Contents
Notice of Annual General Meeting 02 Statement Accompanying Notice of Annual General Meeting 04 Corporate Information 05 Profile of the Board of Directors 08 Chairman’s Statement 10 Managing Director’s Message 17 Group Financial Performance Highlights 20 Calendar of Significant Events 2005/2006 21 Statement on Corporate Governance 25 Statement on Internal Control 32 Audit Committee Report 33 Financial Statements 38 Analysis of Shareholdings 85 List of Property 87 Letter of Nomination Annexure A Proxy Form Our Vision To be the leader of a wide and comprehensive range of quality computer systems and IT products that are internationally accepted and recognised.
Our Mission The Group will continuously strive for excellence in the following key areas:
• develop and produce the highest standards in products and services that cater for all communities; • to be a leader in technological advancement; • versatile and adaptability in its customization capabilities; • c reate a distinctive brand that commands loyalty; • p rovider of the best customer service and support; and • maximisation of resources in configurating its p r oducts and services to achieve price efficiencies. FTEC Resources Berhad 2 (588728-X)
NOTICE OF ANNUAL GENERAL MEETING
NOTICE IS HEREBY GIVEN THAT the Fourth Annual General Meeting of the FTEC RESOURCES BERHAD ("FRB" or "the Company") will be held at Ballroom 1, Tropicana Golf & Country Club, Jalan Kelab Tropicana, Persiaran Tropicana, 47410 Petaling Jaya, Selangor Darul Ehsan on Wednesday, 28th June 2006 at 10.00 a.m. to transact the following ordinary and special businesses:
AGENDA
1. To receive the Audited Financial Statements for the financial year ended 31 December 2005 together with the Directors’ and Auditors’ Reports thereon. Resolution 1
2. To approve the payment of Directors’ fee for the financial year ended 31 December 2005. Resolution 2
3. To re-elect Mr. Wong Teck Wei as Director who re t i res pursuant to Article 96 of the Company’s Articles of Association. Resolution 3
4. To re-elect Gen (R) Tan Sri Yaacob bin Mat Zain as Director who re t i res pursuant to Section 129(6) of the Companies Act,1965. Resolution 4
5. To appoint Messrs Moore Stephens. as Auditors of the Company and to authorise the Board of Directors to fix their remuneration. Resolution 5
Notice of Nomination pursuant to Section 172(11) of the Companies Act. 1965 (a copy of which is annexed and marked “Annexure A” as in the Annual Report 2005) has been received by the Company for the nomination of Messrs Moore Stephens, who have given their consent to act, for appointment as Auditors of the Company.”
6. As Special Business to consider and, if thought fit, to pass the following Ordinary Resolution with or without modifications:
Authority to issue shares by Company pursuant to Section 132D of the Companies Act, 1965 “THAT subject always to the Companies Act, 1965 (“Act”) and the approvals of the relevant governmental and/or regulatory authorities, the Directors be and are hereby empowered, pursuant to Section 132D of the Act, to issue and to allot shares in the Company from time to time at such price, upon such terms and conditions, for such purposes and to such person or persons whomsoever as the Directors may in their absolute discretion deem fit provided that the aggregate number of shares issued by the Company pursuant to this Resolution does not exceed ten per centum (10%) of the issued share capital of the Company for the time being and that the Directors be and are further empowered to obtain the approval from Bursa Malaysia Securities Berhad for the listing of and quotation for the additional shares so issued and that such authority shall continue in force until the conclusion of the next Annual General Meeting of the Company.” Resolution 6 FTEC Resources Berhad (588728-X) 3
Notice of Annual General Meeting
7. To transact any other businesses of which due notice shall have been received.
BY ORDER OF THE BOARD
SEOW FEI SAN (MAICSA 7009732) SIEW PEI LENG (MAICSA 7018341) Company Secretaries
Petaling Jaya 5 June 2006
Notes 1. A member of the Company entitled to attend and vote at the Fourth Annual General Meeting is entitled to appoint a proxy or proxies, to attend and vote instead of him/her. The proxy may but need not be a member of the Company, and the provisions of Section 149(1)(a) and (b) of the Companies Act, 1965 shall not apply to the Company.
