectivity of the external auditors services, including non-audit services and

the professional fees, to ensure a proper balance between objectivity and value for money.

• Reviewing the external auditors appointment and performance, audit fee, resignation or dismissal before making any recommendations to the Board.

• Reviewing the adequacy, integrity and evaluation by the external auditors of the internal

control systems, which includes the management information system.


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• Directing and supervising any special projects or investigation considered necessary and reviewing the investigation reports on any major defalcations, frauds and thefts.

• Reviewing the quarterly results and the year-end financial statements prior to the Board’s

approval.

• Reviewing the Group’s procedures to ensure that they are in compliance with the Companies Act 1965, Bursa Malaysia Securities Berhad (“Bursa Securities”) Listing Requirements and other legislative and reporting requirements.

• Reviewing any related party transaction and conflict of interest situation that may arise

within the Group that raise question on management integrity. Summary of activities during the financial year The Committee has carried out its duties in accordance with its terms of reference and functions during the year as follows: -

• Review the consolidated quarterly results, year-end financial reports, annual reports and the audited financial statements of the Company prior to the Board’s consideration and approval to ensure that the reports were drawn up in accordance with the provisions of the Companies Act 1965, the Listing Requirements of Bursa Securities, the Accounting Standards approved by MASB and other relevant legal and regulatory requirements.

• Review the independence and objectivity of the external auditors and the services provided.

• Regularly review on the effectiveness of the Group’s internal control systems that are in place and assess their compliances with the guidance guides issued by the relevant authorities.

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Financial Statements 2003 & 2004


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Financial Statements 31st December

2003

Index Pages No.

Corporate Information 15

Directors’ Report 16-19

Auditors’ Report 20-21

Consolidated Balance Sheet 22

Consolidated Income Statement 23

Consolidated Statement of Changes in Equity 24

Consolidated Cash Flow Statement 25&26

Balance Sheet 27

Income Statement 28

Statement of Changes in Equity 29

Cash Flow Statement 30

Notes to the Financial Statements 31-65

Statement by Directors 66

Statutory Declaration 66


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CORPORATE INFORMATION for the year ended 31st December 2003 Board of Directors : Dato’ Dr. Abdul Razak Bin Abdul - Chairman : Tuan Haji Tamunif Bin Mokhtar - Managing Director : Dato’ Haji Abu Bakar Bin Mohamed : Hamidun Bin Masuod : Ahmad Bin Abu Bakar Company Secretaries : Tan Kai Jong (MACS 01222) : Tan Lin Hong (MAICSA 0767479) Audit Committee : Hamidun Bin Masuod : Ahmad Bin Abu Bakar : Tuan Haji Tamunif Bin Mokhtar Auditors : Kreston John & Gan Chartered Accountants (Firm No. AF 0113) Registered Office : 2nd Floor, 17 & 19, Jalan Brunei Barat, Pudu 55100 Kuala lumpur Tel: 03-21422153 Fax: 03-21441854 Share Registrar : Bina Management (M) Sdn. Bhd. Lot 10, The Highway Centre, Jalan 51/205 46050 Petaling Jaya, Selangor Darul Ehsan Tel: 03-77843922 Fax: 03-77841988 Business Address : No. 16-3, Jalan USJ 21/6, 47630 UEP Subang Jaya Selangor Darul Ehsan Tel: 03-80249970 Fax: 03-80249831 Email: [email protected] Principal Bankers : RHB Bank Berhad : United Overseas Bank : Malayan Banking Berhad Stock Exchange Listing : Second Board of the Bursa Malaysia Securities Berhad (“BMSB”)


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DIRECTORS' REPORT for the year ended 31st December 2003 The directors have pleasure in submitting their report and the audited financial statements of the Group and of the Company for the financial year ended 31st December 2003. Principal Activities The Company is principally engaged in investment holding and provision of management services. The principal activities of the subsidiary companies are set out in Note 6 to the financial statements. There have been no significant changes in these principal activities during the financial year. Results Group Company RM’000 RM’000 Net loss for the financial year after taxation 127,432 45,169 Reserves and Provisions There were no material transfers to or from reserves or provisions during the financial year other than those disclosed in the financial statements. Issue of Shares During the financial year, the Company increased its issued and paid-up capital from RM35,000,000 to RM43,750,000 by way of bonus issue of 8,750,000 new ordinary shares of RM1 each in the ratio of 1 bonus share for every 4 existing ordinary shares held. The bonus shares were issued by way of capitalisation of RM8,750,000 from the Company’s reserve. The new shares issued rank pari passu in all respects with the existing shares of the Company. Employees’ Share Options Scheme (“ESOS”) The ESOS which have yet to implement were approved by the shareholders during the Extraordinary General Meeting held on 27th December 2002. Details of the ESOS are set out in Note 18 to the financial statements.


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Directors’ Report for the year ended 31st December 2003 (cont’d) Directors of the Company The directors who served since the date of the last report are : - Dato’ Dr. Abdul Razak Bin Abdul - Chairman, appointed on 9/1/06 Tuan Haji Tamunif Bin Mokhtar - Managing Director Dato’ Haji Abu Bakar Bin Mohamed Hamidun Bin Masuod Ahmad Bin Abu Bakar Lee Man Thong @ Lee Mun Thong - deceased on 16/5/03 Directors' Interests The directors holding office at the end of the financial year and their interests in the ordinary shares of the Company during the financial year ended 31st December 2003 as recorded in the Register of Directors’ Shareholdings were as follows : - Number of ordinary shares of RM1 each As at

1/1/2003 Bought

Sold As at

31/12/2003Shares in the Company Direct interests Tuan Haji Tamunif Bin Mokhtar 69,698 17,425 - 87,123Dato’ Haji Abu Bakar Bin Mohamed 4,000 11,000 - 15,000 Indirect interests Tuan Haji Tamunif Bin Mokhtar 9,505,000 2,376,250 (3,952,700) 7,928,550 By virtue of their interests in the shares of the Company, Tuan Haji Tamunif Bin Mokhtar and Dato’ Haji Abu Bakar Bin Mohamed are deemed to have an interest in the shares of the subsidiary companies of Avangarde Resources Berhad in the financial year. Directors’ Benefits Since the end of the previous financial year, none of the directors of the Company have received or become entitled to receive any benefit (other than a benefit included in the aggregate amount of emoluments received or due and receivable by the directors as shown in the financial statements) by reason of a contract made by the Company or a related corporation with the director or with a firm of which the director is a member, or with a company in which the director has a substantial financial interest other than disclosed in Note 35 to the financial statements. There were no arrangements during and at the end of the financial year which had the object of enabling the directors of the Company to acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate.


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Directors’ Report for the year ended 31st December 2003 (cont’d) Other statutory information Before the financial statements of the Group and of the Company were made out, the directors took reasonable steps : - i) to ascertain that proper action had been taken in relation to the writing off of bad debts and the

making of provision for doubtful debts and have satisfied themselves that all known bad debts had been written off and that adequate provision had been made for doubtful debts; and

ii) to ensure that any current assets which were unlikely to realise their values as shown in the

accounting records in the ordinary course of business had been written down to an amount which they might be expected so to realise.

At the date of this report, the directors are not aware of any circumstances : - i) that would render the amount written off for bad debts, or the amount of the provision for

doubtful debts, in the Group and in the Company inadequate to any substantial extent; or ii) that would render the value attributed to the current assets in the Group’s and in the Company’s

financial statements misleading; or iii) which have arisen which render adherence to the existing method of valuation of assets or

liabilities of the Group and of the Company misleading or inappropriate; or iv) not otherwise dealt with in this report or the financial statements, that would render any amount

stated in the financial statements of the Group and of the Company misleading. At the date of this report, there does not exist : - i) any charge on the assets of the Group or of the Company which has arisen since the end of the

financial year which secures the liabilities of any other person; or ii) any contingent liability in respect of the Group or of the Company which has arisen since the

end of the financial year. No contingent liability or other liability of any company in the Group has become enforceable, or is likely to become enforceable within the period of twelve months after the end of the financial year which, in the opinion of the directors, will or may substantially affect the ability of the Group and of the Company to meet their obligations as and when they fall due except as disclosed in Note 31 to the financial statements. In the opinion of the directors, the results of the operations of the Group and of the Company for the financial year ended 31st December 2003 have not been substantially affected by any item, transaction or event of a material and unusual nature nor has any such item, transaction or event occurred in the interval between the end of that financial year and the date of this report.


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Directors’ Report for the year ended 31st December 2003 (cont’d) Significant subsequent events Significant subsequent events are disclosed in Note 33 to the financial statements. Auditors The auditors, Kreston John & Gan, Chartered Accountants, have expressed their willingness to continue in office. Signed on behalf of the Board in accordance with a resolution of the Directors Tamunif Bin Mokhtar Dato’ Abu Bakar Bin Mohamed Kuala Lumpur, Date : 31st March 2006


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AUDITORS' REPORT to members of Avangarde Resources Berhad We have audited the financial statements set out on pages 22 to 65 of Avangarde Resources Berhad. These financial statements are the responsibility of the Company's directors. It is our responsibility to form an independent opinion, based on our audit, on those financial statements and to report our opinion to you, as a body, in accordance with Section 174 of the Companies Act, 1965 and for no other purpose. We do not assume responsibility towards any other person for the content of this report. We conducted our audit in accordance with approved standards on auditing issued in Malaysia. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. 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 the directors as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion. The scope of our work was limited by the matters referred to items (ii) to (v) below : - i) The financial statements of the Group have been prepared on a going concern basis. This

basis may not be appropriate because the Group incurred an accumulated losses of approximately RM147,956,000 as at 31st December 2003 and at that date its current liabilities had exceeded its current assets by RM110,440,000. The Group’s going concern status is therefore dependent on the ability of the Group to generate profits in future and/or obtaining of long term financing.

If the Group is unable to continue as a going concern, adjustments would have to be made to reduce the value of assets to their recoverable amounts, to provide for any further liabilities which may arise and to reclassify the non-current assets and non-current liabilities as current assets and current liabilities respectively.

ii) In view of the current operations of the Group, we are unable to ascertain whether the carrying

value of property, plant and equipment is impaired and requires a write down. iii) We refer to Note 6 to the Group financial statements. The financial statements of a subsidiary,

P. C. Building Systems Sdn. Bhd. were not audited since year 2002 and have been prepared on a realisation basis. We are unable to determine whether all adjustments relating to the carrying value of the assets and liabilities have been made or are appropriate.

iv) We refer to Note 6 to the Group financial statements. The financial statements of a subsidiary,

CAPEAST Plantation SARL, for the year ended 31st December 2002 and 2003 were not audited.

Therefore, we are not able to satisfy ourselves that the management accounts of the subsidiary

that have been consolidated with the financial statements are in form and content appropriate and proper for the purposes of the preparation of the consolidated financial statements.


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Auditors' Report to Members of Avangarde Resources Berhad (cont’d) v) As disclosed in Notes 15, 16 and 32 to the financial statements, certain subsidiaries have

payments in arrears due to financial institutions, and certain financial institutions have obtained summary of judgement from court for full payment of the amounts due to respect of credit facilities granted. Where applicable, the amounts owing including the interest have been provided for in the financial statements but additional interest from the date of the claims have not been accounted for.

As disclosed in Notes 31 and 32 to the financial statements, there are contingent liabilities and

material litigation brought against the Group and the Company. As disclosed in Note 32 to the financial statements, there is a petition granted by court to wind-up a subsidiary company, Jayarena Construction Sdn. Bhd. subsequent to balance sheet date.

We are unable to ascertain the status of the litigation and claims thereafter and whether any

further liabilities may raise or legal claims be brought against the Group and the Company. In view of the significance of the matters discussed in the preceding paragraphs, we are unable to form an opinion as to whether the financial statements are properly drawn up in accordance with the provisions of the Companies Act, 1965 and applicable MASB approved accounting standards in Malaysia so as to give a true and fair view of : - (i) the state of affairs of the Group and of the Company as at 31st December 2003 and of the

results and cash flows of the Group and of the Company for the year ended on that date; and (ii) the matters required by Section 169 of the Companies Act, 1965 to be dealt with in the financial

statements of the Group and of the Company; and In our opinion, the accounting and other records and the registers required by the Companies Act, 1965 to be kept by the Company and by the subsidiaries of which we have acted as auditors have been properly kept in accordance with the provisions of the said Act. Except as disclosed in paragraphs (iii), (iv) and (v) and the last paragraph below, we are satisfied that the financial statements of the subsidiaries that have been consolidated with the Company’s financial statements are in form and content appropriate and proper for the purposes of the preparation of the consolidated financial statements and we have received satisfactory information and explanations as required by us for those purposes. The auditors’ reports on the financial statements of the subsidiary companies were subject to qualification as disclosed in Note 6 to the financial statements and did not include any comment made under subsection (3) of Section 174 of the Companies Act, 1965. The financial statements for preceding year were examined by another firm of auditors and are presented here merely for comparative purposes. Kreston John & Gan Gan Kim Guan Chartered Accountants Approval No. 1361/2/07(J) ( AF 0113 ) Partner of Firm Kuala Lumpur, Date : 31st March 2006


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CONSOLIDATED BALANCE SHEET 31st December 2003

Note 2003 2002RM'000 RM'000

PROPERTY, PLANT AND EQUIPMENT 5 9,075 14,271

CURRENT ASSETS

Property 5 4,949 4,949 Amount due from customers for contract works 7 - 9,808 Trade receivables 8 8,720 97,595 Other receivables, deposits and prepayments 9 1,648 35,796 Tax recoverable 84 84 Deposits with licensed financial institutions 11 4,548 5,170 Cash and bank balances 1,658 868

21,607 154,270

CURRENT LIABILITIES

Amount due to customers for contract works 7 4,141 -Trade payables 12 44,865 67,045 Other payables and accruals 9,351 7,168 Amount due to directors 13 46 46 Borrowings 14 69,046 51,112 Taxation 4,598 3,872

132,047 129,243

NET CURRENT (LIABILITIES) /ASSETS (110,440) 25,027

(101,365) 39,298

Financef by : -

SHARE CAPITAL 18 43,750 35,000 RESERVES (147,956) (11,774)

(CAPITAL DEFICIENCY) /SHAREHOLDERS' EQUITY (104,206) 23,226 RESERVE ON CONSOLIDATION 19 2,738 3,422 LONG TERM LIABILITIESBorrowings 14 103 12,650

(101,365) 39,298

The above consolidated balance sheet is to be read in conjunction with the notes to the financial statements on pages 31 to 65. CONSOLIDATED INCOME STATEMENT for the year ended 31st December 2003


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Note 2003 2002RM'000 RM'000

Revenue 20 44,481 93,168 Cost of sales (42,201) (87,653)

Gross profit 2,280 5,515

Other income 21 1,833 5,848 Administrative expenses (1,261) (13,075) Other expenses (125,552) (24,078)

Loss from operations (122,700) (25,790)

Finance costs (4,652) (4,867)

Loss before taxation 22 (127,352) (30,657)

Taxation 25 (80) (228)

Loss after taxation (127,432) (30,885)

Minority interest - 378

Net loss for the year (127,432) (30,507)

Basic loss per ordinary share (sen) 26 (291.27) (69.73)

The above consolidated income statements is to be read in conjunction with the notes to the financial statements on pages 31 to 65.


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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 31st December 2003

Non-Distributable

Profitsunappropriated/

Share Share (Accumulatedcapital premium losses) Total

RM'000 RM'000 RM'000 RM'000

Balance at 31st December 2001 35,000 4,940 13,793 53,733

Net loss for the year - - (30,507) (30,507)

Balance at 31st December 2002 35,000 4,940 (16,714) 23,226

Capitalised for bonus issue 8,750 (4,940) (3,810) -


Balance at 31st December 2003 43,750 - (147,956) (104,206)

< ------------- Reserves ------------->

The above consolidated statement of changes in equity is to be read in conjunction with the notes to the financial statements on pages 31 to 65.


25

CONSOLIDATED CASH FLOW STATEMENT for the year ended 31st December 2003

Note 2003 2002RM'000 RM'000

Cash flows from operating activities

Loss before taxation and minority interest (127,352) (30,657)

Adjustments for : -

Reversal for diminution in value of investment in quoted shares - (176) Provision for diminution in value ofamount due from contract customers 17,725 13,745 Property, plant and equipment written off - 3,987 Provision for bad and doubtful debts 58,698 -Provision for foreseeable loss (14) -Interest income (628) (3,155) Bad debts written off 45,960 3,416 Depreciation 1,358 2,615 Gain on disposal of property, plant and equipment (98) -Interest expenses 4,652 4,867 Loss on disposal of property, plant and equipment 1,646 409 Amortisation of reserve on consolidation (684) (685) Impairment loss of property, plant and equipment - 500

Operating profit/(loss) before working capital changes 1,263 (5,134)

Increase in amount due from customers for contract works (7,918) -Decrease in trade receivables 17,286 4,239 Increase in other receivables and deposits 691 -Increase in amount due to customers for contract works 4,141 -Decrease in trade payables (22,179) (2,273) Increase in other payables and accruals 2,510 -

Cash used in operations (4,206) (3,168)

Interest received 628 2,867 Interest paid (1,147) (4,228) Tax paid - (232)

Net cash used in operating activities (4,725) (4,761)

Cash flows from investing activities

Uplifted of short term deposit 753 -Purchases of property, plant and equipment 27 (109) (44) Proceeds from disposal of property, plant and equipment 2,489 1,387 Proceeds from disposal of quoted shares - 869

Net cash from investing activities 3,133 2,212

Balance carried forward (1,592) (2,549)


26

Consolidated Cash Flow Statement for the year ended 31st December 2003 (cont’d)

Note 2003 2002RM'000 RM'000

Balance brought forward (1,592) (2,549)

Cash flows from financing activities

Decrease in deposits pledged with finance institution 840 7,980 Repayment of term loans (3,225) (2,528) Repayment of hire purchase creditors (699) (452) Interest received from fixed deposits pledged - 287

Net cash from /(used in) financing activities (3,084) 5,287

Net increase /(decrease) in cash and cash equivalents (4,676) 2,738

Cash and cash equivalents at the beginning of the year (7,608) (10,346)

Cash and cash equivalents at the end of the year 28 (12,284) (7,608)

The above consolidated cash flow statement is to be read in conjunction with the notes to the financial statements on pages 31 to 65.


27

BALANCE SHEET 31st December 2003

Note 2003 2002RM'000 RM'000

INVESTMENT IN SUBSIDIARIES 6 - 13,960

CURRENT ASSETS

Other receivables, deposits and prepayments 9 1 3,835 Amount due from subsidiary companies 10 9 27,440 Deposits with licensed financial institutions 11 323 312 Tax recoverable 84 84 Cash and bank balances 101 23

518 31,694

CURRENT LIABILITIES

Other payables and accruals 254 222 Amount due to directors 13 42 42

296 264

NET CURRENT ASSETS 222 31,430

222 45,390

FINANCED BY

SHARE CAPITAL 18 43,750 35,000 RESERVES (43,528) 10,390

222 45,390

The above balance sheet is to be read in conjunction with the notes to the financial statements on pages 31 to 65.