2. A member shall be entitled to appoint not more than two (2) proxies to attend and vote at the Annual General Meeting. Where a member appoints two (2) or more proxies, the appointment shall be invalid unless the member specifies the proportion of his/her shareholdings to be represented by each proxy.
3. The instrument appointing a proxy shall be in writing under the hand of the appointer or his/her attorney duly authorised in writing or, if the appointer is a corporation, either under its Common Seal or under the hand of its officer or attorney duly authorised.
4. The instrument appointing a proxy must be deposited at 312, 3rd Floor, Block C, Kelana Square, 17 Jalan SS7/26, 47301 Petaling Jaya, Selangor Darul Ehsan, not less than forty-eight (48) hours before the time set for holding the Annual General Meeting or any adjournment thereof.
EXPLANATORY NOTES ON SPECIAL BUSINESS Ordinary Resolution No. 6 The proposed Ordinary Resolution 6, if passed, will empower the Directors of the Company to issue and allot not more than ten per centum (10%) of the issued share capital of the Company subject to the approvals of all the relevant governmental/regulatory bodies and for such purposes as the Directors consider would be in the interest of the Company.
This authorisation will, unless revoked or varied by the Company in a general meeting, expire at the next Annual General Meeting of the Company. FTEC Resources Berhad 4 (588728-X)
STATEMENT ACCOMPANYING NOTICE OF ANNUAL GENERAL MEETING
Technology in advance century
1. Details of Directors standing for re-election and re-appointment at the Fourth Annual General Meeting of the Company:-
Name of Directors Director’s Profile
Wong Teck Wei As set out in the Profile of the Board of Directors on page 9 of the Annual Report Gen (R) Tan Sri Yaacob bin Mat Zain As set out in the Profile of the Board of Directors on page 8 of the Annual Report
2. Details of Director’s attendance at Board Meetings:-
Name of Directors Meetings attended
Gen (R) Tan Sri Yaacob bin Mat Zain 4 of 4 Kenneth Vun @ Vun Yun Liun 4 of 4 Ameezan Bin Jamal 4 of 4 Wong Teck Wei 4 of 4 Ang Chai Kok (resigned on 4.5.2006) 4 of 4 Pow Kim Guan 4 of 4 Chieng Siong Kuong 4 of 4
3 Details of place, date and time of the Fourth Annual General Meeting of the Company:-
Place Date of Time of meeting meeting
Ballroom 1, Tropicana Golf & Country Club, Jalan Kelab 28th June 2006 10.00 a.m. Tropicana, Persiaran Tropicana, 47410 Petaling Jaya, Selangor Darul Ehsan FTEC Resources Berhad (588728-X) 5
CORPORATE INFORMATION
BOARD OF DIRECTORS SENIOR MANAGEMENT AUDITORS Gen (R) Tan Sri Yaacob Bin Mat Zain Grace Vun Siaw Nei H. Law & Co Independent Non-Executive Chairman Vice President nd 2 Floor, Lot 29, Block C, Kenneth Vun @ Vun Yun Liun Lee Jyh Kiong Damai Plaza, Phase IV, Luyang, Managing Director Chief Financial Officer 88769 Kota Kinabalu, Sabah.