28

INCOME STATEMENT for the year ended 31st December 2003

Note 2003 2002RM'000 RM'000

Revenue 20 - -Other income 21 11 136 Administrative expenses (300) (1,104) Other expenses (44,880) -

Loss before taxation 22 (45,169) (968)

Taxation 25 - -

Net loss for the year (45,169) (968)

The above income statement is to be read in conjunction with the notes to the financial statements on pages 31 to 65.


29

STATEMENT OF CHANGES IN EQUITY for the year ended 31st December 2003

Non-Distributable

Profitsunappropriated/

Share Share (Accumulatedcapital premium losses) Total

RM'000 RM'000 RM'000 RM'000


Net loss for the year - - (968) (968)


Capitalised for bonus issue 8,750 (4,940) (3,810) -


Balance at 31st December 2003 43,750 - (43,528) 222

< ------------ Reserves ------------>

The above statement of changes in equity is to be read in conjunction with the notes to the financial statements on pages 31 to 65.


30

CASH FLOW STATEMENT for the year ended 31st December 2003

Note 2003 2002RM'000 RM'000


Loss before taxation (45,168) (968)

Adjustments for : -

Provision for doubtful debts 30,868 -Bad debts written off 26 27 Interest income (11) (136) Impairment loss on investment in subsidiary companies 13,960 -

Operating loss before working capital changes (325) (1,077)

Decrease in other receivables, deposits and prepayments 3,725 883 Increase /(Decrease) in other payables and accruals 31 (54)

Cash generated from /(used in) operations 3,431 (248)

Interest received 11 136

Net cash generated from /(used in) operating activities 3,442 (112)


Repayment from holding company 83 -Advance to subsidiary companies (3,436) -

Net cash used in investing activities (3,353) -

89 (112)

Cash flows from financing activity

(Increase) /Decrease in deposits pledged with licensed bank 312 (11)

Net increase /(decrease) in cash and cash equivalents 401 (123)

Cash and cash equivalents at the beginning of the year 23 146

Cash and cash equivalents at the end of the year 28 424 23

The above cash flow statement is to be read in conjunction with the notes to the financial statements on pages 31 to 65.


31

NOTES TO THE FINANCIAL STATEMENTS 31st December 2003 1. Principal Activities and Corporate Information

The Company is principally engaged in investment holding and provision of management services. The principal activities of the subsidiary companies are set out in Note 6 to the financial statements.

The Company is a public limited company, incorporated and domiciled in Malaysia, and is listed on the Second Board of the Bursa Malaysia Securities Berhad (“BMSB”).

The addresses of the Company’s registered office and principal place of business are as follows : - Registered office : 2nd Floor, 17 & 19, Jalan Brunei Barat, Pudu, 55100 Kuala Lumpur Principal place of business : No. 16-3, Jalan USJ 21/6, 47630 UEP Subang Jaya Selangor Darul Ehsan 2. Basis of Preparation of Financial Statements

The financial statements of the Group and of the Company are prepared under the historical cost convention except as disclosed in the summary of significant accounting policies.

The financial statements of the Group and of the Company comply with the applicable MASB approved accounting standards in Malaysia and the provisions of the Companies Act, 1965. New accounting standards that are effective for the financial year are adopted and applied by the Group and the Company retrospectively or prospectively as allowed by the respective accounting standards.

The preparation of the financial statements in conformity with the applicable MASB approved accounting standards in Malaysia and the provisions of the Companies Act, 1965 require the directors to make estimates and assumptions that may affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported financial year. Actual results could differ from those estimates.

As at 31st December 2003, the Group has net current liabilities and accumulated losses of RM110,440,000 and RM147,956,000 respectively. The financial statements of the Group, however, has been prepared on the basis of accounting principles applicable to a going concern. This going concern basis presumes that the realisation of assets and the settlement of liabilities will occur in the ordinary course of business. As the expected cash flows from the existing activity of the Group may not be able to meet the financial obligations as and when they fall due, the appropriateness of the said going concern is dependent on the ability of the Group to generate profits in future and/or obtaining of long term financing.


32

Notes to the Financial Statements - 31st December 2003 (cont’d) 3. Financial Risk Management Policies

The Group to ensure that adequate financial resources are available for the development of the Group’s businesses whilst managing its risks.

The main areas of financial risks faced by the Group in respect of the major areas of treasury activity are set out as follows : -

a) Interest rate risk

The Group borrows principally on a floating rate basis but to retain a proportion of fixed rate debt. The objectives for the mix between fixed and floating rate borrowings are to reduce the impact of an upward change in interest rates while enabling benefits to be enjoyed if interest rates fall. The mix between fixed and floating rate borrowings are monitored and varied according to changes in interest rates to ensure that the Group’s cost of financing is kept at the lowest possible.

b) Credit risk

Receivables may give rise to credit risk which require the loss to be recognised if a counter party fails to perform as contracted. In order to manage this risk, management has an informal credit policy in place and the exposure to credit risk is monitored on an ongoing basis. The Group does not require collateral in respect of financial assets.

c) Liquidity and cash flow risks

The Group practice prudent liquidity risk management to minimise the mismatch of financial assets and liabilities and to maintain sufficient credit facilities for working capital purposes.

d) Foreign currency risk

The Group is exposed to foreign currency risk as a result of its normal trading activities, where the currency denomination differs from the local currency, Ringgit Malaysia (RM). As the effect of the currency risk is immaterial, the Group does not enter into any hedging contracts.

4. Significant Accounting Policies

All significant accounting policies set out below are consistent with those applied in the previous financial year.

a) Accounting convention

The financial statements of the Group and of the Company have been prepared under the historical cost convention except as disclosed in the financial statements.


33

Notes to the Financial Statements - 31st December 2003 (cont’d)

4. Significant Accounting Policies (Cont’d) b) Basis of consolidation

Subsidiary is enterprise controlled by the Company. Control exists when the Company has the power, directly or indirectly to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. The financial statements of subsidiary are included in the consolidated financial statements from the date that control effectively commences until the date that control effectively ceases. Subsidiary is consolidated using the acquisition method of accounting from the date control is transferred to the Group and are no longer consolidated from the date control ceased.

A subsidiary is excluded from consolidation when control is intended to be temporary as the subsidiary is acquired and held exclusively with a view of its subsequent disposal in the near future and it has not previously been consolidated or it operates under severe long term restrictions which significantly impair its ability to transfer funds to the Company. Subsidiary excluded on these grounds is accounted for as investment.

Under the acquisition method of accounting, the results of subsidiary acquired or disposed during the year are included from the date of acquisition or up to the date of disposal. At the date of acquisition, the fair values of the subsidiary’s net assets are determined and these values are reflected in the Group’s financial statements. The difference between the acquisition cost and the fair values of the subsidiary’s net assets is reflected as goodwill or reserve on consolidation as appropriate.

Intragroup transactions and balances and the resulting unrealised profits are eliminated on consolidation. Unrealised losses resulting from intragroup transactions are also eliminated unless cost cannot be recovered.

c) Goodwill/Negative goodwill on consolidation

Goodwill on consolidation represents the excess of the cost of acquisition over the fair values of the net identifiable assets acquired.

Negative goodwill on consolidation represents the excess of the fair values of the net identifiable assets acquired over the cost of the acquisition.

Goodwill/Negative goodwill on consolidation is stated at cost less accumulated amortisation. Goodwill is amortised from the date of initial recognition over its estimated useful life of 10 years. Negative goodwill on consolidation is amortised from the date of initial recognition over its estimated useful life of not more than 10 years.

d) Property, plant and equipment and depreciation

Property, plant and equipment except for freehold land and building-in-progress are stated at cost less accumulated depreciation and impairment losses, if any.

Freehold land is not amortised and is stated at valuation less impairment losses, if any. Building-in-progress is stated at cost and not amortised. Property, plant and equipment retired from active use and held for disposal are stated at the lower of net book value and net realisable value.


34

Notes to the Financial Statements - 31st December 2003 (cont’d) 4. Significant Accounting Policies (Cont’d)

Depreciation of property, plant and equipment is calculated to write off the cost on a Straight Line Basis over the expected useful lives of the property, plant and equipment concerned. The principal annual rates of depreciation for the plant and equipment are as follows : -

Rate % Freehold building/shophouse 5 Plant, machinery and equipment 10-20 Furniture and fittings and office equipment 5-10 Motor vehicles 20 e) Subsidiary company

Subsidiary company is stated at cost less impairment losses. The policy for the recognition and measurement of impairment losses is in according with Note 4(j).

f) Investments

Long term investments are stated at cost. An allowance is made when the directors are of the view that there is a diminution in their value which other than temporary.

g) Amount due from/(to) customers for contract works

Amount due from customers on construction contracts is stated at cost plus recognised profits (less recognised losses) and less progress billings. Cost includes all direct construction costs and other related costs. Where progress billings exceed costs incurred plus recognised profits (less recognised losses), the balance is shown as amounts due to contract customers.

h) Receivables

Receivables are carried at estimated value. An estimate is made for doubtful receivables based on a review of all outstanding amounts at the financial year end. Bad debts are written off during the financial year in which they are identified.

i) Assets acquired under hire-purchase and lease agreements

Assets financed by hire-purchase and lease arrangements which transfer substantially all the risks and rewards of ownership to the Company are capitalised as plant and equipment and the corresponding obligations are treated as liabilities. The plant and equipment capitalised are depreciated on the same basis as owned assets.

Finance charges are allocated to the income statement over the period of the agreements to give a constant periodic rate of charge on the remaining hire-purchase and lease liabilities.


35

Notes to the Financial Statements - 31st December 2003 (cont’d) 4. Significant Accounting Policies (Cont’d) j) Impairment of assets

The carrying amount of the Company’s assets other than deferred tax assets and financial assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated and an impairment loss is recognised whenever the recoverable amount is less than the carrying amount of the asset. The impairment loss is recognised in the income statement immediately except for the impairment on a revalued asset where the impairment loss is recognised directly against the revaluation surplus account to the extent of the surplus credited from the previous revaluation for the same assets with the excess of the impairment loss charged to the income statement. All reversals of an impairment loss are recognised as income immediately in the income statement except for the reversal of an impairment loss on a revalued assets where the reversal of the impairment loss is treated as a revaluation increase and credited to the revaluation surplus account of the same asset.

k) Employee benefits i) Short term benefits

Salaries, wages, paid annual leave and sick leave, bonuses, commission, incentive and non-monetary benefits are accrued in the period in which the associated services are rendered by employees of the company.

ii) Defined contribution plans

As required by law, companies in Malaysia make contributions to the state pension scheme, the Employees Provident Fund (“EPF”). Such contributions are recognised as an expense in the income statement as incurred.

l) Revenue recognition i) Construction contracts

Revenue from fixed price construction contracts is recognised on the percentage of completion method, measured by reference to the proportion that contract costs incurred for contract work performed to date that reflected work performed bear to the total estimated contract costs.

When the outcome of a construction contract cannot be estimated reliably, revenue is

recognised only to the extent of contract costs incurred that is probable will be recoverable and contract costs are recognised as an expense in the year in which they are incurred.

An expected loss on a contract is recognised immediately in the income statement. ii) Rental income Rental income is recognised upon issuance of invoice to customers for services

rendered. iii) Interest income

Interest income is recognised in the income statement as it accrues taking into financial statements the effective yield on the assets.


36

Notes to the Financial Statements - 31st December 2003 (cont’d) 4. Significant Accounting Policies (Cont’d) m) Foreign currencies transactions and translations i) Transactions and translations

Transactions in foreign currencies are converted into Ringgit Malaysia at the rate of exchange prevailing on the transaction dates. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into Ringgit Malaysia at the approximate rate of exchange prevailing at the date. Gain or losses on foreign exchange are taken up in the income statement.

The closing rate used in the translation of foreign currency is as follows : -

2003 2002 FMG1,000 RM0.57 RM0.57

ii) Financial statements of foreign operations

The Group’s foreign operations are not considered an integral part of the Group’s operations. Accordingly, the assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated to Ringgit Malaysia at exchange rate ruling at the balance sheet date. The revenues and expenses of foreign operations are translated to Ringgit Malaysia at average exchange rates applicable throughout the year. Foreign exchange differences arising on translation are recognised directly in equity.

n) Income taxes

Tax on profit or loss for the financial year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax expense is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of prior years.

Deferred tax liabilities and assets are provided for under the liability method at the current tax rate in respect of all temporary differences between the carrying amount of an asset or liability in the balance sheet and its tax base including unused tax losses and capital allowances.

A deferred tax asset is recognised only to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilised. The carrying amount of a deferred tax asset is reviewed at each balance sheet date. If it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilised, the carrying amount of the deferred tax asset will be reduced accordingly. When it becomes probable that sufficient taxable profit will be available, such reductions will be reversed to the extent of the taxable profit.


37

Notes to the Financial Statements - 31st December 2003 (cont’d) 4. Significant Accounting Policies (Cont’d)

o) Cash and cash equivalents

Cash and cash equivalents consist of cash in hand, balances and deposits with banks and other financial institutions that are readily convertible to known amounts and highly liquid investments which have an insignificant risk of changes in value. For the purpose of the cash flow statement, cash and cash equivalents are presented net of bank overdraft.

p) Provisions

Provisions are recognised when there is a present obligation, legal or constructive, as a result of a past event, when it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

q) Financial instrument

Financial instrument is any contract that gives rise to both a financial asset of one enterprise and a financial liability or equity instrument of another enterprise.

Financial asset is any asset that is cash, a contractual right to receive cash or another financial asset, contractual right to exchange financial instruments from other enterprises under conditions that are potentially favourable or an equity instrument of other enterprise, whilst financial liability is any liability that is a contractual obligation to deliver cash or another financial asset to another enterprises or to exchange financial instruments with another enterprise under conditions that are potentially unfavourable.

r) Disclosures of fair values

The fair value of the financial assets and liabilities maturing within 12 months are stated at approximately the carrying amounts as at the balance sheet date.

The fair value of quoted investments are estimated based on quotes market prices. For investments for which there are no quoted market prices, a reasonable estimate of fair value could not be made without incurring excessive costs. Therefore, such investments are valued at cost subject to review for impairment.

s) Borrowing costs

Costs incurred on borrowings to finance a qualifying asset is capitalised until the asset is ready for their intended use after which such expense is charged to the income statement. All other borrowing costs are charged to the income statement.


38

Notes to the Financial Statements - 31st December 2003 (cont’d) 5. Property, Plant and Equipment

Non-current assets- At Valuation

Plant, Furniture,Group Freehold machinery fittings

Freehold building/ Building and and office Motor2003 land shophouse in progress equipment equipment vehicles Total

RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000Cost / ValuationBalance at 1/1/03 2,428 - 4,560 13,967 723 1,105 22,783 Additions - - - - 48 151 199 Disposal (2,428) - - (4,010) - (464) (6,902) Balance at 31/12/03 - - 4,560 9,957 771 792 16,080

Accumulated DepreciationBalance at 1/1/03 - - - 6,773 314 924 8,011 Charge for the year - - - 1,224 69 65 1,358 Deletion - - - (1,967) - (398) (2,365) Balance at 31/12/03 - - - 6,030 383 591 7,004

Impairment LossBalance at 1/1/03 500 - - - - - 500 Addition - - - - - - -Deletion (500) - - - - - (500) Balance at 31/12/03 - - - - - - -Net Book Value - - 4,560 3,927 388 201 9,076

2002

Cost / Valuation

Balance at 1/1/02 9,029 4,401 4,560 22,975 795 1,555 43,315 Addition - - - - 24 20 44 Disposal (1,152) (4,401) - (9,008) (96) (339) (14,996) Written off - - - - - (131) (131) Reclassified to currentasset (5,449) - - - - - (5,449) Balance at 31/12/02 2,428 - 4,560 13,967 723 1,105 22,783

Accumulated Depreciation

Balance at 1/1/02 - 898 - 12,253 293 1,196 14,640 Charge for the year - 194 - 2,260 74 86 2,614 Deletion - (1,092) - (7,740) (53) (357) (9,242) Balance at 31/12/02 - - - 6,773 314 925 8,012

------------------------------------------ At Cost ------------------------------------------


39

Notes to the Financial Statements - 31st December 2003 5. Property, Plant and Equipment (Cont’d)

- At Valuation -

Plant, Furniture,Group Freehold machinery fittings

Freehold building/ Building and and office Motor2002 land shophouse in progress equipment equipment vehicles Total

RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000Impairment LossBalance at 1/1/02 - - - - - - -Addition 1,000 - - - - - 1,000 Reclassified to currentasset (500) - - - - - (500) Balance at 31/12/02 500 - - - - - 500 Net Book Value 1,928 - 4,560 7,194 409 180 14,271

------------------------------------------- At Cost -------------------------------------------

i) Building in progress of RM4,560,000 (2002 – RM4,560,000) represents retail lots in a

shopping complex. The construction of this building was suspended since 2001. No impairment loss is recognised as the directors are of the view that Group is able to claim liquidated damages against the developer in respect of the delay in handover to mitigate any impairment loss.

ii) Net book values of plant and equipment acquired under hire purchase are as follows : -

Group2003 2002

RM'000 RM'000

Plant and machinery 1,142 1,430 Office equipment - 72 Motor vehicles 141 161

1,283 1,663

iii) Net book values of property, plant and equipment pledged to a licensed bank for credit

facilities granted to the Group are as follows : - Group 2003 2002 RM’000 RM’000 Freehold land - 2,078

iv) Assets fully depreciated but still in use amounted to RM880,088 (2002 – Nil).


40

Notes to the Financial Statements - 31st December 2003 (cont’d) 5. Property, Plant and Equipment (Cont’d) Group v) The Group’s freehold land is stated at director’s valuation in 1998 based on professional

valuation on the open market basis conducted in 1997 and upon approval by the relevant government authorities, less impairment loss.

Had the freehold land been carried at cost, its net book value would have been Nil (2002 – RM970,741).

The freehold land was disposed of for a consideration of RM2,011,610 during the financial year.

Current assetsGroup

Freehold2003 land

RM'000Cost / Valuation

Balance at 1/1/03 5,449 Additions -Balance at 31/12/03 5,449

Impairment Loss

Balance at 1/1/03 500 Charge for the year -Balance at 31/12/03 500 Net Book Value 4,949

2002

Cost / Valuation

Balance at 1/1/02 -Reclassified from non-current assets 5,449 Balance at 31/12/02 5,449

Impairment Loss

Balance at 1/1/02 -Reclassified from non-current assets 500 Balance at 31/12/02 500 Net Book Value 4,949


41

Notes to the Financial Statements - 31st December 2003 (cont’d) 5. Property, Plant and Equipment (Cont’d)

The impairment loss relates to diminution in value of the freehold land based on a valuation on the comparison method in September 2002.

Revaluation

The Group’s freehold land is stated at directors’ valuation in 1998 based on professional valuation of the open market basis conducted in 1997 and upon approval by the relevant Government authorities, less impairment loss based on a valuation on the comparison method in September 2002. The directors are of the opinion that the current market value of freehold land is not less than its net book value as at 31st December 2003.

Had the freehold land been carried at cost, its net book value would have been RM3,658,097 (2002 – RM3,658,097).

Security

The freehold land is charged to a licensed bank for credit facilities granted to a subsidiary companies as disclosed in Note 15.