Ameezan Bin Jamal Law Chor Soon Tel : (088) 233 384 Executive Director Marketing Director Fax : (088) 234 463 Wong Teck Wei COMPANY SECRETARIES Executive Director SOLICITOR Seow Fei San Jeff Leong, Poon & Wong Ang Chai Kok (MAICSA 7009732) Executive Director A-11-3A, Level 11, Megan Avenue II, Jalan Yap Kwan Seng, (Resigned on 4.5.2006) Siew Pei Leng (MAICSA 7018341) 50450 Kuala Lumpur. Chieng Siong Kuong Independent Non-Executive Director Tel : (603) 2166 3225 REGISTERED OFFICE AND Fax : (603) 2166 3227 Pow Kim Guan PRINCIPAL PLACE OF BUSINESS Independent Non-Executive Dire c t o r G.02, Ground Floor, Lot 4A, Wisma Academy, Jalan 19/1, PRINCIPAL BANKERS AUDIT COMMITTEE 46300 Petaling Jaya, OCBC Bank Berhad Malayan Banking Berhad Gen (R) Tan Sri Yaacob Bin Mat Zain Selangor Darul Ehsan. Chairman Public Bank Berhad Tel : (603) 7625 1138 Kenneth Vun @ Vun Yun Liun Fax : (603) 7625 1136 Member Email : [email protected] SPONSOR Website : www.ftec.com.my Public Merchant Bank Berhad Chieng Siong Kuong th Member 25 Floor, Menara Public Bank, 146, Jalan Ampang, SHARE REGISTRAR 50450 Kuala Lumpur. NOMINATION COMMITTEE Epsilon Registration Services Sdn Bhd 312, 3rd Floor, Block C, Gen (R) Tan Sri Yaacob Bin Mat Zain Tel : (603) 2166 9382 Kelana Square, 17 Jalan SS7/26, Chairman Fax : (603) 2166 9386 47301 Petaling Jaya, Chieng Siong Kuong Selangor Darul Ehsan. Member STOCK EXCHANGE LISTING Tel : (603) 7806 2116 MESDAQ Market of the Bursa Malaysia Fax : (603) 7806 1261 Securities Berhad REMUNERATION COMMITTEE Gen (R) Tan Sri Yaacob Bin Mat Zain Chairman
Kenneth Vun @ Vun Yun Liun Member
Chieng Siong Kuong Member FTEC Resources Berhad 6 (588728-X)
Corporate Information
The Corporate Structure of the FRB Group is as follows:
FSSB 100%
BEIJING FDSB FOVIX FOVIX 100% 51.0% 100%
FNSB 100%
FESB 100%
F R B
FVSB WARNET 100% 100%
FST 99.0%
FIL FVT 100% 49.0% CZT 99.0%
TECASIA 100%
FCSB 80% FTEC Resources Berhad (588728-X) 7
Corporate Information
FRB Group of Companies Principal activities
FTEC System Sdn. Bhd. (“FSSB”) Production and manufacturing of computer hardware and IT systems. FTEC Distribution (M) Sdn. Bhd. (“FDSB”) Marketing and distribution of computer and IT systems.
FTEC Networks Sdn. Bhd. (“FNSB”) Research and development and marketing of application software, server, security and surveillance appliances.
FTEC Esolution Sdn. Bhd. (“FESB”) Brands and intellectual property holdings.
FTEC Ventures Sdn. Bhd. (“FVSB”) Investment holding.
FTEC Communications Sdn.Bhd. (“FCSB”) Application service provider and telecommunications related (Formerly known as Cetoz Sdn. Bhd.) services.
Tecasia Sdn Bhd (“Tecasia”) Marketing and distribution of computer hard w a re and software , (Formerly known as Cuve Group Sdn Bhd) e-commerce trading and operate online market. FTEC International Ltd (“FIL”) Offshore trading activities and investment holding. Incorporated under Offshore Companies Act, 1990, Malaysia
FOVIX I.T. Co., Ltd. (“FOVIX”) Consulting, publishing and development of online computer Incorporated in Republic of South Korea games.
Warnet Sdn. Bhd. (“WARNET”) Management of internet cafes.
FTEC Venture (Thailand) Co., Ltd. (“FVT”) Investment holding. Incorporated in Thailand
Beijing Fovix Technology Co., Ltd. (“BEIJING FOVIX”) Its intended activities are providing provision of education and Incorporated in People's Republic of China online game academy, training and consulting services, research and development, sales and services for online computer games. FTEC System (Thailand ) Co., Ltd. (“FST”) Its intended activities are marketing and distribution of FRB Incorporated in Thailand Group's products and services.
Cetoz (Thailand) Co., Ltd. (“CZT”) Its intended activities are publishing and development of Incorporated in Thailand online computer games, and marketing and distribution of computer games and interactive entertainment related businesses. FTEC Resources Berhad 8 (588728-X)
PROFILE OF THE BOARD OF DIRECTORS
Gen (R) Tan Sri Yaacob Bin Mat Zain Kenneth Vun @ Vun Yun Liun Ameezan Bin Jamal Malaysian, aged 70 Malaysian, aged 32 Malaysian, aged 38
Gen (R) Tan Sri Yaacob bin Mat Zain Kenneth Vun @ Vun Yun Liun is the Ameezan Bin Jamal graduated is the Independent Non-Executive founder and Managing Director of with a BSc Mechanical Engineering C h a i r man for FRB. He was FRB. He was appointed to the from Valparaiso University, USA. He appointed to the Board as the B o a rd as Managing Director on was appointed to the Board as an Independent Non-Executive Chairm a n 28 October 2003. He obtained his Executive Director on 28 October on 28 October 2003. He was a Certified Solutions Consultant 2003. He joined the FRB Group as a graduate from the Royal Military certification (Information Te c h n o l o g y ) D i r ector of FDSB on 6 September 2001. Academy Sandhurst, United Kingdom. f rom Intel Corporation in 2000, He also obtained his education CompTIA Server+ Certified He was previously engaged with R f rom the General Command & P r ofessional certificate from the IBM and Micro s o f t in Malaysia, S t a ff College (Australia), the US Computing Technology Industry holding senior positions in the IT Naval Post Graduate School (USA), Association in 2001, CIW Associates industry for close to a decade. At R the Royal College of Defence certifications in Internet and Web M i c r o s o f t Malaysia, he was Studies (UK), and the Advance skills in 2001. In 1992, he started his a Business Development Manager, Management Programme at the c a r eer in the IT industry by in particularly for the Intern e t Harvard Business School. incorporating FSSB in 1994 with C o m m e rce Group. His re s p o n s i b i l i t i e s business operations in Sabah. He include every facet of MSN He was the Chief of Defence Staff, expanded its business operation to business operation from business Malaysian Armed Forces, and had West Malaysia in 1998 and has planning and strategic p a r t n e r s served the ministry for 39 years prior since accumulated over 12 years management to application to his re t i r ement in June 1993. of working experience in the IT development. Among the principal appointments industry. held by him whilst in the service In 1997, he was an Industry Solution included that of the Divisional He leads a team of management Unit Manager in IBM dealing with C o m m a n d e r, Director of Military in formulating the Group's business G o v e r nment bodies. At IBM, he Intelligence, Deputy Chief and strategy and development, which was managing the accounts for subsequently Chief of Army. a re the key in the better government bodies such as Ministry p e r f o r mance of the FRB Gro u p of Defence, Permodalan Nasional Presently, he serves as a director of through the year. B e r had and Selangor State four (4) public listed companies Government as well as provided and various private limited In recognition of his success, thought leadership to Mesiniaga companies. He is the Chairman of Kenneth Vun was awarded one of Berhad for customer winback. Affin Merchant Bank Berhad and “The Outstanding Young Malaysian also a board member of the Rating 2003” for the category “Business, Agency Malaysia Berhad and the Economic and/or Entre p re n e u r i a l Equine Council Malaysia. Accomplishment” by the Junior C h a m b e r, Malaysia and he has For his commendable services in been selected as one of the Top 3 the Armed Forces, he was Nominee in the ICT Entrepreneur c o n f e r red the Panglima Gagah category of the Ernst & Yo u n g Angkatan Tentera, Panglima Entrepreneur of the Year - Malaysia Mangku Negara, Panglima Setia 2004. Mahkota, Seri Paduka Kesatria Mahkota Kelantan, Sri Pahlawan Taming Sari and Dato' Setia Diraja Kedah. FTEC Resources Berhad (588728-X) 9
Profile of the Board of Directors