6. Investments in Subsidiaries

Company2003 2002

RM'000 RM'000

Unquoted shares at cost 15,050 15,050 Less : Impairment loss (15,050) (1,090)

- 13,960

The principal activities of the subsidiary companies in the Group, all of which are incorporated and domiciled in Malaysia (except for CAPEAST Plantation SARL, which is incorporated in the Republic of Madagascar), and the interest of Avangarde Resources Berhad are as follows : -

Name of Company

Principal activity

Effective ownership

interest 2003 2002 % % Jayarena Construction Sdn. Bhd. * Investment holding and to carry

out as civil, mechanical, general contractors and builders.

100 100

Malaysian Copper Tube Sdn. Bhd. Property investment. 100 100 Align Metro Sdn. Bhd. Property investment. 100 100


42

Notes to the Financial Statements - 31st December 2003 (cont’d) 6. Investments in Subsidiaries (Cont’d)

Name of Company

Principal activity

Effective ownership

interest 2003 2002 % % P. C. Building Systems Sdn. Bhd. **

Ceased operations as specialised contractor, manufacturer and supplier of precast concrete components, and remained dormant.

90 90

Royong Bersatu Sdn. Bhd. # and its subsidiary

Investment holding 60 60

CAPEAST Plantation SARL Dormant 60 60

* The auditors’ report on the financial statements of this subsidiary was qualified as to

certain financial institutions have obtained summary of judgement from court for repayments of credit facilities granted unable to ascertain whether the carrying amount of property, plant and equipment is impaired and requires a write-down, and the appropriateness of preparing the financial statements on the going concern basis.

** The auditors’ report on the financial statements of this subsidiary was qualify as to no audit

of financial statements since year 2002, whether all adjustments relating to the carrying value of the assets and liabilities have been made or are appropriate as the financial statements were prepared on a realisation basis and certain financial institutions have obtained summary of judgement from court for full payment of the amounts due in respect of credit facilities granted.

# The auditors’ report on financial statements of this subsidiary was qualified as to the

appropriateness of preparing its consolidated financial statements based on the unaudited management accounts of its subsidiary, and the appropriateness of the going concern basis of preparation of the financial statements.

7. Amount Due from /(to) Customers for Contract Works

Group2003 2002

RM'000 RM'000Amount due from customers for contract works

Contract costs incurred to date 174,080 487,369 Add : Attributable profits 17,595 44,669

191,675 532,038 Less : Progress billings (173,950) (522,230)

17,725 9,808 Less : Provision for diminution in value (17,725) -

- 9,808

Retention on contracts 1,000 12,840


43

Notes to the Financial Statements - 31st December 2003 (cont’d) 7. Amount Due from /(to) Customers for Contract Works (Cont’d)

Amount due to customers for contract works

Contract costs incurred to date 355,833 -Add : Attributable profits 28,248 -

384,081 -Less : Progress billings (388,222) -

(4,141) -

Retention on contracts 5,640 -

Additions to aggregate costs incurred during the year include : -

Group 2003 2002 RM’000 RM’000 Bank interest 323 600Motor vehicle costs 136 106Staff costs (Note 25) 3,384 2,176

8. Trade receivables

Group2003 2002

RM'000 RM'000

Trade receivables 52,362 102,006 Less : Allowance for doubtful debts (43,642) (4,411)

8,720 97,595

The allowance for doubtful debts is net of bad debts written off amounted to RM32,360,000 (2002 – RM175,000).

9. Other Receivables, Deposits and Prepayments

Group Company2003 2002 2003 2002

RM'000 RM'000 RM'000 RM'000

Other receivables, depositsand prepayments 23,711 38,365 27 3,835 Less : Allowance for doubtful debts (22,063) (2,569) (26) -

1,648 35,796 1 3,835


44

Notes to the Financial Statements - 31st December 2003 (cont’d) 9. Other Receivables, Deposits and Prepayments (Cont’d)

The allowance for doubtful debts of the Group is net of bad debts written off amount to RM13,574,000 (2002 – Nil).

Included in other receivables, deposits and prepayments are : -

Group2003 2002

RM'000 RM'000

i) Advances to sub-contractors, net of allowance 20,726 20,169 for doubtful debts

ii) Amount due from a company in which an ex-director,Alan Lim Thian Lai @ Lim Thian Keng, of a subsidiary,Royong Bersatu Sdn. Bhd. has an interest 2,070 2,070 Less : Allowance for doubtful debts (2,070) (2,070)

iii) Amount due from a third party in respect of upliftof Group's fixed deposits to settle credit facilitiesowed by the said third party - 10,611

20,726 30,780

The amount due from a company in which an ex-director, Alan Lim Thian Lai @ Lum Thian Keng of a subsidiary, Royong Bersatu Sdn. Bhd. has interests is unsecured, interest free and the repayments are based on terms set out in Note 31(ii). The director of the said subsidiary resigned in year 2002.

10. Amount due from subsidiary companies

Company2003 2002

RM'000 RM'000

Amount due from subsidiary 30,876 27,440 Less : Allowance for doubtful debts (30,867) -

9 27,440

The amounts due from subsidiary companies are unsecured, interest free and have no fixed terms of repayment.


45

Notes to the Financial Statements - 31st December 2003 (cont’d) 11. Deposits with Licensed Financial Institutions

Group Company2003 2002 2003 2002

RM'000 RM'000 RM'000 RM'000

Deposits with licensed banks 3,230 3,893 323 312 Deposits with licensedfinance company 1,318 1,277 - -

4,548 5,170 323 312

Fixed deposits of the Group amounting to RM4,225,315 (2002 – RM5,066,000) and Nil (2002 – RM312,000) respectively have been pledged to licensed banks and a licensed finance company as security for credit facilities granted to the subsidiary company.

The weighted average interest rates of deposits with licensed financial institutions are as follows : -

Group Company 2003 2002 2003 2002 % % % % Deposits with licensed banks 2.71 2.71 3.45 3.45Deposits with licensed finance company 3.20 3.20 - -

The deposits have an average maturity of 3 months (2002 – 1 month). 12. Trade Payables Group

The Group’s normal trade credit terms of trade payables range from 30 to 75 days. However, the terms may vary upon negotiation with the trade payables.

13. Amount Due to Directors Group and Company The amounts outstanding are unsecured, interest free and have no fixed terms of repayment.


46

Notes to the Financial Statements - 31st December 2003 (cont’d) 14. Borrowings

Group2003 2002

RM'000 RM'000Long term liabilities

SecuredTerm loans (Note 15) - 12,397 Hire purchase creditors (Note 17) 103 253

103 12,650

Current liabilities

SecuredTerm loans (Note 15) 54,616 41,939 Bank overdrafts (Note 16) 14,265 8,580 Hire purchase creditors (Note 17) 165 593

69,046 51,112

Group

2003 2002RM'000 RM'000

Total borrowings

SecuredTerm loans (Note 15) 54,616 54,336 Bank overdrafts (Note 16) 14,265 8,580 Hire purchase creditors (Note 17) 268 846

69,149 63,762

Effective interest rates : -

Term loans 7.75-8.25 8.14-8.64Bank overdrafts 7.75 8.14Hire purchase creditors 4.50-8.40 4.50-7.75


47

Notes to the Financial Statements - 31st December 2003 (cont’d) 15. Term Loans

Group2003 2002

RM'000 RM'000

Term loans - secured 54,616 54,336

Repayable as follows : -

Current liabilities- not later than one year 54,616 41,939 Long term liabilities- later than one year and not later than five years - 12,397

54,616 54,336

i) The term loans are secured by the following : - a) joint and several guarantee by directors of the Company and a third party individual; b) corporate guarantee issued by a subsidiary, Jayarena Construction Sdn. Bhd. and the

Company; c) deeds of assignment on works contracted; d) charge over current accounts which proceeds from certain contracts of a subsidiary,

Jayarena Construction Sdn. Bhd. are deposited; e) memorandum of deposit of quoted shares of a listed company; f) first legal charge on freehold land of a subsidiary, Malaysian Copper Tube Sdn. Bhd.

(Note 5); and g) fixed deposits placed with a licensed bank (Note 11). ii) As at 31st December 2003, the Group has defaulted in its repayment to certain lenders.


48

Notes to the Financial Statements - 31st December 2003 (cont’d) 16. Bank Overdrafts

Group2003 2002

RM'000 RM'000

SecuredBank overdraft I 8,814 8,128 Bank overdraft II 603 5 Bank overdraft III 3,107 -Bank overdraft IV 1,741 -Bank overdraft V - 447

14,265 8,580

Bank overdraft I is secured by the following : - i) A corporate guarantee by the Company. ii) Loan agreement cum assignment of proceeds of certain contracts of the subsidiary

company, Jayarena Construction Sdn. Bhd. iii) Charge by way of the Memorandum of Deposit for fixed deposit received and/or negotiable

certificate of deposit. Bank overdraft II is secured by the following : - i) Facility Agreement and Deed of Assignment of certain contracts of the subsidiary

company, Jayarena Construction Sdn. Bhd. ii) A corporate guarantee by the Company. Bank overdraft III is secured by the following : - i) Facility Agreement and Deed of Assignment of certain contracts of the subsidiary

company, Jayarena Construction Sdn. Bhd. ii) A corporate guarantee by the Company. Bank overdraft IV is secured by the following : - i) An assignment over the proceeds due for the certain projects of the subsidiary company,

Jayarena Construction Sdn. Bhd. ii) An assignment of rights, title and benefits of the duly executed Letter of Acceptance of tender. iii) A charge over a sinking fund account. iv) Deed of subordination is to be executed. The Group has defaulted in its repayment to the lenders of the bank overdrafts.


49

Notes to the Financial Statements - 31st December 2003 (cont’d) 17. Hire Purchase Creditors

Group2003 2002

RM'000 RM'000

Minimum hire purchase payments- not later than one year 179 645 - later than one year and not later than five years 109 272

288 917 Less : Future interest charges (20) (71)

Present value of hire purchase liabilities 268 846


Current liabilities- not later than one year 165 593

Long term liabilities- later than one year and not later than five years 103 253

268 846

The Group has hire purchase payments in arrears of RM837,000 (2002 – RM572,000).

18. Share Capital

Group and Company 2003 2002 RM RMAuthorised : Ordinary shares of RM1 each 200,000,000 50,000,000 Issued and fully paid : Ordinary shares of RM1 each 43,750,000 35,000,000

Movement on issued and fully paid ordinary share capital : -

Balance - 1st January 35,000,000 35,000,000 Bonus issues 8,750,000 -

Balance - 31st December 43,750,000 35,000,000


50

Notes to the Financial Statements - 31st December 2003 (cont’d) 18. Share Capital (Cont’d)

During the financial year, the Company increased its authorised share capital from RM50,000,000 to RM200,000,000 by creation of 150,000,000 ordinary shares of RM1 each ranking pari passu with existing ordinary shares.

Further, the issued and paid up share capital of the Company has been increased from RM35,000,000 to RM43,750,000 by way of bonus issue of 8,750,000 ordinary shares of RM1 each. The new issued shares rank pari passu with the existing shares in issue.

Employees’ Share Option Scheme (“ESOS”)

Further to the announcements made by the Company on 16th March 2001, 28th March 2001 and 8th June 2001, the Company announced on 8th August 2001 that the Securities Commission (“SC”) had approved the Proposed Employees’ Share Option Scheme (“ESOS”).

The Board subsequently announced on 2nd January 2003 that SC approved another extension of three (3) months until 31st March 2003 via letter dated 30th December 2002 to implement the Proposed ESOS.

The ESOS have yet to be implemented as at report date. 19. Reserve on Consolidation - Negative Goodwill

Group2003 2002

RM'000 RM'000

At 1st January 3,422 4,107 Amortisation for the year (684) (685)

At 31st December 2,738 3,422

20. Revenue and Cost of Sales

Group2003 2002

RM'000 RM'000RevenueContract revenue 43,733 92,036 Rental income 748 1,132

44,481 93,168

Cost of salesContract cost 42,201 87,653


51

Notes to the Financial Statements - 31st December 2003 (cont’d) 21. Other Income

Group Company2003 2002 2003 2002

RM'000 RM'000 RM'000 RM'000

Management fee received 24 - - -Interest income 494 2,868 - -Commission charges 26 85 - -Fixed deposit interests 134 287 11 136 Gain on disposal of property,plant and equipment 98 10 - -Sale of scrap steel and material 279 - - -Gain on disposal of shares - 175 - -Agency fee overprovided 4 - - -Amortisation of goodwill 684 685 - -Retention overtaken intoaccount 87 - - -Sundry income 3 1,738 - -

1,833 5,848 11 136

22. Loss Before Taxation

Group Company 2003 2002 2003 2002 RM’000 RM’000 RM’000 RM’000This is arrived at after charging : - Allowance for doubtful debts 58,698 6,981 30,868 -Auditors’ remuneration - current year 45 44 13 13- underprovision in prior year - 2 - -Bad debts written off 45,960 1 26 -Directors’ remuneration (Note 23) - charged to construction costs 360 - - -- charged to admin expenses 136 413 135 257Depreciation (Note 5) 1,358 2,764 - -Impairment loss on investment in subsidiary companies -

-

13,960

-

Impairment losses on property, plant and equipment -

500

-

-



52

22. Loss Before Taxation (Cont’d)

Group Company 2003 2002 2003 2002 RM’000 RM’000 RM’000 RM’000 Interest expenses on : - - bank overdraft 703 70 - -- term loans 3,888 3,802 - -- hire purchase 50 129 - -- overprovision of fixed deposit interest 25

-

25

-

- others - 66 - -Provision for diminution in value of amount due from customer for contract works 17,725

-

-

-Loss on disposal of property, plant and equipment 1,646

409

-

-

Provision for foreseeable loss (14) - - -Plant and equipment written off (Note 5) -

4,089

-

-

Rental of premises 72 55 - - and after crediting : - Amortisation of goodwill (Note 19) 684 685 - -Gain on disposal of property, plant and equipment 98

10

-

-

Interest income - fixed deposits 134 287 (11) -- others 494 2,868 - -Rental income on land and buildings - 24 - -Commission charges 26 85 - -

23. Directors’ Remuneration

Group Company2003 2002 2003 2002

RM'000 RM'000 RM'000 RM'000

Executive directors- Fees 17 17 - Other emoluments 347 83 - Benefits-in-kind - -Non-executive directors- Fees 36 36 - Other emoluments 96 -- Benefits-in-kind - -

496 413 136 257

Total excluding benefits-in-kind 496 136



53

24. Employee Information

Group2003 2002

RM'000 RM'000

Salaries and allowances 2,557 93 Employees Provident Fund 303 63 Social security costs 22 5 Other staff related expenses 642 2,176

3,524 2,337

Staff costs are allocated as follows : -

Income statement 140 161 Amount due from customers forcontract works (Note 7) 3,384 2,176

3,524 2,337

The number of employees of the Group at the end of the year were 51 (2002 – 79).

25. Taxation

Group Company2003 2002 2003 2002

RM'000 RM'000 RM'000 RM'000

Income taxation- current year provision 4 1,192 - -- overprovision in previous years - (332) - -

4 860 - -Deferred taxation - (632) - -

4 228 - -Real property gains tax 76 -

80 228 - -

Unabsorbed tax losses and capital allowances of the Group and of the Company which are available for set-off against future chargeable income for which the tax effects have not been recognised in the financial statements are shown below : -

Group Company 2003 2002 2003 2002 RM RM RM RM Unabsorbed tax losses 522,900 17,058 - -Unabsorbed capital allowances 1,215,000 1,215,000 - -


54

Notes to the Financial Statements - 31st December 2003 (cont’d) 26. Basic Loss Per Ordinary Share

The basic loss per share is calculated by dividing the Group’s net loss attributable to shareholders by the weighted average number of ordinary shares in issue during the financial year. Group 2003 2002 Net loss attributable to shareholders (RM) 127,432,000 30,507,000Weighted average number of ordinary shares in issue 43,750,000 43,750,000Basic loss per share (sen) (291.27) (69.73)

The comparative loss per share has been restated to take into consideration of the effect of the bonus issue during the financial year.

The effects on the basic loss per share for the both financial years ended 31st December 2002 and 2003 arising from the assumed conversion of options under the Company’s ESOS is anti-dilutive. Accordingly, the diluted loss per share has not been presented.

27. Purchase of Property, Plant and Equipment

During the financial year, the Group made the following cash payments to purchase property, plant and equipment : -

Group2005 2004

RM'000 RM'000

Purchase of property, plant and equipment (Note 5) 199 44 Financed by hire purchase arrangements (90) -

Cash payments on purchase of property, plant and eqipment 109 44


55

Notes to the Financial Statements - 31st December 2003 (cont’d) 28. Cash and Cash Equivalents

Cash and cash equivalents included in the cash flow statements comprise the following balance sheet amounts : -

Group Company2003 2002 2003 2002

RM'000 RM'000 RM'000 RM'000

Cash and bank balances 1,658 868 101 23 Deposits with licensedfinancial institutions 4,548 5,170 323 312 Bank overdrafts (14,265) (8,580) - -

(8,059) (2,542) 424 335 Less : Deposits pledged with licensed banks (4,225) (5,066) - (312)

(12,284) (7,608) 424 23

29. Segmental Information Segment information is presented in respect of the Group’s business segments. Inter-segment pricing is determined based on negotiated terms.

Segment results, assets and liabilities included items directly attributable to a segment as well as those that can be allocated on a reasonable basis.

Business segments The Group comprises the following main business segments : - Construction - Construction of earthworks and buildings Manufacturing - Manufacturing of precast concrete structures. The manufacturing segment was discontinued in previous financial years (Note 6).


56

Notes to the Financial Statements - 31st December 2003 (cont’d) 29. Segmental Information (Cont’d) Geographical segments

Segment information by geographical location is not provided as the Group operates principally within Malaysia. The subsidiary operating in Madagascar has not commenced operations.

2003 Construction Manufacturing Elimination Consolidation

RM'000 RM'000 RM'000 RM'000Business Segments

Revenue

Revenue fromexternal customers 44,481 - - 44,481 Total revenue 44,481 - - 44,481

Results

Segment results (124,006) (6) - (124,012) Unallocated income 684 Interest income 628 - - 628 Interest expenses (4,121) (531) - (4,652) Loss before taxation (127,352) Taxation (80) - - (80) Loss after taxation (127,432) Minority interest -Net loss (127,432)

Other information

Segment assets/Total assets 26,119 5,209 (646) 30,682

Segment liabilities /Total liabilities 150,707 17,167 (35,724) 132,150

Capital expenditure 1,309 - (1,200) 109

Impairment losses 13,960 - (13,960) -

Depreciation of property, plantand equipment 1,358 - - 1,358

Non-cash expenses otherthan depreciation 124,029 - - 124,029


57

Notes to the Financial Statements - 31st December 2003 (cont’d) 29. Segmental Information (Cont’d)

2002 Construction Manufacturing Elimination ConsolidationRM'000 RM'000 RM'000 RM'000

Business Segments

Revenue

Revenue fromexternal customers 93,168 - - 93,168 Total revenue 93,168 - - 93,168

Results

Segment results (22,501) (7,129) - (29,630) Unallocated income 685 Interest income 3,155 Interest expenses (4,867) Loss before taxation (30,657) Taxation (228) Loss after taxation (30,885) Minority interest 378 Net loss (30,507)

Other information

Segment assets/Total assets 163,367 5,174 - 168,541

Segment liabilities 70,893 7,238 - 78,131 Unallocated liabilities 63,762 Total liabilities 141,893

Capital expenditure 44 - - 44

Impairment losses 500 - - 500

Depreciation of property, plantand equipment 1,389 1,226 - 2,615

Non-cash expenses otherthan depreciation 22,802 6,177 - 28,979


58

Notes to the Financial Statements - 31st December 2003 (cont’d) 30. Continuing and Discontinuing Operations

The discontinuing operation represents cessation of operation of P. C. Building Systems Sdn. Bhd., a 90% subsidiary in the manufacturing segment of the Group.