Wong Teck Wei Chieng Siong Kuong Additional Information Malaysian, aged 32 Malaysian, aged 32 Family relationship with any Wong Teck Wei was appointed to Chieng Siong Kuong was Director and / or Major Shareholder the Board as an Executive Director appointed as an Independent • There is no family relationship of FRB in 28 October 2003. He Non-Executive Director of FRB on among the Directors. joined the FRB Group in 2002. 7 August 2002. He graduated from Kolej Tunku Abdul Rahman in 1999 Conflict of interest with the Group R He worked in Intel Electronics (M) with a Diploma in Financial • None of the Directors have any Sdn Bhd from 1996 to 1998. His Accounting and Advanced conflict of interest with the responsibilities include development Diploma in Financial Accounting. Group. of marketing program, handling of He is an Associate Member of the dealer feedback, sales and Association of Chartered Certified Conviction for offences (within the branding. From 1999 to 2000, he Accountants (UK) and Member of past 10 years, other than traff i c joined Ingram Micro (M) Sdn Bhd Malaysian Institute of Accountants. offences) and was responsible for its OEM • None of the Directors have any Channel Businesses for its Malaysian Upon graduating, he started his conviction for offences other operations. He was also re s p o n s i b l e career with H Law & Co. as an than traffic offences, if any. for securing Samsung distributorship audit assistant. In 2003, he left H in Planet Technology (M) Sdn Bhd Law & Co. and joined HL Thong & and helped increase its market Associates as an audit senior. share to be one of the top monitor sales agent in Malaysia. Pow Kim Guan He is actively involved in Malaysian, aged 59 the FRB Group's IT pro f e s s i o n a l Pow Kim Guan was appointed as support and services, pro j e c t an Independent Non-Executive management businesses, channel Director of FRB on 28 April 2004. network management, pro d u c t Upon completion of his secondary management, technical support education, he pursued a career in services as well as actively playing the Royal Malaysian Police. In 1968, a role in the customer and channel he joined the Royal Malaysian sales and marketing support Police and moved up the rank businesses. through the years serving both West and East Malaysia. He had served the Royal Malaysian Police for 31 years and the last position held by him prior to his retirement in 1997 was Deputy Superintendent of Police. FTEC Resources Berhad 10 (588728-X)
CHAIRMAN’S STATEMENT
Gen (R) Tan Sri Yaacob bin Mat Zain
On behalf of the Board Directors of FTEC Resources Berhad, I am pleased to present to you the Annual Report and Audited Financial Statements of the Group and the Company for the year ended 31 December 2005.
FINANCIAL PERFORMANCE CORPORATE DEVELOPMENTS
During the financial year under review, the Company For the financial year under review, the FRB Group’s has entered into the following corporate exercises: revenue reduced 31.71% to RM141.51 million fro m RM207.23 million the year before. The decrease was • Proposed establishment of an employees’ share mainly due to the stiffer competition in the export option scheme for eligible Directors and market in the financial year under review as compared employees of FRB and its subsidiaries (“Proposed to the preceding financial year. ESOS”)
Despite the decrease in revenue, the FRB Group’s Profit On 6 May 2005, the Company announced the b e f o re taxation was maintained at RM6.97 million proposed establishment of an employees’ share which was only 0.57% less than RM7.01 million in the option scheme for the granting of options to the previous financial year. This was mainly due to the eligible Executive Directors and employees of FRB higher profit margin contribution from the security, and its subsidiaries (“FRB Group”) to subscribe to surveillance and server solutions business and the new ordinary shares of RM0.10 each in FRB (“FRB Group’s effort to contain the operating expenses. Net S h a r es” or “Shares”) (“Options”) of up to a Profit attributable to shareholders was RM7.57 million, maximum of twenty percent (20%) of the issued up 18.65% from RM6.38 million in the previous financial and paid-up share capital of FRB at any point in year. time (“Proposed ESOS”).
Retained profits increased to RM19.71 million fro m On 8 July 2005, the Company announced that RM12.14 million in the previous financial year while Bursa Securities had vide its letter dated 7 July 2005 S h a r eholders funds grew to RM43.64 million fro m granted its approval-in-principle for the listing of RM36.05 million. Basic earnings per share jumped to 4.5 and quotation for such number of new ordinary sen from 3.8 sen in the previous financial year. s h a r es of RM0.10 each in FRB to be issued pursuant to the exercise of options under the Proposed ESOS, representing up to 20% of the issued and paid-up share capital of FRB at any point in time during the duration of the Proposed ESOS. FTEC Resources Berhad (588728-X) 11
Chairman’s Statement
On 13 July 2005, the Company announced that at the Extraordinary General Meeting (“EGM”) on 17 June 2005, the shareholders of the Company have approved the resolution on Proposed ESOS.
• Notice of Conditional Voluntary General Offer from Avenue Securities Sdn Bhd, on behalf of Online One Corporation Berhad (“Online One”) to acquire 169,999,000 ordinary shares of RM0.10 each in FRB (“FRB Shares”), representing one hundred percent (100%) of the issued and paid-up share capital in FRB
On 30 August 2005, the Company announced that the Company has received a Notice of Conditional Voluntary General Offer (“VGO”) from Avenue Securities Sdn. Bhd., on behalf of Online One Corporation Berhad (“Online One”) to acquire 169,999,000 ordinary shares of RM0.10 each in FRB (“FRB Shares”), representing one hundred percent (100%) of the issued and paid-up share capital in FRB.
• Acquisition of FTEC Communications Sdn Bhd
On 1 September 2005, the Company announced the acquisition of the two ordinary shares of RM1.00 each at par, representing the entire issued and paid-up capital of FTEC Communications Sdn. Bhd. (formerly known as Cetoz Sdn. Bhd.) (“FTEC Communications”), for a total cash consideration of RM2.00. On 20 September 2005, the paid-up capital of FTEC Communication was increased from RM2.00 to RM500,00 of which the company subscribed 399,998 shares of RM1.00 each, representing 80% of the entireissued and paid-up capital of FTEC Communication.
FTEC Communications was incorporated on 11 June 2004 in Malaysia under the Companies Act, 1965. FTEC Communications is currently dormant and the intended principal activity is to be an Application Service Provider (ASP) offering VoIP/IP Telephony and other telecommunications related services.
• Acquisition of Tecasia Sdn Bhd
On 13 January 2006, the Company announced the acquisition of the two ordinary shares of RM1.00 each, representing the entire issued and paid-up capital of Tecasia Sdn. Bhd. (“formerly known as Cuve Group Sdn. Bhd.”) (656654-T) (“Tecasia”) for a total cash consideration of RM2.00.
Tecasia was incorporated on 21 June 2004 in Malaysia under the Companies Act, 1965. The intended business activity of Tecasia is to carry out the business of retail, distribution and marketing of computer hardware and software from various principals; sales and services of computer products and peripherals related thereto, and to engage in e-commerc e trading and operate online market which include but not limited to business-to- business (B2B) and business-to-consumer (B2C) activities.
• Proposed Private Placement
On 18 April 2006, the Company proposed to implement a private placement of up to 16,999,900 new ordinary shares of RM0.10 each (“Private Placement Shares”) in the Company (“Private Placement”), representing 10% of the issued and paid-up share capital of the Company. The Private Placement Shares will be placed out to investor(s) to be identified at a later stage in accordance with the listing re q u i rements of Bursa Malaysia Securities Berhad for the MESDAQ Market. FTEC Resources Berhad 12 (588728-X)
Chairman’s Statement
(iii) P r oposed acquisition by FVSB of 60,000 ordinary shares of RM1.00 each in E-CTAsia, representing the entire issued and paid-up s h a re capital of E-CTAsia, for a total p u rchase consideration of RM240,000. Its principal activities are repairs and maintenance of computers, printers and computer motherboards.