2003 2002 2003 2002 2003 2002RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

Balance Sheet

Property, plant andequipment 9,075 14,271 - - 9,075 14,271 Current assets 16,398 148,849 5,209 5,421 21,607 154,270

Total assets 25,473 163,120 5,209 5,421 30,682 168,541

Current liabilities 114,880 112,401 17,167 16,842 132,047 129,243 Long termliabilities 103 12,650 - - 103 12,650

Total liabilities 114,983 125,051 17,167 16,842 132,150 141,893

Net assets/(liabilities) (89,510) 38,069 (11,958) (11,421) (101,468) 26,648

Income Statement

Revenue 44,481 93,168 - - 44,481 93,168 Cost of sales (42,201) (87,653) - - (42,201) (87,653)

Gross profit 2,280 5,515 - - 2,280 5,515

Other income 1,793 5,848 40 - 1,833 5,848 Administrativeexpenses (1,215) (5,994) (46) (7,081) (1,261) (13,075) Other expenses (125,552) (24,078) - - (125,552) (24,078)

Loss from operations (122,694) (18,709) (6) (7,081) (122,700) (25,790)

Finance cost (4,121) (4,210) (531) (657) (4,652) (4,867)

Loss before taxation (126,815) (22,919) (537) (7,738) (127,352) (30,657)

Taxation (80) (373) - 145 (80) (228)

Loss after taxation (126,895) (23,292) (537) (7,593) (127,432) (30,885)

Minority interest - 378 - - - 378

Net loss for the year (126,895) (22,914) (537) (7,593) (127,432) (30,507)

Continuing operations Discontinuing operations Group


59

Notes to the Financial Statements - 31st December 2003 (cont’d) 30. Continuing and Discontinuing Operations (Cont’d)

2003 2002 2003 2002 2003 2002RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

Cash Flow Statement

Cash flows from/(used in)operating activities (4,363) (1,251) (362) 382 (4,725) (869) Cash flows from investingactivities 3,133 2,212 - - 3,133 2,212 Cash flows from/(used in)financing activities (3,454) 1,787 370 (392) (3,084) 1,395

Net increase /(decrease) in cash and cashequivalents (4,684) 2,748 8 (10) (4,676) 2,738

Cash and cash equivalentsat the beginning of year (7,608) (10,356) - - (7,608) (10,346)

Cash and cash equivalentsat the end of year (12,292) (7,608) 8 (10) (12,284) (7,608)


31. Contingent Liabilities - Unsecured

Company 2003 2002 RM’000 RM’000i) Guarantees issued to : - Third parties for performance of contract

by subsidiaries

12,030

38,201

- Financial institutions and suppliers for credit facilities granted to subsidiaries

63,986

60,701

ii) In 2001, a subsidiary, Royong Bersatu Sdn. Bhd. (“RB”) entered into an agreement with

Refine Development Sdn. Bhd. (“RD”) whereby RD will underwrite all costs incurred by CAPEAST Plantation SARL (“CAPEAST”), a subsidiary for the Assets Transfer Agreement between CAPEAST and the Government of the Republic of Madagascar related to Antalaha Oil Palm Privatisation (the “Contract”) up to and until the date of fulfillment of all the relevant obligations under the said Contract by CAPEAST and the Government of the Republic of Madagascar.

In the event any of the relevant obligations are not fulfilled by CAPEAST or the Government of the Republic of Madagascar and the said Contract is terminated by either CAPEAST or the Government of the Republic of Madagascar, RD shall paid to RB all the cost incurred by CAPEAST up to the date of termination of the said Contract.


60

Notes to the Financial Statements - 31st December 2003 (cont’d) 31. Contingent Liabilities - Unsecured (Cont’d) ii) (Cont’d.)

In the event CAPEAST and the Government of the Republic of Madagascar fulfilled all relevant obligations under the said Contract, RD shall not be required to pay to RB all the cost incurred by CAPEAST. CAPEAST shall then pay RD a percentage of the sales proceed annually (hereinafter call the Annual Payment) for a period of five (5) years calculated from the date CAPEAST and the Government of the Republic of Madagascar fulfilled their relevant obligations under the said Contract. If CAPEAST failed to make the Annual Payment to RD, RB irrevocably undertakes to pay RD such payment.

The Group is contingently liable to incur a percentage of the sale proceed annually, if all the relevant obligation under the said contract were fulfilled.

In year 2002, the Republic of Madagascar encountered political unrest and thus, CAPEAST was unable to proceed in the fulfillment of relevant obligations under the contract and has remained dormant.

In light of the above, the directors of the subsidiary have made full allowance for doubtful debts on the amount due from RD amounting to RM2,070,000 (see Note 9).

32. Material Litigation i) An arbitration proceeding between Avangarde’s subsidiary, Jayarena Construction Sdn.

Bhd. (“JCSB”) as the Claimant and Sineo Enterprise Sdn. Bhd. as the Respondent is in progress. JCSB resubmitted Statement of Claim on 24th July 2000 and is claiming the sum of RM74 million being the Architect Certificate of Payment, value of work done, financing charges, losses and damages, interest and cost. The Respondent is counter claiming liquidated and ascertained damages for alleged late completion of JCSB works for the amount RM3.9 million. The dates of hearing which have been fixed on 2nd, 3rd, 4th, 11th, 12th, 13th, 23rd, 24th, 25th April 2001 and 7th, 8th, 9th, 16th, 17th, 18th May 2001 have to be postponed as the Respondent had filed an application to the High Court of Malaya at Kuala Lumpur to remove the Arbitrator. The hearing for the said application was completed and the Court allowed Sineo’s application on 7th January 2005. On 3rd February 2005, JSCB appeal to the Court of Appeal and no hearing date fixed yet.

During the financial year, the Group has allowed the full amount of RM9 million due from Sineo Enterprise Sdn. Bhd. as doubtful debts.

ii) Relating to the above arbitration, Sineo Enterprise Sdn. Bhd. has made a demand for the

corporate guarantee (performance bond) for due performance of JCSB, under corporate guarantee issued by Avangarde of RM3.47 million. Avangarde has filed a suit on 25th May 1999 on Sineo Enterprise Sdn. Bhd. to determine the validity of the said corporate guarantee (performance bond) and the validity of the demand. The court has fixed it on 29th march 2006 for further case management.

Based on legal advice, the directors of the Company are of the opinion that the Company have a good case and highly to succeed as the defendant fail to prove of its acceptance to the said corporate guarantee. Further, the corporate guarantee is also an issue in the arbitration.


61

Notes to the Financial Statements - 31st December 2003 (cont’d) 32. Material Litigation (Cont’d) iii) A suit was lodged by Antah Schindler Sdn. Bhd. against Sineo Enterprise Sdn. Bhd. as the

first Defendant and JCSB as the second Defendant. The claim against JCSB is for trespassing on their lifts and escalators works. Defence has been filed on 9th September 1999 and is pending trial. The works being carried out by JCSB were according to the terms and conditions of the contract between JCSB and Sineo Enterprise Sdn. Bhd. being the Employer of the Project and under the instructions of the first Defendant. This suit is pending trial and no trial date has been fixed.

Based on legal advice, the directors of the Company are of the opinion that there is a good defence to this legal suit and therefore likely to succeed.

iv) A winding-up petition was lodged by API Aluminium Sdn. Bhd. against JCSB on 11th

March 2004 to claim for a non judgement sum of RM630,000 for works alleged to have been done for JCSB. JCSB had filed an Affidavit In Opposition to the Petition on 26th May 2004. The Court fixed 25th August 2005 to hear the Petition and the Court dismissed the Petition.

v) A winding-up petition was lodged by Woodlandor Wood Products Sdn. Bhd. against the

Company on 29th July 2004 for a claim of RM390,128 for alleged outstanding payment for work done for JCSB, of which the Company has provided a Corporate Guarantee on amount owed by JCSB. The court fixed 7th April 2006 to hear the Petition.

vi) Certain financial institutions have obtained summary of judgement from court for full

payment of the amounts due in respect of credit facilities granted amounted to RM52.6 million.

vii) Legal action have been initiated by Inland Revenue Board against a subsidiary company,

Jayarena Construction Sdn. Bhd. for the tax liability of approximately RM1 million. Penalty on late payment of tax liability has not been included in the accounts of the Group and the subsidiary company as the amounts cannot be quantified.

viii) Legal actions have been initiated by certain parties against Avangarde Resources Group

of companies over claims in relation to work done, banking facilities and corporate guarantee. Such claims totaling RM22 million are still in legal process.

ix) Certain claims made by sub-contractors amounted to RM10 million in relation to their work

done were under arbitration. The date of hearing for the arbitration cases have not be fixed yet.

x) A petition by N-Tatt Construction Sdn. Bhd. to wind-up JCSB was granted by Kuala

Lumpur High Court on 28th March 2006. JCSB is appealing to the court decision and applying for stay.


62

Notes to the Financial Statements - 31st December 2003 (cont’d) 33. Significant Subsequent Events

i) On 27th September 2005, a subsidiary, Align Metro Sdn. Bhd., accepted a development contract amount of RM30 million awarded by Reap & Rich Worldwide Holding Sdn. Bhd.

ii) On 30th December 2005, a subsidiary, Align Metro Sdn. Bhd., entered into a Joint Venture

Agreement with Pakadiri Modal Sdn. Bhd. to develop a subdivided land comprising 432 residential units in an area proposed for development of integrated housing and commercial project.

34. Financial Instruments a) Interest rate risk

The table below summarised the carrying amounts of the Group’s financial assets and liabilities, categorised by their maturity dates, which represent the Group’s exposure to interest rate risk : -

2003Effective

interest rate

2002 Effective

interest rate RM’000 % RM’000 % Group Financial assets - Fixed deposits 4,548 2.71-3.20 5,170 2.71-3.20 Financial liabilities - Bank overdrafts 14,265 7.75 8,580 8.14 - Term loan 54,616 7.75-8.25 54,336 8.14-8.64 Company Financial assets - Fixed deposits 323 3.45 312 3.45

b) Credit risk

The Group has significant concentration of credit risk that may arise from exposures to receivables as disclosed in Notes 8 and 9 to the financial statements. The maximum credit risk associated with recognised financial assets in the carrying amount shown in the balance sheet.

c) Liquidity and cash flow risk

The Group and the Company face liquidity and cash flow risk in view of net current liabilities and default of borrowings as disclosed in Notes 2, 15 and 17 to the financial statements.


63

Notes to the Financial Statements - 31st December 2003 (cont’d) 34. Financial Instruments (Cont’d) d) Fair values

The aggregate net fair value of financial assets of the Group which is not carried at fair value on the balance sheets are as follows : -

2003 2002 Carrying

amount Fair valueCarrying amount

Fair value

RM’000 RM’000 RM’000 RM’000Group Amount due to directors (Note 13)

46 * 46 *

Company Amount due from subsidiary companies (Note 10)

- Jayarena Construction Sdn. Bhd.

9 * 27,413 *

- Royong Bersatu Sdn. Bhd. - - 27 *Amount due to directors (Note 13)

42 * 42 *

* A reasonable estimate of fair value could not be made as the repayment term is not

determinable currently. However, the Group and the Company do not anticipate the carrying amounts recorded at the balance sheet date to be significantly different from the values that would eventually be received or settle. These balances are valued at cost.

The following methods and assumptions are used to estimate the fair values of the following classes of financial instruments : -

The carrying amount in respect of the cash and cash equivalents, trade and other receivables, trade and other payables and short-term borrowings, the carrying amounts approximate fair value due to the relatively short-term nature of these financial instruments.

It is not possible to establish the fair value of amounts due from/(to) subsidiaries and amount due to directors due principally to a lack of fixed repayment term entered by the parties involved. However, the Group does not anticipate the carrying amounts recorded at the balance sheet date to be significantly different from the values that would eventually be received or settled.

It is not practical to estimate the fair values of contingent liabilities reliably due to the uncertainties of timing, costs and eventual outcome.

35. Related Party Disclosures Controlling related party relationships are as follows : - i) the substantial shareholders of the Company; ii) its subsidiaries as disclosed in Note 6 to the financial statements; and iii) its directors and companies in which certain directors have interest.


64

Notes to the Financial Statements - 31st December 2003 (cont’d) 35. Related Party Disclosures (Cont’d) Significant related party balances are as follows : -

2003 2002 RM’000 RM’000Group Amount due to directors (Note 13) 46 46 Company Amount due from subsidiary companies (Note 10) - Jayarena Construction Sdn. Bhd. 9 27,413- Royong Bersatu Sdn. Bhd. - 27Amount due to directors (Note 13) 42 42

36. Comparative Figures

a) The following comparative figures have been reclassified to conform with current year’s presentation:-

As reclassified As previously

reported RM’000 RM’000Group Balance Sheet Amount due from customers for contract works 9,808 -Trade receivables 97,595 -Other receivables, deposits and prepayment 35,796 -Tax recoverable 84 -Trade and other receivables - 143,283Deposits with licensed finance institutions 5,170 -Cash and bank balances 868 -Cash and cash equivalents - 6,038Trade payables 67,045 -Other payables and accruals 7,168 -Amount due to directors 46 -Trade and other payables - 74,259 Income Statement Other income 1,833 2,693Administrative expenses (1,261) (13,075)Other expenses (125,552) (2,930)Finance costs (4,652) -Provision for diminution in value of amount due from contract customers

-

(13,745)

Property, plant and equipment written off - (3,987)Bad debts written off - (3,416)Interest income - (3,155)



65

36. Comparative Figures (Cont’d) a) (Cont’d.)

As reclassified

As previously reported

RM’000 RM’000Company Balance Sheet Other receivables, deposits and prepayment 3,835 31,359Amount due from subsidiary companies 27,440 -Tax recoverable 84 -Deposits with licensed finance institutions 312 -Cash and bank balances 23 335Trade payables - 264Other payables and accruals 222 -Amount due to directors 42 - Income Statement Other income 136 -Administrative expenses (1,104) (1,077)Bad debts written off - (27)Interest income - 136

b) The financial statements for the year ended 31st December 2002 were audited by a firm of

auditors other than Kreston John & Gan. 37. Currency All amounts in the financial statements are stated in Ringgit Malaysia. 38. Authorisation for Issue of Financial Statements

These financial statements were authorised for issue by the Board of Directors on 31st March 2006.

STATEMENT BY DIRECTORS Pursuant to Section 169(15) of the Companies Act, 1965


66

We, Tamunif Bin Mokhtar and Dato’ Abu Bakar Bin Mohamed, being two of the directors of Avangarde Resources Berhad, do hereby state on behalf of the directors that in our opinion, the financial statements set out on pages 22 to 65 are drawn up in accordance with applicable MASB approved accounting standards in Malaysia and the provisions of the Companies Act, 1965 so as to give a true and fair view of the state of affairs of the Group and of the Company at 31st December 2003 and of the results and the cash flows of the Group and of the Company for the financial year ended on that date. Signed on behalf of the Board in accordance with a resolution of the directors Tamunif Bin Mokhtar Dato’ Abu Bakar Bin Mohamed Kuala Lumpur, Date: 31st March 2006

STATUTORY DECLARATION Pursuant to Section 169(16) of the Companies Act, 1965 I, Tamunif Bin Mokhtar, being the director primarily responsible for the financial management of Avangarde Resources Berhad, do solemnly and sincerely declare that the financial statements set out on pages 22 to 65, to the best of my knowledge and belief, are correct. And, I make this solemn declaration conscientiously believing the same to be true, and by virtue of the provisions of the Statutory Declarations Act, 1960. Subscribed and solemnly declared at Kuala Lumpur this day of 2006. Before me Tamunif Bin Mokhtar Commissioner for Oaths


67

Financial Statements 31st December

2004

Index Pages No.

Corporate Information 68

Directors’ Report 69-72

Auditors’ Report 73-74

Consolidated Balance Sheet 75

Consolidated Income Statement 76

Consolidated Statement of Changes in Equity 77

Consolidated Cash Flow Statement 78&79

Balance Sheet 80

Income Statement 81

Statement of Changes in Equity 82

Cash Flow Statement 83

Notes to the Financial Statements 84-115

Statement by Directors 116

Statutory Declaration 116


68

CORPORATE INFORMATION for the year ended 31st December 2004 Board of Directors : Dato’ Dr. Abdul Razak Bin Abdul - Chairman : Tuan Haji Tamunif Bin Mokhtar - Managing Director : Dato’ Haji Abu Bakar Bin Mohamed : Hamidun Bin Masuod : Ahmad Bin Abu Bakar Company Secretaries : Tan Kai Jong (MACS 01222) : Tan Lin Hong (MAICSA 0767479) Audit Committee : Hamidun Bin Masuod : Ahmad Bin Abu Bakar : Tuan Haji Tamunif Bin Mokhtar Auditors : Kreston John & Gan Chartered Accountants (Firm No. AF 0113) Registered Office : 2nd Floor, 17 & 19, Jalan Brunei Barat, Pudu 55100 Kuala lumpur Tel: 03-21422153 Fax: 03-21441854 Share Registrar : Bina Management (M) Sdn. Bhd. Lot 10, The Highway Centre, Jalan 51/205 46050 Petaling Jaya, Selangor Darul Ehsan Tel: 03-77843922 Fax: 03-77841988 Business Address : No. 16-3, Jalan USJ 21/6 47630 UEP Subang Jaya, Selangor Darul Ehsan Tel: 03-80249970 Fax: 03-80249831 Email: [email protected] Principal Bankers : RHB Bank Berhad : United Overseas Bank : Malayan Banking Berhad Stock Exchange Listing : Second Board of the Bursa Malaysia Securities Berhad (“BMSB”)


69

DIRECTORS' REPORT for the year ended 31st December 2004 The directors have pleasure in submitting their report and the audited financial statements of the Group and of the Company for the financial year ended 31st December 2004. Principal Activities The Company is principally engaged in investment holding and provision of management services. The principal activities of the subsidiary companies are set out in Note 6 to the financial statements. There have been no significant changes in these principal activities during the financial year. Results Group Company RM RM Net loss for the financial year after taxation 14,947,618 549,372 Reserves and Provisions There were no material transfers to or from reserves or provisions during the financial year other than those disclosed in the financial statements. Employees’ Share Options Scheme (“ESOS”) The ESOS which have yet to implement were approved by the shareholders during the Extraordinary General Meeting held on 27th December 2002. Details of the ESOS are set out in Note 18 to the financial statements. Directors of the Company The directors who served since the date of the last report are : - Dato’ Dr. Abdul Razak Bin Abdul - Chairman, appointed on 9/1/06 Tuan Haji Tamunif Bin Mokhtar - Managing Director Dato’ Haji Abu Bakar Bin Mohamed Hamidun Bin Masuod Ahmad Bin Abu Bakar


70

Directors’ Report for the year ended 31st December 2004 (cont’d) Directors' Interests The directors holding office at the end of the financial year and their interests in the ordinary shares of the Company during the financial year ended 31st December 2004 as recorded in the Register of Directors’ Shareholdings were as follows : - Number of ordinary shares of RM1 each As at

1/1/2004

Bought

Sold As at

31/12/2004Shares in the Company Direct interests Tuan Haji Tamunif Bin Mokhtar 87,123 - - 87,123Dato’ Haji Abu Bakar Bin Mohamed 15,000 - - 15,000 Indirect interests Tuan Haji Tamunif Bin Mokhtar 7,928,550 - (202,900) 7,725,650 By virtue of their interests in the shares of the Company, Tuan Haji Tamunif Bin Mokhtar and Dato’ Haji Abu Bakar Bin Mohamed are deemed to have an interest in the shares of the subsidiary companies of Avangarde Resources Berhad in the financial year. Directors’ Benefits Since the end of the previous financial year, none of the directors of the Company have received or become entitled to receive any benefit (other than a benefit included in the aggregate amount of emoluments received or due and receivable by the directors as shown in the financial statements) by reason of a contract made by the Company or a related corporation with the director or with a firm of which the director is a member, or with a company in which the director has a substantial financial interest other than disclosed in Note 35 to the financial statements. There were no arrangements during and at the end of the financial year which had the object of enabling the directors of the Company to acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate. Other Statutory Information Before the financial statements of the Group and of the Company were made out, the directors took reasonable steps : - i) to ascertain that proper action had been taken in relation to the writing off of bad debts and the

making of provision for doubtful debts and have satisfied themselves that all known bad debts had been written off and that adequate provision had been made for doubtful debts; and

ii) to ensure that any current assets which were unlikely to realise their values as shown in the

accounting records in the ordinary course of business had been written down to an amount which they might be expected so to realise.