In addition, the Company announced the following:
(iv) P r oposed Bonus Issue of 84,999,500 new o rdinary shares of RM0.10 each in the Company (“FRB Shares” or “Shares”) on the basis of one (1) new Share for every two (2) existing Shares held prior to the Proposed Acquisitions and Proposed Rights Issue with Warrants (“Proposed Bonus Issue”); and During the financial year under review, the outstanding uncompleted corporate proposals are as follows: (v) P r oposed Renounceable Rights Issue of 84,999,500 new Shares with 84,999,500 free • Proposed Acquisition of UCH Technology Sdn. Bhd. detachable warrants (“Warrants”) on the (“UCH”); basis of one (1) new Share with one (1) free • Proposed Acquisition of Atoz Sdn. Bhd. (formerly Warrant for every two (2) existing Shares held known as Softcal Sdn. Bhd.) (“Atoz”); prior to the Proposed Acquisitions and • Proposed Acquisition of E-CTAsia Technology Sdn. Proposed Bonus Issue at an issue price to be Bhd. (“E-CTAsia”) d e t e r mined (“Proposed Rights Issue with • Proposed Bonus Issues; and Warrants”). • Proposed Rights Issue with Warrants • Proposed Increase in Authorised Share Capital; On 24 June 2004, FVSB, a wholly owned subsidiary and of the Company, entered into conditional share • Proposed Write-Off of Goodwill sale agreements in relation to the following On 24 September 2004, the Company announced Proposed Acquisitions: the following: (i) Proposed acquisition by FVSB of 2,000,000 (i) Proposed increase in its authorised share o rdinary shares of RM1.00 each in UCH capital from RM25,000,000 comprising representing the entire issued and paid-up 250,000,000 Shares of RM0.10 each to share capital of UCH, for a total purchase RM100,000,000 comprising 1,000,000,000 consideration of RM32,000,000. Its principal Shares of RM0.10 each (“Proposed Increase activities are production of personal in Authorised Share Capital”); and computer (desktops, desknotes and notebooks) and distribution of computers (ii) Proposed write off up to RM41,000,000 of the and computer peripherals; goodwill arising from the Proposed (ii) Proposed acquisition by FVSB of 1,500,000 Acquisitions by the reduction of an o rdinary shares of RM1.00 each in Atoz, equivalent amount from the share premium representing the entire issued and paid-up account of the Company under Section 64 share capital of Atoz, for a total purchase of the Companies Act, 1965 (“Proposed consideration of RM16,000,000. Its principal Write-Off of Goodwill”). activities are trading of computer hardware, software and related services; and FTEC Resources Berhad (588728-X) 13
Chairman’s Statement
On 23 March 2005, the Company announced that • Proposed Revised Utilisation of Proceeds FVSB has entered into supplemental agreements On 10 June 2005, the Company announced that to the conditional share sale agreements dated the Company proposes to revise the utilisation of 24 June 2004 (“Share Sale Agreements”) relating p roceeds from the Proposed Rights Issue with to the Proposed Acquisitions to extend the Warrants. unconditional date of the Share Sale Agreements from 9 months to 18 months from the date of the Based on the illustrative issue price of RM0.45 per aforesaid Share Sale Agreements. Rights Share, the Proposed Revised Utilisation of P roceeds from the Proposed Rights Issue with On 22 December 2005, the Company announced Warrants is as follows: that FVSB had at the same day entered into second supplemental agreements (“Second Previous Revised Supplemental Agreements”) to the conditional Proposed Proposed s h a r e sale agreements dated 24 June 2004 Utilisation Utilisation relating to the Proposed Acquisitions (“Share Sale RM’000 RM’000 Agreements”) for the following:
Proposed Acquisitions 24,020 24,020 (i) Extension of Unconditional Date Branding and advertising 1,500 4,000 Extension of the unconditional date of the Setting up of additional Share Sale Agreements for a further 3 months Atoz IT retail stores 1,000 1,000 expiring on 24 March 2006. Development and expansion of online (ii) Increase in the Issued and Paid-up Share computer games business 4,500 - Capital of UCH Working capital 4,730 6,730 Defray estimated To reflect in the conditional share sale expenses for the a g reement dated 24 June 2004 for the Proposals 2,500 2,500 P r oposed Acquisition of UCH (“UCH Agreement”) the increase in the issued and 38,250 38,250 paid-up share capital of UCH from RM2,000,000 comprising 2,000,000 UCH Shares to RM5,000,000 comprising 5,000,000 UCH Shares, all of which shall be sold by UCH’s Vendors to FVSB at a purchase consideration of RM32,000,000 in accordance with the terms and conditions set out in the UCH Agreement.