71

Directors’ Report for the year ended 31st December 2004 (cont’d) Other Statutory Information (cont’d) At the date of this report, the directors are not aware of any circumstances : - i) that would render the amount written off for bad debts, or the amount of the provision for

doubtful debts, in the Group and in the Company inadequate to any substantial extent; or ii) that would render the value attributed to the current assets in the Group’s and in the Company’s

financial statements misleading; or iii) which have arisen which render adherence to the existing method of valuation of assets or

liabilities of the Group and of the Company misleading or inappropriate; or iv) not otherwise dealt with in this report or the financial statements, that would render any amount

stated in the financial statements of the Group and of the Company misleading. At the date of this report, there does not exist : - i) any charge on the assets of the Group or of the Company which has arisen since the end of the

financial year which secures the liabilities of any other person; or ii) any contingent liability in respect of the Group or of the Company which has arisen since the

end of the financial year. No contingent liability or other liability of any company in the Group has become enforceable, or is likely to become enforceable within the period of twelve months after the end of the financial year which, in the opinion of the directors, will or may substantially affect the ability of the Group and of the Company to meet their obligations as and when they fall due except as disclosed in Note 31 to the financial statements. In the opinion of the directors, the results of the operations of the Group and of the Company for the financial year ended 31st December 2004 have not been substantially affected by any item, transaction or event of a material and unusual nature nor has any such item, transaction or event occurred in the interval between the end of that financial year and the date of this report. Significant Subsequent Events Significant subsequent events are disclosed in Note 33 to the financial statements.


72

Directors’ Report for the year ended 31st December 2004 (cont’d) Auditors The auditors, Kreston John & Gan, Chartered Accountants, have expressed their willingness to continue in office. Signed on behalf of the Board in accordance with a resolution of the Directors Tamunif Bin Mokhtar Dato’ Abu Bakar Bin Mohamed Kuala Lumpur, Date : 31st March 2006


73

AUDITORS' REPORT to members of Avangarde Resources Berhad We have audited the financial statements set out on pages 75 to 115 of Avangarde Resources Berhad. These financial statements are the responsibility of the Company's directors. It is our responsibility to form an independent opinion, based on our audit, on those financial statements and to report our opinion to you, as a body, in accordance with Section 174 of the Companies Act, 1965 and for no other purpose. We do not assume responsibility towards any other person for the content of this report. We conducted our audit in accordance with approved standards on auditing issued in Malaysia. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. 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 the directors as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion. The scope of our work was limited by the matters referred to items (ii) to (v) below : - i) The financial statements of the Group have been prepared on a going concern basis. This

basis may not be appropriate because the Group incurred an accumulated losses of RM162,903,263 as at 31st December 2004 and at that date its current liabilities had exceeded its current assets by RM124,806,690. The Group’s going concern status is therefore dependent on the ability of the Group to generate profits in future and/or obtaining of long term financing.

If the Group is unable to continue as a going concern, adjustments would have to be made to reduce the value of assets to their recoverable amounts, to provide for any further liabilities which may arise and to reclassify the non-current assets and non-current liabilities as current assets and current liabilities respectively.

ii) In view of the current operations of the Group, we are unable to ascertain whether the carrying

value of property, plant and equipment is impaired and requires a write down. iii) We refer to Note 6 to the Group financial statements. The financial statements of a subsidiary,

P. C. Building Systems Sdn. Bhd. were not audited since year 2002 and have been prepared on a realisation basis. We are unable to determine whether all adjustments relating to the carrying value of the assets and liabilities have been made or are appropriate.

iv) We refer to Note 6 to the Group financial statements. The financial statements of a subsidiary

CAPEAST Plantation SARL, for the year ended 31st December 2002, 2003 and 2004 were not audited.

Therefore, we are not able to satisfy ourselves that the management accounts of the subsidiary that have been consolidated with the financial statements are in form and content appropriate and proper for the purposes of the preparation of the consolidated financial statements.


74

Auditors' Report to Members of Avangarde Resources Berhad (cont’d) v) As disclosed in Notes 15, 16 and 32 to the financial statements, certain subsidiaries have

payments in areas due to financial institutions, and certain financial institutions have obtained summary of judgement from court for full payment of the amounts due in respect of credit facilities granted. Where applicable, the amounts owing including the interest have been provided for in the financial statements but additional interest from the date of the claims have not been accounted for.

As disclosed in Notes 31 and 32 to the financial statements, there are contingent liabilities and

material litigation brought against Group and of the Company. As disclosed in Note 32 to the financial statements, there is a petition granted by court to wind-up a subsidiary company, Jayarena Construction Sdn. Bhd. subsequent to balance sheet date.

We are unable to ascertain the status of the litigation and claims thereafter and whether any further liabilities may raise or legal claims be brought against the Group and the Company.

In view of the significance of the matters discussed in the preceding paragraphs, we are unable to form an opinion as to whether the financial statements are properly drawn up in accordance with the provisions of the Companies Act, 1965 and applicable MASB approved accounting standards in Malaysia so as to give a true and fair view of : - (i) the state of affairs of the Group and of the Company as at 31st December 2004 and of the

results and cash flows of the Group and of the Company for the year ended on that date; and (ii) the matters required by Section 169 of the Companies Act, 1965 to be dealt with in the financial

statements of the Group and of the Company; and In our opinion, the accounting and other records and the registers required by the Companies Act, 1965 to be kept by the Company and by the subsidiaries of which we have acted as auditors have been properly kept in accordance with the provisions of the said Act. Except as disclosed in paragraphs (iii), (iv) and (v) and the last paragraph below, we are satisfied that the financial statements of the subsidiaries that have been consolidated with the Company’s financial statements are in form and content appropriate and proper for the purposes of the preparation of the consolidated financial statements and we have received satisfactory information and explanations as required by us for those purposes. The auditors’ reports on the financial statements of the subsidiary companies were subject to qualification as disclosed in Note 6 to the financial statements and did not include any comment made under subsection (3) of Section 174 of the Companies Act, 1965. Kreston John & Gan Gan Kim Guan Chartered Accountants Approval No. 1361/2/07(J) ( AF 0113 ) Partner of Firm Kuala Lumpur, Date : 31st March 2006


75

CONSOLIDATED BALANCE SHEET 31st December 2004

Note 2004 2003RM RM

PROPERTY, PLANT AND EQUIPMENT 5 7,818,424 9,075,551

CURRENT ASSETS

Property 5 4,949,000 4,949,000 Trade receivables 7 8,940,434 8,719,857 Other receivables, deposits and prepayments 8 1,368,389 1,647,600 Tax recoverable 84,237 84,237 Deposits with licensed financial institutions 10 1,695,387 4,547,981 Cash and bank balances 40,537 1,658,363

17,077,984 21,607,038

CURRENT LIABILITIES

Amount due to customers for contract works 11 5,360,234 4,141,023 Trade payables 12 43,786,945 44,865,111 Other payables and accruals 10,793,072 9,351,031 Amount due to directors 13 46,504 46,504 Borrowings 14 77,300,390 69,046,193 Taxation 4,597,529 4,597,529

141,884,674 132,047,391

NET CURRENT LIABILITIES (124,806,690) (110,440,353)

(116,988,266) (101,364,802)

Financed by : -

SHARE CAPITAL 18 43,750,000 43,750,000 ACCUMULATED LOSSES (162,903,263) (147,955,645)

CAPITAL DEFICIENCY (119,153,263) (104,205,645) RESERVE ON CONSOLIDATION 19 2,053,138 2,737,516 LONG TERM LIABILITIESBorrowings 14 111,859 103,327

(116,988,266) (101,364,802)

The above consolidated balance sheet is to be read in conjunction with the notes to the financial statements on pages 84 to 115.


76

CONSOLIDATED INCOME STATEMENT for the year ended 31st December 2004

Note 2004 2003RM RM

Revenue 20 1,362,251 44,481,344 Cost of sales (1,185,226) (42,201,227)

Gross profit 177,025 2,280,117

Other income 21 1,028,973 1,832,757 Administrative expenses (2,137,776) (1,260,576) Other expenses (9,415,973) (125,552,198)

Loss from operations (10,347,751) (122,699,900)

Finance costs (4,599,867) (4,652,218)

Loss before taxation 22 (14,947,618) (127,352,118)

Taxation 25 - (79,911)

Loss after taxation (14,947,618) (127,432,029)

Minority interest - -

Net loss for the year (14,947,618) (127,432,029)

Basic loss per ordinary share (sen) 26 (34.17) (291.27)

The above consolidated income statements is to be read in conjunction with the notes to the financial statements on pages 84 to 115.


77

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 31st December 2004

Non-Distributable

Share Share Accumulatedcapital premium losses Total

RM RM RM RM

Balance at 31st December 2002 35,000,000 4,940,247 (16,713,863) 23,226,384

Capitalised for bonus issue 8,750,000 (4,940,247) (3,809,753) -

Net loss for the year - - (127,432,029) (127,432,029)

Balance at 31st December 2003 43,750,000 - (147,955,645) (104,205,645)


Balance at 31st December 2004 43,750,000 - (162,903,263) (119,153,263)

< ------------- Reserves ------------->

The above consolidated statement of changes in equity is to be read in conjunction with the notes to the financial statements on pages 84 to 115.


78

CONSOLIDATED CASH FLOW STATEMENT for the year ended 31st December 2004

Note 2004 2003RM RM


Loss before taxation and minority interest (14,947,618) (127,352,118)

Adjustments for : -

Investment in quoted share written off - 30 Provision for diminution in value ofamount due from contract customers 12,592 17,724,955 Provision for bad and doubtful debts 7,348,783 58,698,183 Provision for foreseeable loss 343,756 (14,158) Interest income (59,205) (628,003) Bad debts written off 615,383 45,960,291 Depreciation 1,081,460 1,358,260 Gain on disposal of property, plant and equipment (58,333) (98,361) Interest expenses 4,599,867 4,652,219 Loss on disposal of property, plant and equipment 14,000 1,646,267 Amortisation of reserve on consolidation (684,378) (684,378)

Operating profit/(loss) before working capital changes (1,733,693) 1,263,187

Increase in amount due from customers for contract works (12,592) (7,917,661) (Increase) /Decrease in trade receivables (7,569,360) 17,286,183 Increase /(Decrease) in other receivables and deposits (471,902) 690,633 Increase in amount due to customers for contract works 1,219,211 4,141,023 Decrease in trade payables (1,078,166) (22,179,062) Increase in other payables and accruals 1,234,015 2,510,114

Cash used in operations (8,412,487) (4,205,583)

Interest received 59,205 628,003 Interest paid (834,757) (1,147,123) Tax paid - (173)

Net cash used in operating activities (9,188,039) (4,724,876)


Uplifted of short term deposit - 753,495 Purchases of property, plant and equipment 27 - (109,305) Proceeds from disposal of property, plant and equipment 220,000 2,488,840

Net cash from investing activities 220,000 3,133,030

Balance carried forward (8,968,039) (1,591,846)


79

Consolidated Cash Flow Statement for the year ended 31st December 2004 (cont’d)

Note 2004 2003RM RM

Balance brought forward (8,968,039) (1,591,846)

Cash flows from financing activities

Decrease in deposits pledged with finance institution 2,863,904 840,397 Repayment of term loans - (3,224,909) Repayment of hire purchase creditors (173,109) (699,598)

Net cash from /(used in) financing activities 2,690,795 (3,084,110)

Net decrease in cash and cash equivalents (6,277,244) (4,675,956)

Cash and cash equivalents at the beginning of the year (12,283,956) (7,608,000)

Cash and cash equivalents at the end of the year 28 (18,561,200) (12,283,956)

The above consolidated cash flow statement is to be read in conjunction with the notes to the financial statements on pages 84 to 115.


80

BALANCE SHEET 31st December 2004

Note 2004 2003RM RM

INVESTMENT IN SUBSIDIARIES 6 - -

CURRENT ASSETS

Other receivables, deposits and prepayments 8 1,000 1,000 Amount due from subsidiary companies 9 3,517 8,669 Deposits with licensed financial institutions 10 333,976 322,666 Tax recoverable 84,237 84,237 Cash and bank balances 6,110 101,236

428,840 517,808

CURRENT LIABILITIES

Other payables and accruals 633,792 253,580 Amount due to subsidiary companies 9 80,192 -Amount due to directors 13 41,822 41,822

755,806 295,402

NET CURRENT ASSETS /(LIABILITIES) (326,966) 222,406

(326,966) 222,406

Financed by : -

SHARE CAPITAL 18 43,750,000 43,750,000 ACCUMULATED LOSSES (44,076,966) (43,527,594)

(326,966) 222,406

The above balance sheet is to be read in conjunction with the notes to the financial statements on pages 84 to 115.


81

INCOME STATEMENT for the year ended 31st December 2004

Note 2004 2003RM RM

Revenue 20 - -Other income 21 11,310 10,926 Administrative expenses (560,682) (299,601) Other expenses - (44,879,770)

Loss before taxation 22 (549,372) (45,168,445)

Taxation 25 - -

Net loss for the year (549,372) (45,168,445)

The above income statement is to be read in conjunction with the notes to the financial statements on pages 84 to 115.


82

STATEMENT OF CHANGES IN EQUITY for the year ended 31st December 2004

Non-Distributable

Share Share Accumulatedcapital premium losses Total

RM RM RM RM

Balance at 31st December 2002 35,000,000 4,940,247 5,450,604 45,390,851

Capitalised for bonus issue 8,750,000 (4,940,247) (3,809,753) -


Balance at 31st December 2003 43,750,000 - (43,527,594) 222,406


Balance at 31st December 2004 43,750,000 - (44,076,966) (326,966)

< -------------- Reserves -------------->

The above statement of changes in equity is to be read in conjunction with the notes to the financial statements on pages 84 to 115.


83

CASH FLOW STATEMENT for the year ended 31st December 2004

Note 2004 2003RM RM


Loss before taxation (549,372) (45,168,445)

Adjustments for : -

Provision for doubtful debts - 30,867,657 Bad debts written off - 26,334 Interest income (11,310) (10,926) Impairment loss on investment in subsidiary companies - 13,960,396

Operating loss before working capital changes (560,682) (324,984)

Decrease in other receivables, deposits and prepayments - 3,724,383 Increase in other payables and accruals 380,212 31,281

Cash generated from /(used in) operations (180,470) 3,430,680

Interest received 11,310 10,926

Net cash from /(used in) operating activities (169,160) 3,441,606


Repayment from holding company - 83,227 (Advance to) /Repayment from subsidiary companies 5,152 (3,435,950)

Net cash used in investing activities 5,152 (3,352,723)

(164,008) 88,883

Cash flows from financing activity

Advance from subsidiary companies 80,192 -Decrease in deposits pledged with licensed bank - 311,740

Net cash from financing activities 80,192 311,740

Net increase /(decrease) in cash and cash equivalents (83,816) 400,623

Cash and cash equivalents at the beginning of the year 423,902 23,279

Cash and cash equivalents at the end of the year 28 340,086 423,902

The above cash flow statement is to be read in conjunction with the notes to the financial statements on pages 84 to 115.


84

NOTES TO THE FINANCIAL STATEMENTS 31st December 2004 1. Principal Activities and Corporate Information

The Company is principally engaged in investment holding and provision of management services. The principal activities of the subsidiary companies are set out in Note 6 to the financial statements.

The Company is a public limited company, incorporated and domiciled in Malaysia, and is listed on the Second Board of the Bursa Malaysia Securities Berhad (“BMSB”).

The addresses of the Company’s registered office and principal place of business are as follows : - Registered office : 2nd Floor, 17 & 19, Jalan Brunei Barat, Pudu, 55100 Kuala Lumpur Principal place of business : No. 16-3, Jalan USJ 21/6, 47630 UEP Subang Jaya Selangor Darul Ehsan 2. Basis of Preparation of Financial Statements

The financial statements of the Group and of the Company are prepared under the historical cost convention except as disclosed in the summary of significant accounting policies.

The financial statements of the Group and of the Company comply with the applicable MASB approved accounting standards in Malaysia and the provisions of the Companies Act, 1965. New accounting standards that are effective for the financial year are adopted and applied by the Group and the Company retrospectively or prospectively as allowed by the respective accounting standards.

The preparation of the financial statements in conformity with the applicable MASB approved accounting standards in Malaysia and the provisions of the Companies Act, 1965 require the directors to make estimates and assumptions that may affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported financial year. Actual results could differ from those estimates.

As at 31st December 2004, the Group has net current liabilities and accumulated losses of RM124,806,690 and RM162,903,263 respectively. The financial statements of the Group, however, has been prepared on the basis of accounting principles applicable to a going concern. This going concern basis presumes that the realisation of assets and the settlement of liabilities will occur in the ordinary course of business. As the expected cash flows from the existing activity of the Group may not be able to meet the financial obligations as and when they fall due, the appropriateness of the said going concern is dependent on the ability of the Group to generate profits in future and/or obtaining of long term financing.


85

Notes to the Financial Statements - 31st December 2004 (cont’d) 3. Financial Risk Management Policies

The Group seeks to ensure that adequate financial resources are available for the development of the Group’s businesses whilst managing its risks.

The main areas of financial risks faced by the Group in respect of the major areas of treasury activity are set out as follows : -

a) Interest rate risk

The Group borrows principally on a floating rate basis but to retain a proportion of fixed rate debt. The objectives for the mix between fixed and floating rate borrowings are to reduce the impact of an upward change in interest rates while enabling benefits to be enjoyed if interest rates fall. The mix between fixed and floating rate borrowings are monitored and varied according to changes in interest rates to ensure that the Group’s cost of financing is kept at the lowest possible.

b) Credit risk

Receivables may give rise to credit risk which require the loss to be recognised if a counter party fails to perform as contracted. In order to manage this risk, management has an informal credit policy in place and the exposure to credit risk is monitored on an ongoing basis. The Group does not require collateral in respect of financial assets.

c) Liquidity and cash flow risks

The Group practice prudent liquidity risk management to minimise the mismatch of financial assets and liabilities and to maintain sufficient credit facilities for working capital purposes.

d) Foreign currency risk

The Group is exposed to foreign currency risk as a result of its normal trading activities, where the currency denomination differs from the local currency, Ringgit Malaysia (RM). As the effect of the currency risk is immaterial, the Group does not enter into any hedging contracts.

4. Significant Accounting Policies

All significant accounting policies set out below are consistent with those applied in the previous financial year.

a) Accounting convention

The financial statements of the Group and of the Company have been prepared under the historical cost convention except as disclosed in the financial statements.


86

Notes to the Financial Statements - 31st December 2004 (cont’d) 4. Significant Accounting Policies (Cont’d) b) Basis of consolidation

Subsidiary is enterprise controlled by the Company. Control exists when the Company has the power, directly or indirectly to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. The financial statements of subsidiary are included in the consolidated financial statements from the date that control effectively commences until the date that control effectively ceases. Subsidiary is consolidated using the acquisition method of accounting from the date control is transferred to the Group and are no longer consolidated from the date control ceased.

A subsidiary is excluded from consolidation when control is intended to be temporary as the subsidiary is acquired and held exclusively with a view of its subsequent disposal in the near future and it has not previously been consolidated or it operates under severe long term restrictions which significantly impair its ability to transfer funds to the Company. Subsidiary excluded on these grounds is accounted for as investment.

Under the acquisition method of accounting, the results of subsidiary acquired or disposed during the year are included from the date of acquisition or up to the date of disposal. At the date of acquisition, the fair values of the subsidiary’s net assets are determined and these values are reflected in the Group’s financial statements. The difference between the acquisition cost and the fair values of the subsidiary’s net assets is reflected as goodwill or reserve on consolidation as appropriate.

Intragroup transactions and balances and the resulting unrealised profits are eliminated on consolidation. Unrealised losses resulting from intragroup transactions are also eliminated unless cost cannot be recovered.

c) Goodwill/Negative goodwill on consolidation

Goodwill on consolidation represents the excess of the cost of acquisition over the fair values of the net identifiable assets acquired.

Negative goodwill on consolidation represents the excess of the fair values of the net identifiable assets acquired over the cost of the acquisition.

Goodwill/Negative goodwill on consolidation is stated at cost less accumulated amortisation. Goodwill is amortised from the date of initial recognition over its estimated useful life of 10 years. Negative goodwill on consolidation is amortised from the date of initial recognition over its estimated useful life of not more than 10 years.

d) Property, plant and equipment and depreciation

Property, plant and equipment except for freehold land and building-in-progress are stated at cost less accumulated depreciation and impairment losses, if any.

Freehold land is not amortised and is stated at valuation less impairment losses, if any. Building-in-progress is stated at cost and not amortised.

Property, plant and equipment retired from active use and held for disposal are stated at the lower of net book value and net realisable value.


87


4. Significant Accounting Policies (Cont’d)

d) Property, plant and equipment and depreciation (cont’d)

Depreciation of property, plant and equipment is calculated to write off the cost on a Straight Line Basis over the expected useful lives of the property, plant and equipment concerned. The principal annual rates of depreciation for the plant and equipment are as follows : -

Rate % Plant, machinery and equipment 10-20 Furniture and fittings and office equipment 5-10 Motor vehicles 20 e) Subsidiary company

Subsidiary company is stated at cost less impairment losses. The policy for the recognition and measurement of impairment losses is in according with Note 4(j).

f) Investments

Long term investments are stated at cost. An allowance is made when the directors are of the view that there is a diminution in their value which other than temporary.

g) Amount due from/(to) customers for contract works

Amount due from customers on construction contracts is stated at cost plus recognised profits (less recognised losses) and less progress billings. Cost includes all direct construction costs and other related costs. Where progress billings exceed costs incurred plus recognised profits (less recognised losses), the balance is shown as amounts due to contract customers.

h) Receivables

Receivables are carried at estimated value. An estimate is made for doubtful receivables based on a review of all outstanding amounts at the financial year end. Bad debts are written off during the financial year in which they are identified.

i) Assets acquired under hire-purchase and lease agreements

Assets financed by hire-purchase and lease arrangements which transfer substantially all the risks and rewards of ownership to the Company are capitalised as plant and equipment and the corresponding obligations are treated as liabilities. The plant and equipment capitalised are depreciated on the same basis as owned assets.

Finance charges are allocated to the income statement over the period of the agreements to give a constant periodic rate of charge on the remaining hire-purchase and lease liabilities.


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4. Significant Accounting Policies (Cont’d) j) Impairment of assets

The carrying amount of the Company’s assets other than deferred tax assets and financial assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated and an impairment loss is recognised whenever the recoverable amount is less than the carrying amount of the asset. The impairment loss is recognised in the income statement immediately except for the impairment on a revalued asset where the impairment loss is recognised directly against the revaluation surplus account to the extent of the surplus credited from the previous revaluation for the same assets with the excess of the impairment loss charged to the income statement. All reversals of an impairment loss are recognised as income immediately in the income statement except for the reversal of an impairment loss on a revalued assets where the reversal of the impairment loss is treated as a revaluation increase and credited to the revaluation surplus account of the same asset.

k) Employee benefits i) Short term benefits

Salaries, wages, paid annual leave and sick leave, bonuses, commission, incentive and non-monetary benefits are accrued in the period in which the associated services are rendered by employees of the company.

ii) Defined contribution plans

As required by law, companies in Malaysia make contributions to the state pension scheme, the Employees Provident Fund (“EPF”). Such contributions are recognised as an expense in the income statement as incurred.

l) Revenue recognition i) Construction contracts

Revenue from fixed price construction contracts is recognised on the percentage of completion method, measured by reference to the proportion that contract costs incurred for contract work performed to date that reflected work performed bear to the total estimated contract costs.

When the outcome of a construction contract cannot be estimated reliably, revenue is

recognised only to the extent of contract costs incurred that is probable will be recoverable and contract costs are recognised as an expense in the year in which they are incurred.

An expected loss on a contract is recognised immediately in the income statement. ii) Rental income Rental income is recognised upon issuance of invoice to customers for services

rendered. iii) Interest income

Interest income is recognised in the income statement as it accrues taking into financial statements the effective yield on the assets.


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4. Significant Accounting Policies (Cont’d) m) Foreign currencies transactions and translations i) Transactions and translations

Transactions in foreign currencies are converted into Ringgit Malaysia at the rate of exchange prevailing on the transaction dates. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into Ringgit Malaysia at the approximate rate of exchange prevailing at the date. Gain or losses on foreign exchange are taken up in the income statement.

The closing rate used in the translation of foreign currency is as follows : -

2004 2003 FMG1,000 RM0.57 RM0.57

ii) Financial statements of foreign operations

The Group’s foreign operations are not considered an integral part of the Group’s operations. Accordingly, the assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated to Ringgit Malaysia at exchange rate ruling at the balance sheet date. The revenues and expenses of foreign operations are translated to Ringgit Malaysia at average exchange rates applicable throughout the year. Foreign exchange differences arising on translation are recognised directly in equity.

n) Income taxes

Tax on profit or loss for the financial year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax expense is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of prior years.

Deferred tax liabilities and assets are provided for under the liability method at the current tax rate in respect of all temporary differences between the carrying amount of an asset or liability in the balance sheet and its tax base including unused tax losses and capital allowances.

A deferred tax asset is recognised only to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilised. The carrying amount of a deferred tax asset is reviewed at each balance sheet date. If it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilised, the carrying amount of the deferred tax asset will be reduced accordingly. When it becomes probable that sufficient taxable profit will be available, such reductions will be reversed to the extent of the taxable profit.


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4. Significant Accounting Policies (Cont’d) o) Cash and cash equivalents

Cash and cash equivalents consist of cash in hand, balances and deposits with banks and other financial institutions that are readily convertible to known amounts and highly liquid investments which have an insignificant risk of changes in value. For the purpose of the cash flow statement, cash and cash equivalents are presented net of bank overdraft.

p) Provisions

Provisions are recognised when there is a present obligation, legal or constructive, as a result of a past event, when it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

q) Financial instrument

Financial instrument is any contract that gives rise to both a financial asset of one enterprise and a financial liability or equity instrument of another enterprise.

Financial asset is any asset that is cash, a contractual right to receive cash or another financial asset, contractual right to exchange financial instruments from other enterprises under conditions that are potentially favourable or an equity instrument of other enterprise, whilst financial liability is any liability that is a contractual obligation to deliver cash or another financial asset to another enterprises or to exchange financial instruments with another enterprise under conditions that are potentially unfavourable.

r) Disclosures of fair values

The fair value of the financial assets and liabilities maturing within 12 months are stated at approximately the carrying amounts as at the balance sheet date.

The fair value of quoted investments are estimated based on quotes market prices. For investments for which there are no quoted market prices, a reasonable estimate of fair value could not be made without incurring excessive costs. Therefore, such investments are valued at cost subject to review for impairment.

s) Borrowing costs

Costs incurred on borrowings to finance a qualifying asset is capitalised until the asset is ready for their intended use after which such expense is charged to the income statement. All other borrowing costs are charged to the income statement.



91

5. Property, Plant and Equipment

Non-current assets- At Valuation -

Plant, Furniture,Group machinery fittings

Freehold Building and and office Motor2004 land in progress equipment equipment vehicles Total

RM RM RM RM RM RMCost / ValuationBalance at 1/1/04 - 4,560,000 9,957,179 771,480 791,229 16,079,888 Additions - - - - - -Disposal - - (480,000) - (154,048) (634,048) Balance at 31/12/04 - 4,560,000 9,477,179 771,480 637,181 15,445,840

Accumulated DepreciationBalance at 1/1/04 - - 6,030,002 383,090 591,245 7,004,337 Charge for the year - - 952,370 69,745 59,345 1,081,460 Deletion - - (316,000) - (142,381) (458,381) Balance at 31/12/04 - - 6,666,372 452,835 508,209 7,627,416 Net Book Value - 4,560,000 2,810,807 318,645 128,972 7,818,424

2003

Cost / ValuationBalance at 1/1/03 2,427,544 4,560,000 13,967,179 723,046 1,105,017 22,782,786 Additions - - - 48,434 150,871 199,305 Disposal (2,427,544) - (4,010,000) - (464,659) (6,902,203) Balance at 31/12/03 - 4,560,000 9,957,179 771,480 791,229 16,079,888

Accumulated DepreciationBalance at 1/1/03 - - 6,773,438 314,081 924,015 8,011,534 Charge for the year - - 1,224,231 69,009 65,020 1,358,260 Deletion - - (1,967,667) - (397,790) (2,365,457) Balance at 31/12/03 - - 6,030,002 383,090 591,245 7,004,337

Impairment LossBalance at 1/1/03 500,000 - - - - 500,000 Addition - - - - - -Deletion (500,000) - - - - (500,000) Balance at 31/12/03 - - - - - -Net Book Value - 4,560,000 3,927,177 388,390 199,984 9,075,551

-------------------------------------- At Cost -------------------------------------

i) Building in progress of RM4,560,000 (2003 – RM4,560,000) represents retail lots in a

shopping complex. The construction of this building was suspended since 2001. No impairment loss is recognised as the directors are of the view that Group is able to claim liquidated damages against the developer in respect of the delay in handover to mitigate any impairment loss.


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5. Property, Plant and Equipment (Cont’d) ii) Net book values of plant and equipment acquired under hire purchase are as follows:-

Group2004 2003

RM RM

Plant and machinery 976,487 1,142,387 Office equipment - -Motor vehicles 25,144 140,834

1,001,631 1,283,221

iii) Assets fully depreciated but still in use amounted to RM755,591 (2003 – RM880,088).

iv) The Group’s freehold land in previous year was stated at director’s valuation in 1998 based on professional valuation on the open market basis conducted in 1997 and upon approval by the relevant government authorities, less impairment loss. The freehold land was disposed of for a consideration of RM2,011,610 in previous year.


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5. Property, Plant and Equipment (Cont’d)

Current assetsGroup

Freehold2004 land

RMCost / Valuation

Balance at 1/1/04 5,449,000 Additions -Balance at 31/12/04 5,449,000

Impairment Loss

Balance at 1/1/04 500,000 Charge for the year -Balance at 31/12/04 500,000 Net Book Value 4,949,000

2003

Cost / Valuation

Balance at 1/1/03 5,449,000 Additions -Balance at 31/12/03 5,449,000

Impairment Loss

Balance at 1/1/03 500,000 Charge for the year -Balance at 31/12/03 500,000 Net Book Value 4,949,000 The impairment loss relates to diminution in value of the freehold land based on a valuation on the comparison method in September 2002.

Revaluation

The Group’s freehold land is stated at directors’ valuation in 1998 based on professional valuation of the open market basis conducted in 1997 and upon approval by the relevant Government authorities, less impairment loss based on a valuation on the comparison method in September 2002. The directors are of the opinion that the current market value of freehold land is not less than its net book value as at 31st December 2004.

Had the freehold land been carried at cost, its net book value would have been RM3,658,097 (2003 – RM3,658,097).


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5. Property, Plant and Equipment (Cont’d) Security

The freehold land is charged to a licensed bank for credit facilities granted to subsidiary companies as disclosed in Note 15.

6. Investments in Subsidiaries

Company2004 2003

RM RM

Unquoted shares at cost 15,050,396 15,050,396 Less : Impairment loss (15,050,396) (15,050,396)

- -

The principal activities of the subsidiary companies in the Group, all of which are incorporated and domiciled in Malaysia (except for CAPEAST Plantation SARL, which is incorporated in the Republic of Madagascar), and the interest of Avangarde Resources Berhad are as follows : -

Name of Company

Principal activity

Effective ownership interest

2004 2003 % % Jayarena Construction Sdn. Bhd. * Investment holding and to

carry out as civil, mechanical, general contractors and builders.

100 100

Malaysian Copper Tube Sdn. Bhd. Property investment. 100 100 Align Metro Sdn. Bhd. Property investment. 100 100 P. C. Building Systems Sdn. Bhd. ** Ceased operations as

specialised contractor, manufacturer and supplier of precast concrete components, and remained dormant.

90 90

Royong Bersatu Sdn. Bhd. # and its subsidiary

Investment holding 60 60

CAPEAST Plantation SARL Dormant 60 60


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6. Investments in Subsidiaries (Cont’d) * The auditors’ report on the financial statements of this subsidiary was qualified as to no

audit of the financial statements since year 2002, certain financial institutions have obtained summary of judgement from court for repayments of credit facilities granted, unable to ascertain whether the carrying amount of property, plant and equipment is impaired and requires a write-down, and the appropriateness of preparing the financial statements on the going concern basis.

** The auditors’ report on the financial statements of this subsidiary was qualify as to no audit

of the financial statements since year 2002, whether all adjustments relating to the carrying value of the assets and liabilities have been made or are appropriate as the financial statements were prepared on a realisation basis and certain financial institutions have obtained summary of judgement from court for full payment of the amounts due in respect of credit facilities granted.

# The auditors’ report on financial statements of this subsidiary was qualified as to the

appropriateness of preparing its consolidated financial statements based on the unaudited management accounts of its subsidiary, and the appropriateness of the going concern basis of preparation of the financial statements.

7. Trade Receivables

Group2004 2003

RM RM

Trade receivables 59,931,774 52,362,414 Less : Allowance for doubtful debts (50,991,340) (43,642,557)

8,940,434 8,719,857

The allowance for doubtful debts is net of bad debts written off amounted to Nil (2003 – RM32,360,000).

8. Other Receivables, Deposits and Prepayments

Group Company2004 2003 2004 2003

RM RM RM RM

Other receivables, depositsand prepayments 23,431,502 23,710,713 27,334 27,334 Less : Allowance for doubtful debts (22,063,113) (22,063,113) (26,334) (26,334)

1,368,389 1,647,600 1,000 1,000

The allowance for doubtful debts of the Group is net of bad debts written off amounted to RM615,383 (2003 – RM13,573,957).


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8. Other Receivables, Deposits and Prepayments (Cont’d) Included in other receivables, deposits and prepayments are : -

Group2004 2003

RM RM

i) Advances to sub-contractors, net of allowancefor doubtful debts 20,726,062 20,726,062

ii) Amount due from a company in which an ex-director,Alan Lim Thian Lai @ Lim Thian Keng of a subsidiary,Royong Bersatu Sdn. Bhd. has an interest 2,070,000 2,070,000 Less : Allowance for doubtful debts (2,070,000) (2,070,000)

20,726,062 20,726,062

The amount due from a company in which an ex-director, Alan Lim Thian Lai @ Lim Thian Keng of a subsidiary, Royong Bersatu Sdn. Bhd. has interests is unsecured, interest free and the repayments are based on terms set out in Note 31(ii). The director of the said subsidiary resigned in year 2002.

9. Amount Due from /(to) Subsidiary Companies

Company2004 2003

RM RM

Amount due from subsidiary companies 30,871,174 30,876,326 Less : Allowance for doubtful debts (30,867,657) (30,867,657)

3,517 8,669

Amount due to subsidiary companies (80,192) -

The amounts due from /(to) subsidiary companies are unsecured, interest free and have no fixed terms of repayment.

10. Deposits with Licensed Financial Institutions

Group Company

2004 2003 2004 2003RM RM RM RM

Deposits with licensed banks 333,976 3,229,497 333,976 322,666 Deposits with licensedfinance company 1,361,411 1,318,484 - -

1,695,387 4,547,981 333,976 322,666


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10. Deposits with Licensed Financial Institutions (Cont’d)

Fixed deposits of the Group amounting to RM1,361,411 (2003 – RM4,225,315) have been pledged to licensed banks and a licensed finance company as security for credit facilities granted to the subsidiary company.

During the financial year, the Group uplifted the fixed deposit with licensed bank for demand of performance bond from the developer of a subsidiary company.

The weighted average interest rates of deposits with licensed financial institutions are as follows : -

Group Company 2004 2003 2004 2003 % % % % Deposits with licensed banks 3.45 3.08 3.45 3.45Deposits with licensed finance company 3.20 3.20 - -

The deposits have an average maturity of 3 months (2003 – 1 month). 11. Amount Due (to) /from Customers for Contract Works

2004 2003RM RM

Amount due to customers for contract works

Contract costs incurred to date 357,006,243 355,833,372 Add : Attributable profits 28,271,123 28,247,928

385,277,366 384,081,300 Less : Progress billings (390,637,600) (388,222,323)

(5,360,234) (4,141,023)

Retention on contracts 5,640,277 5,640,277

Amount due from customers for contract works

Contract costs incurred to date 174,092,484 174,080,128 Add : Attributable profits 17,595,162 17,594,927

191,687,646 191,675,055 Less : Progress billings (173,950,099) (173,950,100)

17,737,547 17,724,955 Less : Provision for diminution in value (17,737,547) (17,724,955)

- -

Retention on contracts 1,000,000 1,000,000


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11. Amount Due from /(to) Customers for Contract Works (Cont’d) Additions to aggregate costs incurred during the year include : -

Group 2004 2003 RM RM Bank interest 748,107 323,419Motor vehicle costs 20,048 136,246Staff costs (Note 25) 391,865 3,384,123

12. Trade Payables Group

The Group’s normal trade credit terms of trade payables range from 30 to 75 days. However, the terms may vary upon negotiation with the trade payables.

13. Amount Due to Directors Group and Company The amounts outstanding are unsecured, interest free and have no fixed terms of repayment. 14. Borrowings

Group2004 2003

RM RMLong term liabilities

SecuredTerm loans (Note 15) 88,747 -Hire purchase creditors (Note 17) 23,112 103,327

111,859 103,327

Current liabilities

SecuredTerm loans (Note 15) 58,292,771 54,616,407 Bank overdrafts (Note 16) 18,935,713 14,264,986 Hire purchase creditors (Note 17) 71,906 164,800

77,300,390 69,046,193


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14. Borrowings (Cont’d)

Group2004 2003

RM RMTotal borrowings

SecuredTerm loans (Note 15) 58,381,518 54,616,407 Bank overdrafts (Note 16) 18,935,713 14,264,986 Hire purchase creditors (Note 17) 95,018 268,127

77,412,249 69,149,520

Effective interest rates : -

Term loans 7.75-8.25 7.75-8.25Bank overdrafts 7.75 7.75Hire purchase creditors 4.50-7.75 4.50-8.40

15. Term Loans

Group2004 2003

RM RM

Term loans - secured 58,381,518 54,616,407


Current liabilities- not later than one year 58,292,771 54,616,407 Long term liabilities- later than one year and not later than five years 88,747 -

58,381,518 54,616,407

i) The term loans are secured by the following : - a) joint and several guarantee by directors of the Company and a third party individual; b) corporate guarantee issued by a subsidiary, Jayarena Construction Sdn. Bhd. and the

Company; c) deeds of assignment on works contracted; d) charge over current accounts which proceeds from certain contracts of a subsidiary,

Jayarena Construction Sdn. Bhd. are deposited; e) memorandum of deposit of quoted shares of a listed company; f) first legal charge on freehold land of a subsidiary, Malaysian Copper Tube Sdn. Bhd.

(Note 5); and g) fixed deposits placed with a licensed bank (Note 10). ii) As at 31st December 2004, the Group has defaulted in its repayment to certain lenders.


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16. Bank Overdrafts

Group2004 2003

RM RM

SecuredBank overdraft I 9,547,770 8,814,521 Bank overdraft II 2,740,850 602,900 Bank overdraft III 3,278,270 3,107,030 Bank overdraft IV 3,368,823 1,740,534

18,935,713 14,264,985

Bank overdraft I is secured by the following : - i) A corporate guarantee by the Company. ii) Loan agreement cum assignment of proceeds of certain contracts of the subsidiary

company, Jayarena Construction Sdn. Bhd. iii) Charge by way of the Memorandum of Deposit for fixed deposit received and/or negotiable

certificate of deposit. Bank overdraft II is secured by the following : - i) Facility Agreement and Deed of Assignment of certain contracts of the subsidiary

company, Jayarena Construction Sdn. Bhd. ii) A corporate guarantee by the Company. Bank overdraft III is secured by the following : - i) Facility Agreement and Deed of Assignment of certain contracts of the subsidiary

company, Jayarena Construction Sdn. Bhd. ii) A corporate guarantee by the Company. Bank overdraft IV is secured by the following : - i) An assignment over the proceeds due for the certain projects of the subsidiary company,

Jayarena Construction Sdn. Bhd. ii) An assignment of rights, title and benefits of the duly executed Letter of Acceptance of tender. iii) A charge over a sinking fund account. iv) Deed of subordination is to be executed.

The Group has defaulted the bank overdrafts above. Legal actions have been initialed by the banks (Note 32).


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17. Hire Purchase Creditors

Group2004 2003

RM RM

Minimum hire purchase payments- not later than one year 76,726 178,831 - later than one year and not later than five years 23,612 109,428

100,338 288,259 Less : Future interest charges (5,320) (20,132)

Present value of hire purchase liabilities 95,018 268,127


Current liabilities- not later than one year 71,906 164,800

Long term liabilities- later than one year and not later than five years 23,112 103,327

95,018 268,127

The Group has hire purchase payments in arrears of RM916,114 (2003 – RM837,386). 18. Share Capital

Group and Company 2004 2003 RM RMAuthorised : 200,000,000 ordinary shares of RM1 each 200,000,000 200,000,000 Issued and fully paid : 43,750,000 ordinary shares of RM1 each 43,750,000 43,750,000

Employees’ Share Option Scheme (“ESOS”)

Further to the announcements made by the Company on 16th March 2001, 28th March 2001 and 8th June 2001, the Company announced on 8th August 2001 that the Securities Commission (“SC”) had approved the Proposed Employees’ Share Option Scheme (“ESOS”) (collectively referred to as “the old Proposals”) of the Company.

The Board subsequently announced on 2nd January 2003 that SC approved another extension of three (3) months until 31st March 2003 via letter dated 30th December 2002 to implement the Proposed ESOS.

The ESOS have yet to be implemented as at report date.


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19. Reserve on Consolidation - Negative Goodwill

Group2004 2003

RM RM

At 1st January 2,737,516 3,421,894 Amortisation for the year (684,378) (684,378)

At 31st December 2,053,138 2,737,516

20. Revenue and Cost of Sales

Group2004 2003

RM RMRevenueContract revenue 1,208,656 43,733,578 Rental income 153,595 747,766

1,362,251 44,481,344

Cost of salesContract cost 1,185,226 42,201,227

21. Other Income

Group Company2004 2003 2004 2003

RM RM RM RM

Management fee received 1,000 24,000 - -Interest income - 493,734 - -Commission charges 9,819 25,980 - -Fixed deposit interest 59,205 134,269 11,310 10,926 Gain on disposal of property,plant and equipment 58,333 98,361 - -Sale of scrap steel and material 150,327 279,352 - -Agency fee overprovided - 4,119 - -Amortisation of negativegoodwill 684,378 684,378 - -Retention overtaken intoaccount - 87,186 - -Insurance claim received 65,911 300 - -Sundry income - 1,078 - -

1,028,973 1,832,757 11,310 10,926


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22. Loss Before Taxation Group Company 2004 2003 2004 2003 RM RM RM RMThis is arrived at after charging : - Allowance for doubtful debts 7,348,783 58,698,183 - 30,867,657Auditors’ remuneration - current year 44,600 44,600 13,100 13,100- underprovision in prior year - 150 - -Bad debts written off 615,383 45,960,291 - 26,334Directors’ remuneration (Note 23) - charged to construction costs - 360,000 - -- charged to admin expenses 324,000 135,500 37,000 135,500Depreciation (Note 5) 1,081,460 1,358,260 - -Impairment loss on investment in subsidiary companies -

-

-

13,960,396

Interest expenses on : - - bank overdraft 723,622 702,620 - -- term loans 3,864,389 3,888,362 - -- hire purchase 11,446 49,813 - -- overprovision of fixed deposit interest -

25,383

-

25,383

Investment in quoted share written off

- 30 - -

Loss on disposal of property, plant and equipment 14,000

1,646,267

-

-

Provision for diminution in value of amount due from contract customer 12,592

17,724,955

-

-

Provision for foreseeable loss 343,756 (14,158) - -Rental of premises 87,610 72,318 - - and after crediting : - Amortisation of goodwill (Note 19) 684,378 684,378 - -Gain on disposal of property, plant and equipment 58,333

98,361

-

-

Interest income - fixed deposits 59,205 134,269 11,310 10,926- others - 493,734 - -Commission charges 9,819 25,980 - -


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23. Directors’ Remuneration

Group Company2004 2003 2004 2003

RM RM RM RM

Executive directors- Fees 24,000 17,000 24,000 17,000 - Other emoluments 287,000 346,500 - 82,500 - Benefits-in-kind - - - -Non-executive directors- Fees 13,000 36,000 13,000 36,000 - Other emoluments - 96,000 - -- Benefits-in-kind - - - -

324,000 495,500 37,000 135,500

Total excluding benefits-in-kind 324,000 495,500 37,000 135,500

24. Employee Information

Group Company2004 2003 2004 2003

RM RM RM RM

Salaries and allowances 1,087,056 2,557,279 113,205 -Employees Provident Fund 118,406 303,361 13,520 -Social security costs 8,479 22,426 712 -Other staff related expenses 147,298 641,186 - -

1,361,239 3,524,252 127,437 -

Staff costs are allocated as follows : -

Income statement 969,374 140,129 127,437 -Amount due from customers forcontract works (Note 11) 391,865 3,384,123 - -

1,361,239 3,524,252 127,437 -

The number of employees of the Group and of the Company at the end of the year were 12 (2003 – 51) and 2 (2003 – Nil) respectively.


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25. Taxation

Group Company2004 2003 2004 2003

RM RM RM RM

Income taxation- current year provision - 3,859 - -Real property gains tax - 76,052 - -

- 79,911 - -

Unabsorbed tax losses and capital allowances of the Group and of the Company which are available for set-off against future chargeable income for which the tax effects have not been recognised in the financial statements are shown below : -

Group Company 2004 2003 2004 2003 RM RM RM RM Unabsorbed tax losses 1,062,900 522,900 - -Unabsorbed capital allowances 1,215,000 1,215,000 - -

26. Basic Loss Per Ordinary Share

The basic loss per share is calculated by dividing the Group’s net loss attributable to shareholders by the weighted average number of ordinary shares in issue during the financial year. Group 2004 2003 RM RM Net loss attributable to shareholders (RM) 14,947,618 127,432,029Weighted average number of ordinary shares in issue 43,750,000 43,750,000Basic loss per share (sen) (34.17) (291.27)

The effects on the basic loss per share for both financial years ended 31st December 2003 and 2004 arising from the assumed conversion of options under the Company’s ESOS is anti-dilutive. Accordingly, the diluted loss per share has not been presented.


106


27. Purchase of Property, Plant and Equipment

During the financial year, the Group made the following cash payments to purchase property, plant and equipment : -

Group2004 2003

RM RM

Purchase of property, plant and equipment (Note 5) - 199,305 Financed by hire purchase arrangements - (90,000)

Cash payments on purchase of property, plant and eqipment - 109,305

28. Cash and Cash Equivalents

Cash and cash equivalents included in the cash flow statements comprise the following balance sheet amounts : -

Group Company2004 2003 2004 2003

RM RM RM RM

Cash and bank balances 40,537 1,658,363 6,110 101,236 Deposits with licensedfinancial institutions 1,695,387 4,547,981 333,976 322,666 Bank overdrafts (18,935,713) (14,264,985) - -

(17,199,789) (8,058,641) 340,086 423,902 Less : Deposits pledged with licensed banks (1,361,411) (4,225,315) - -

(18,561,200) (12,283,956) 340,086 423,902

29. Segmental Information Segment information is presented in respect of the Group’s business segments. Inter-segment pricing is determined based on negotiated terms.

Segment results, assets and liabilities included items directly attributable to a segment as well as those that can be allocated on a reasonable basis.

Business segments The Group comprises the following main business segments : - Construction - Construction of earthworks and buildings Manufacturing - Manufacturing of precast concrete structures. The manufacturing segment was discontinued in previous financial years (Note 6).


107


29. Segmental Information (Cont’d) Geographical segments

Segment information by geographical location is not provided as the Group operates principally within Malaysia. The subsidiary operating in Madagascar has not commenced operations.

2004 Construction Manufacturing Elimination ConsolidationRM RM RM RM

Business Segments

Revenue

Revenue fromexternal customers 1,362,251 - - 1,362,251 Total revenue 1,362,251 - - 1,362,251

Results

Segment results (11,164,604) 73,270 - (11,091,334) Unallocated income 684,378 Interest income 59,205 - - 59,205 Interest expenses (3,978,126) (621,741) - (4,599,867) Loss before taxation (14,947,618) Taxation -Loss after taxation (14,947,618) Minority interest -Net loss (14,947,618)

Other information

Segment assets/Total assets 20,325,103 5,263,553 (692,248) 24,896,408

Segment liabilities /Total liabilities 159,997,246 17,770,053 (35,770,766) 141,996,533

Capital expenditure - - - -

Depreciation of property, plantand equipment 1,081,460 - - 1,081,460

Non-cash expenses otherthan depreciation 8,334,514 - - 8,334,514


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29. Segmental Information (Cont’d)

2003 Construction Manufacturing Elimination ConsolidationRM RM RM RM

Business Segments

Revenue

Revenue fromexternal customers 44,481,344 - - 44,481,344 Total revenue 44,481,344 - - 44,481,344

Results

Segment results (124,005,931) (6,350) - (124,012,281) Unallocated income 684,378 Interest income 628,003 - - 628,003 Interest expenses (4,121,487) (530,731) - (4,652,218) Loss before taxation (127,352,118) Taxation (79,911) - - (79,911) Loss after taxation (127,432,029) Minority interest -Net loss (127,432,029)

Other information

Segment assets/Total assets 26,119,113 5,209,297 (645,821) 30,682,589

Segment liabilitiesTotal liabilities 150,707,731 17,167,326 (35,724,339) 132,150,718

Capital expenditure 1,309,305 - (1,200,000) 109,305

Impairment losses 13,960,396 - (13,960,396) -

Depreciation of property, plantand equipment 1,358,260 - - 1,358,260

Non-cash expenses otherthan depreciation 124,029,726 - - 124,029,726


109


30. Continuing and Discontinuing Operations

The discontinuing operation represents cessation of operation of P. C. Building Systems Sdn. Bhd., a 90% subsidiary in the manufacturing segment of the Group.

2004 2003 2004 2003 2004 2003RM RM RM RM RM RM

Balance Sheet

Property, plant andequipment 7,818,424 9,075,551 - - 7,818,424 9,075,551 Current assets 11,814,431 16,397,741 5,263,553 5,209,297 17,077,984 21,607,038

Total assets 19,632,855 25,473,292 5,263,553 5,209,297 24,896,408 30,682,589

Current liabilities 124,114,621 114,880,065 17,770,053 17,167,326 141,884,674 132,047,391 Long termliabilities 111,859 103,327 - - 111,859 103,327

Total liabilities 124,226,480 114,983,392 17,770,053 17,167,326 141,996,533 132,150,718

Net liabilities (104,593,625) (89,510,100) (12,506,500) (11,958,029) (117,100,125) (101,468,129)

Income Statement

Revenue 1,362,251 44,481,344 - - 1,362,251 44,481,344 Cost of sales (1,185,226) (42,201,227) - - (1,185,226) (42,201,227)

Gross profit 177,025 2,280,117 - - 177,025 2,280,117

Other income 933,437 1,793,036 95,536 39,721 1,028,973 1,832,757 Administrativeexpenses (2,115,510) (1,214,505) (22,266) (46,071) (2,137,776) (1,260,576) Other expenses (9,415,973) (125,552,198) - - (9,415,973) (125,552,198)

Profit/(Loss) fromoperations (10,421,021) (122,693,550) 73,270 (6,350) (10,347,751) (122,699,900)

Finance cost (3,978,126) (4,121,487) (621,741) (530,731) (4,599,867) (4,652,218)

Loss before taxation (14,399,147) (126,815,037) (548,471) (537,081) (14,947,618) (127,352,118)

Taxation - (79,911) - - - (79,911)

Loss after taxation (14,399,147) (126,894,948) (548,471) (537,081) (14,947,618) (127,432,029)

Minority interest - - - - - -

Net loss for the year (14,399,147) (126,894,948) (548,471) (537,081) (14,947,618) (127,432,029)



110


30. Continuing and Discontinuing Operations (Cont’d)

2004 2003 2004 2003 2004 2003RM RM RM RM RM RM

Cash Flow Statement

Cash flows from/(used in)operating activities (9,268,070) (4,363,028) 80,031 (361,848) (9,188,039) (4,724,876) Cash flows from/(used in)investing activities 282,005 3,133,030 (62,005) - 220,000 3,133,030 Cash flows from/(used in)financing activities 2,716,570 (3,454,427) (25,775) (370,317) 2,690,795 (3,084,110)

Net increase /(decrease) in cash and cashequivalents (6,269,495) (4,684,425) (7,749) (732,165) (6,277,244) (4,675,956)

Cash and cash equivalentsat the beginning of year (12,292,509) (7,608,084) 8,553 84 (12,283,956) (7,608,000)

Cash and cash equivalentsat the end of year (18,562,004) (12,292,509) 804 (732,081) (18,561,200) (12,283,956)


31. Contingent Liabilities - Unsecured

Company 2004 2003 RM RMi) Guarantees issued to : - Third parties for performance of contract

by subsidiaries

3,508,052

12,030,258

- Financial institutions and suppliers for credit facilities granted to subsidiaries

62,496,880

63,985,612

ii) In 2001, a subsidiary, Royong Bersatu Sdn. Bhd. (“RB”) entered into an agreement with

Refine Development Sdn. Bhd. (“RD”) whereby RD will underwrite all costs incurred by CAPEAST Plantation SARL (“CAPEAST”), a subsidiary for the Assets Transfer Agreement between CAPEAST and the Government of the Republic of Madagascar related to Antalaha Oil Palm Privatisation (the “Contract”) up to and until the date of fulfillment of all the relevant obligations under the said Contract by CAPEAST and the Government of the Republic of Madagascar.

In the event any of the relevant obligations are not fulfilled by CAPEAST or the Government of the Republic of Madagascar and the said Contract is terminated by either CAPEAST or the Government of the Republic of Madagascar, RD shall paid to RB all the cost incurred by CAPEAST up to the date of termination of the said Contract.


111

Notes to the Financial Statements - 31st December 2004 (cont’d) 31. Contingent Liabilities - Unsecured (Cont’d) ii) (Cont’d.)

In the event CAPEAST and the Government of the Republic of Madagascar fulfilled all relevant obligations under the said Contract, RD shall not be required to pay to RB all the cost incurred by CAPEAST. CAPEAST shall then pay RD a percentage of the sales proceed annually (hereinafter call the Annual Payment) for a period of five (5) years calculated from the date CAPEAST and the Government of the Republic of Madagascar fulfilled their relevant obligations under the said Contract. If CAPEAST failed to make the Annual Payment to RD, RB irrevocably undertakes to pay RD such payment.

The Group is contingently liable to incur a percentage of the sale proceeds annually, if all the relevant obligations under the said contract were fulfilled.

In year 2002, the Republic of Madagascar encountered political unrest and thus, CAPEAST was unable to proceed in the fulfillment of relevant obligations under the contract and has remained dormant.

In light of the above, the directors of the subsidiary have made full allowance for doubtful debts on the amount due from RD amounting to RM2,070,000 (see Note 8).

32. Material Litigation i) An arbitration proceeding between Avangarde’s subsidiary, Jayarena Construction Sdn.

Bhd. (“JCSB”) as the Claimant and Sineo Enterprise Sdn. Bhd. as the Respondent is in progress. JCSB resubmitted Statement of Claim on 24th July 2000 and is claiming the sum of RM74 million being the Architect Certificate of Payment, value of work done, financing charges, losses and damages, interest and cost. The Respondent is counter claiming liquidated and ascertained damages for alleged late completion of JCSB works for the amount RM3.9 million. The dates of hearing which have been fixed on 2nd, 3rd, 4th, 11th, 12th, 13th, 23rd, 24th, 25th April 2001 and 7th, 8th, 9th, 16th, 17th, 18th May 2001 have to be postponed as the Respondent had filed an application to the High Court of Malaya at Kuala Lumpur to remove the Arbitrator. The hearing for the said application was completed and the Court allowed Sineo’s application on 7th January 2005. On 3rd February 2005, JSCB appeal to the Court of Appeal and no hearing date fixed yet.

The Group has allowed the full amount of RM9 million due from Sineo Enterprise Sdn. Bhd. as doubtful debts in previous year.

ii) Relating to the above arbitration, Sineo Enterprise Sdn. Bhd. has made a demand for the

corporate guarantee (performance bond) for due performance of JCSB, under corporate guarantee issued by Avangarde of RM3.47 million. Avangarde has filed a suit on 25th May 1999 on Sineo Enterprise Sdn. Bhd. to determine the validity of the said corporate guarantee (performance bond) and the validity of the demand. The court has fixed it on 29th march 2006 for further case management.

Based on legal advice, the directors of the Company are of the opinion that the Company have a good case and highly to succeed as the defendant fail to prove of its acceptance to the said corporate guarantee. Further, the corporate guarantee is also an issue in the arbitration.


112

Notes to the Financial Statements - 31st December 2004 (cont’d) 32. Material Litigation (Cont’d) iii) A suit was lodged by Antah Schindler Sdn. Bhd. against Sineo Enterprise Sdn. Bhd. as the

first Defendant and JCSB as the second Defendant. The claim against JCSB is for trespassing on their lifts and escalators works. Defence has been filed on 9th September 1999 and is pending trial. The works being carried out by JCSB were according to the terms and conditions of the contract between JCSB and Sineo Enterprise Sdn. Bhd. being the Employer of the Project and under the instructions of the first Defendant. This suit is pending trial and no trial date has been fixed.

Based on legal advice, the directors of the Company are of the opinion that there is a good defence to this legal suit and therefore likely to succeed.

iv) A winding-up petition was lodged by API Aluminium Sdn. Bhd. against JCSB on 11th

March 2004 to claim for a non judgement sum of RM630,000 for works alleged to have been done for JCSB. JCSB had filed an Affidavit In Opposition to the Petition on 26th May 2004. The Court fixed 25th August 2005 to hear the Petition and the Court dismissed the Petition.

v) A winding-up petition was lodged by Woodlandor Wood Products Sdn. Bhd. against the

Company on 29th July 2004 for a claim of RM390,128 for alleged outstanding payment for work done for JCSB, of which the Company has provided a Corporate Guarantee on amount owed by JCSB. The court fixed 7th April 2006 to hear the Petition.

vi) Certain financial institutions have obtained summary of judgement from court for full

payment of the amounts due in respect of credit facilities granted amounted to RM52.6 million.

vii) Legal action have been initiated by Inland Revenue Board against a subsidiary company,

Jayarena Construction Sdn. Bhd. for the tax liability of approximately RM1 million. Penalty on late payment of tax liability has not been included in the accounts of the Group and the subsidiary company as the amounts cannot be quantified.

viii) Legal actions have been initiated by certain parties against Avangarde Resources Group

of companies over claims in relation to work done, banking facilities and corporate guarantee. Such claims totaling RM22 million are still in legal process.

ix) Certain claims made by sub-contractors amounted to RM10 million in relation to their work

done were under arbitration. The date of hearing for the arbitration cases have not be fixed yet.

x) A petition by N-Tatt Construction Sdn. Bhd. to wind-up JCSB was granted by Kuala

Lumpur High Court on 28th March 2006. JCSB is appealing to the court decision and applying for stay.


113

Notes to the Financial Statements - 31st December 2004 (cont’d) 33. Significant Subsequent Events

i) On 27th September 2005, a subsidiary, Align Metro Sdn. Bhd., accepted a development contract amount of RM30 million awarded by Transmission Resources Sdn. Bhd.

ii) On 30th December 2005, a subsidiary, Align Metro Sdn. Bhd., entered into a Joint Venture

Agreement with Pakadiri Modal Sdn. Bhd. to develop a subdivided land comprising 432 residential units in an area proposed for development of integrated housing and commercial project.

34. Financial Instruments a) Interest rate risk

The table below summarised the carrying amounts of the Group’s financial assets and liabilities, categorised by their maturity dates, which represent the Group’s exposure to interest rate risk : -

2004Effective

interest rate

2003 Effective

interest rate RM % RM % Group Financial assets - Fixed deposits 1,695,387 2.71-3.20 4,547,981 2.71-3.20 Financial liabilities - Bank overdrafts 18,935,713 7.75 14,264,986 7.75 - Term loans 58,381,518 7.75-8.25 54,616,407 7.75-8.25 - Hire purchase creditors 95,018 4.50-7.75 268,127 4.50-8.40 Company Financial assets - Fixed deposits 333,976 3.45 322,666 3.45

b) Credit risk

The Group has significant concentration of credit risk that may arise from exposures to receivables as disclosed in Notes 7 and 8 to the financial statements. The maximum credit risk associated with recognised financial assets in the carrying amount shown in the balance sheet.

c) Liquidity and cash flow risk

The Group and the Company face liquidity and cash flow risk in view of net current liabilities and default of borrowings as disclosed in Notes 2, 15 and 17 to the financial statements.


114

Notes to the Financial Statements - 31st December 2004 (cont’d) 34. Financial Instruments (Cont’d) d) Fair values

The aggregate net fair value of financial assets of the Group which is not carried at fair value on the balance sheets are as follows : -

2004 2003 Carrying

amount Fair valueCarrying amount

Fair value

RM RM RM RMGroup Amount due to directors (Note 13)

46,504 * 46,504 *

Company Amount due from subsidiary company (Note 9)

- Jayarena Construction Sdn. Bhd.

3,517 * 8,669 *

Amount due to subsidiary companies (Note 9)

- P.C. Building Systems Sdn. Bhd.

(62,005) * - -

- Align Metro Sdn. Bhd. (Indirect subsidiary) (18,187) *

-

-

Amount due to directors (Note 13)

(41,822) * (41,822) *

* A reasonable estimate of fair value could not be made as the repayment term is not

determinable currently. However, the Group and the Company does not anticipate the carrying amounts recorded at the balance sheet date to be significantly different from the values that would eventually be received or settled. These balances are valued at cost.

The following methods and assumptions are used to estimate the fair values of the following classes of financial instruments : -

The carrying amount in respect of the cash and cash equivalents, trade and other receivables, trade and other payables and short-term borrowings, the carrying amounts approximate fair value due to the relatively short-term nature of these financial instruments.

It is not possible to establish the fair value of amounts due from/(to) subsidiaries and amount due to directors due principally to a lack of fixed repayment term entered by the parties involved. However, the Group does not anticipate the carrying amounts recorded at the balance sheet date to be significantly different from the values that would eventually be received or settled.

It is not practical to estimate the fair values of contingent liabilities reliably due to the uncertainties of timing, costs and eventual outcome.


115

Notes to the Financial Statements - 31st December 2004 (cont’d) 35. Related Party Disclosures Controlling related party relationships are as follows : - i) the substantial shareholders of the Company; ii) its subsidiaries as disclosed in Note 6 to the financial statements; and iii) its directors and companies in which certain Directors have interest. Significant related party balances are as follows :-

2004 2003 RM RMGroup Amount due to directors (Note 13) 46,504 46,504 Company Amount due from subsidiary company (Note 9) - Jayarena Construction Sdn. Bhd. 3,517 8,669Amount due to subsidiary companies (Note 9) - P.C. Building Systems Sdn. Bhd. (62,005) -- Align Metro Sdn. Bhd. (18,187) -Amount due to directors (Note 13) (41,822) (41,822)

36. Currency All amounts in the financial statements are stated in Ringgit Malaysia. 37. Authorisation for Issue of Financial Statements

These financial statements were authorised for issue by the Board of Directors on 31st March 2006.


116

STATEMENT BY DIRECTORS Pursuant to Section 169(15) of the Companies Act, 1965 We, Tamunif Bin Mokhtar and Dato’ Abu Bakar Bin Mohamed, being two of the directors of Avangarde Resources Berhad, do hereby state on behalf of the directors that in our opinion, the financial statements set out on pages 75 to 115 are drawn up in accordance with applicable MASB approved accounting standards in Malaysia and the provisions of the Companies Act, 1965 so as to give a true and fair view of the state of affairs of the Group and of the Company at 31st December 2004 and of the results and the cash flows of the Group and of the Company for the financial year ended on that date. Signed on behalf of the Board in accordance with a resolution of the directors Tamunif Bin Mokhtar Dato’ Abu Bakar Bin Mohamed Kuala Lumpur, Date: 31st March 2006

STATUTORY DECLARATION Pursuant to Section 169(16) of the Companies Act, 1965 I, Tamunif Bin Mokhtar, being the director primarily responsible for the financial management of Avangarde Resources Berhad, do solemnly and sincerely declare that the financial statements set out on pages 75 to 115, to the best of my knowledge and belief, are correct. And, I make this solemn declaration conscientiously believing the same to be true, and by virtue of the provisions of the Statutory Declarations Act, 1960. Subscribed and solemnly declared at Kuala Lumpur this day of 2006. Before me Tamunif Bin Mokhtar Commissioner for Oaths


117

LIST OF PROPERTIES

Location Description Tenure/ Age of Building Land or Built up Area (sq. meters)

Existing Use Net Book Value as at 31 December

2003/2004 (RM'000)

Lot 1012, Mukim Kota Tinggi, Johor.

Land and Prestressed/ Precast Factory

Freehold/ 7 years 43,757 Vacant 4,949

H.S.(D) 108337, P.T 3462 Mukim Damansara, Dearah Petaling Jaya, Selangor

32 units of Rhythm Avenue Axis

Freehold / Under Construction

1,309 / NA Pending handing over by Developer

4,560


118

ANALYSIS OF SHAREHOLDINGS AS AT 27 APRIL 2006 Authorised Share Capital : RM50,000,000 Issued and Fully Paid Up Capital : RM43,750,000 Class of share : Ordinary shares of RM1.00 each

DISTRIBUTION OF SHAREHOLDINGS

Size of Holdings No. of Holders Total Holdings % Less than 100 206 10,188 0.02 100 to 1,000 shares 238 187,015 0.43 1,001 to 10,000 shares 3,284 12,506,349 28.59 10,001 to 100,000 shares 701 17,935,323 41.00 100,001 to less than 5% of issued shares 29 5,430,500 12.41 5% and above of issued shares 2 7,680,625 17.56 Total 4,460 43,750,000 100.00

THIRTY LARGEST SHAREHOLDERS

Name No. of Shares %

1 UOBM Nominees (Tempatan) Sdn Bhd

Pledged Securities Account for Vision Revenue Sdn Bhd 3,897,500 8.91

2 Vision Revenue Sdn Bhd 3,783,125 8.65 3 Chow Pak Lim 397,000 0.91 4 Yeoh Ah Tu 385,000 0.88 5 Mayban Nominees (Tempatan) Sdn Bhd

Pledged Securities Account for Tan Lai Kiew 358,000 0.82

6 RC Nominees (Tempatan) Sdn Bhd Pledged Securities Account for Tan Chong Wah

351,050 0.80

7 Ooi Seang Kok 281,250 0.64 8 JF Apex Nominees (Tempatan) Sdn Bhd

Pledged Securities Account for Wang Chong Seng 230,000 0.53

9 Tey Take 211,200 0.48 10 Chan Yow Kam 207,900 0.48 11 Ng Chai Tee 205,000 0.47 12 Public Nominees (Tempatan) Sdn Bhd

Pledged Securities Account for Lau Sie Kwong 200,000 0.46

13 Tan Thiam Chye 196,000 0.45 14 Citicorp Nominees (Tempatan) Sdn Bhd

Pledged Securities Account for Khor Keng Saw @ Khaw Ah Soay 190,000 0.43

15 Ng Chai Tee 178,750 0.41 16 CIMSEC Nominees (Asing) Sdn Bhd

CIMB for Sam San Tuan 170,000 0.39

17 Tay Kak Chok 157,600 0.36


119

Analysis of Shareholdings as at 27 April 2006 Name No. of Shares %

18 Looi York Sium 155,000 0.35 19 Tan Eng Chai 150,000 0.34 20 Sun Chee Liang 129,900 0.30 21 Citicorp Nominees (Tempatan) Sdn Bhd

Pledged Securities Account for Yap Kwee Huat 125,000 0.29

22 Tay Seng Chai 125,000 0.29 23 Sia Kim Diang 123,800 0.28 24 Chan Wing Kit 121,200 0.28 25 A.A. Anthony Nominees (Tempatan) Sdn Bhd

Pledged Securities Account for Teh Cheng Fatt 120,000 0.27

26 Lee Kee Por 120,000 0.27 27 RHB Capital Nominees (Tempatan) Sdn Bhd

Pledged Securities Account for Lai Nyuk Han @ Lai Tsau Han 110,600 0.25

28 AMSEC Nominees (Tempatan) Sdn Bhd Pledged Securities Account for Chew Chee Wai

110,000 0.25

29 MIDF SISMA Nominees (Tempatan) Sdn Bhd Pledged Securities Account for Lee Saik Tat

110,000 0.25

30 Tan Kar Pin 106,250 0.24

TOTAL 13,006,125 29.73

DIRECTORS SHAREHOLDINGS AS AT 27 APRIL 2006

No. of Shares (Ordinary) Percentage Nationality

Name Direct Indirect Direct Indirect 1. Hamidun Bin Masuod - - - - Malaysian 2. Tamunif Bin Mokhtar 87,123 7,725,650 0.20 17.66 Malaysian 3 Ahmad Bin Abu Bakar - - - - Malaysian 4 Dato’ Abu Bakar Bin Mohamed 15,000 - 0.03 - Malaysian 5 Dato’ Dr. Abdul Razak Bin Abdul - - - - Malaysian

SUBSTANTIAL SHAREHOLDERS AS AT 27 APRIL 2006

No. of Shares (Ordinary Percentage % Nationality

Name Direct Indirect Direct Indirect 1. UOBM Nominees (Tempatan) Sdn

Bhd Pledged Securities Account For Vision Revenue Sdn Bhd

3,897,500 - 8.91 - Malaysian

2. Vision Revenue Sdn Bhd 3,783,125 - 8.65 - Malaysian

120

AVANGARDE RESOURCES BERHAD (422507-D)

(Incorporated in Malaysia)

NOTICE OF ADJOURNED ANNUAL GENERAL MEETING NOTICE IS HEREBY GIVEN that the Adjourned Sixth Annual General Meeting of the Company will be held at the Langkawi Room, Bukit Jalil Golf & Country Resort, Jalan 3/155B, Bukit Jalil, 57000 Kuala Lumpur, on Friday, 6 June 2006 at 9.00 a.m. for the following purposes:- AGENDA 1. 2.

To receive the Audited Financial Statements for the financial year ended 31 December 2003 together with the Reports of the Directors and Auditors thereon. To receive the Audited Financial Statements for the financial year ended 31 December 2004 together with the Reports of the Directors and Auditors thereon.

(Resolution 1)

(Resolution 2)

By Order of the Board TAN KAI JONG TAN LIN HONG Company Secretaries Kuala Lumpur Dated: 30 April 2006 Notes: 1. A proxy may but need not be a member of the Company and the provision of Section 149(1)(b) of the Act

shall not apply. 2. To be valid this form, duly completed must be deposited at the Registered Office of the Company at 2nd

Floor, 17 & 19, Jalan Brunei Barat, Pudu, 55100 Kuala Lumpur, Malaysia, not less than 48 hours before the time appointed for holding the meeting.

3. A member shall be entitled to appoint more than one (1) proxy to attend and vote at the same meeting

provided that the provisions of Section 149(1)(d) of the Act are complied with. 4. Where a member appoints more than one (1) proxy, the appointments shall be invalid unless he specifies the

proportions of his holdings to be represented by each proxy. 5. If the appointor is a corporation, this form must be executed under its common seal or under the hand of an

officer or its attorney duly authorised.

121

AVANGARDE RESOURCES BERHAD (422507-D)

(Incorporated in Malaysia)

FORM OF PROXY I/We …. ......................…....................................................................…………….........…………..................................... of ………..........................………………………................................................................................................................ being a *member/members of AVANGARDE RESOURCES BERHAD hereby appoint Mr/Mrs/Madam/Miss…..……………………..…................................................................................................................. of...………………………….................................................................................................................................................. or failing him/her …..................................................................................................................……………………………. of……………………............................................................................................................................................................. as my/our proxy to vote for me/us on my/our behalf at Adjourned Sixth Annual General Meeting of the Company to be held at the Tioman Room, Bukit Jalil Golf & Country Resort, Jalan 3/155B, Bukit Jalil, 57000 Kuala Lumpur, on Tuesday, 6 June 2006 at 9.00 a.m.. . My/Our proxy(ies) is/are to vote as indicated below:- Ordinary Resolution For Against

1. Audited Financial Statements 31 December 2003.

2. Audited Financial Statements 31 December 2004. (Please indicate with an "X" in the space provided, how you wish your vote to be cast. In the absence of specific directions, the proxy may vote or abstain at his/her discretion) As witness my/our hand(s) this ............... day of ............................., 2006

NUMBER OF SHARES HELD

..............................………........................... [Signature/Common Seal of Shareholder(s)] NOTES:-

1. A proxy may but need not be a member of the Company and the provision of Section 149(1)(b) of the Act shall not apply. 2. To be valid this form, duly completed must be deposited at the Registered Office of the Company at 2nd Floor, 17 & 19,

Jalan Brunei Barat, Pudu, 55100 Kuala Lumpur, Malaysia, not less than 48 hours before the time appointed for holding the meeting.

3. A member shall be entitled to appoint more than one (1) proxy to attend and vote at the same meeting provided that the

provisions of Section 149(1)(d) of the Act are complied with. 4. Where a member appoints more than one (1) proxy, the appointments shall be invalid unless he specifies the proportions of

his holdings to be represented by each proxy. 5. If the appointor is a corporation, this form must be executed under its common seal or under the hand of an officer or

its attorney duly authorised

FOLD THIS FLAP FOR SEALING

FOLD HERE

AVANGARDE RESOURCES BERHAD

2ND FLOOR, 17 & 19,. JALAN BRUNEI BARAT, PUDU

55100 KUALA LUMPUR

FOLD HERE

STAMP

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