Accordingly, the number of UCH Shares held by UCH’s Vendors, namely Dato’ Lee Boon Han, Low Kock Ching and Tan Liang Yeong had increased to 4,000,000, 175,000 and 825,000 UCH Shares, respectively. FTEC Resources Berhad 14 (588728-X)
Chairman’s Statement
On 13 July 2005, the Company announced that at the Extraordinary General Meeting (“EGM”), the shareholders of the Company have approved all the resolutions, including the resolutions on Proposed ESOS, as set out in the Notice of EGM dated 17 June 2005.
Subsequently on 24 March 2006, the Company announced that FVSB and the vendors of UCH, Atoz and E-CTAsia have mutually agreed to terminate the Conditional Share Sale Agreements dated 24 June 2004, as supplemented by the agreements relating to the Proposed Acquisitions of UCH, Atoz and E-CTAsia as certain of the conditions precedent set out in the Share Sale Agreements were not fulfilled by the extended unconditional date of 24 March 2006.
As a result of the mutual termination of the Share Sale Agreements, the Company has decided to abort the Proposed Acquisitions of UCH, Atoz and E-CTAsia, Proposed Bonus Issue, Proposed Rights Issue with Warrants, the Proposed Write Off of Goodwill and the Proposed Increase in Authorised Share Capital as the Proposals are inter-conditional upon each other.
TECHNOLOGY EXCELLENCES AND RECOGNITION
The Board of Directors are aware of the continuous Research and Development (“R&D”) is crucial for the FRB Group to remain competitive in the fast-moving and high-competitive world of Technology. In addition to the existing R&D TM TM efforts on its OneServer software application and Smart Eyes , the FRB Group is seeking to develop a new breed of surveillance system where the utilization of the Artificial Intelligence, sophisticated algorithm video processing, Biometrics (facial recognition) and access technology in a new breed system. For the financial year ended 31 December 2005, the FRB Group has invested approximately RM0.50 million in total for research and development activities.
The FRB Group has demonstrated positive growth potential in its services and products innovation and its significant marketing efforts and results have been widely recognized by the industry as well as some of the professional institutions. FTEC Resources Berhad (588728-X) 15
Chairman’s Statement
UTILISATION OF PROCEEDS
As at 31 December 2005, the FRB Group had utilised approximately 89.85% of the total proceeds raised from its Initial Public Offering. The status of the utilisation of the proceeds is as follows:-
Use of Listing Proceeds Utilisation Period Allocated Utilised RM’000 RM’000
Research 3 years from the date and Development of listing of FRB shares. 3,200 1,045 Working capital 2 years from the date of listing of FRB shares. 13,046 13,081 Listing expenses 6 months from the date of listing of FRB shares. 1,700 1,999
Total 17,946 16,125
DIVIDEND
The Board does not recommend the payment of any dividend for the year under review.
INDUSTRY OUTLOOK AND PROSPECTS
With the FRB Group’s continuous and effective marketing practices and implementation, the Group has successfully created a very strong brand positioning while at the same time developing new and more untapped potential channels, the end users reach of FTEC’s products especially its retailed products such as notebook and desktop computers are getting nearer and easier to all its potential customers.
The Strategy of the FRB Group is to build a very strong and premium brand positioning while at the same time to sell its products at the very affordable price range and provide customers with the best customer service while potential customers have the conveniences to touch and feel its retailed products at most of their nearby major IT centers as well as most of the unconventional big consumer electronic retail chained stores which are located all over Malaysia such as SenHeng, Courts Mammoth, Harvey Norman, etc.
The FRB Group would continue to demonstrate its talented marketing strategy to maintain and develop stronger and creative marketing practices to enhance its branding and develop more and more untapped or unconventional channels to differentiate from the competitive market place while at the same time develop more FTEC’s fully own flagship and concept showroom for more in-depth education and demonstration of its products and services to their potential or existing customers. The FRB Group is confident that, with its talented, experienced, young and dynamic management team, has great potential to continue to grow and evolve to be one of the very top leaders in the IT industry.
Furthermore, the FRB Group has also looking to tap into more ICT related technology and products such as the security and surveillance products services. Security is becoming an important area in all the countries in the world nowadays as more terrorist act, increase of crime rates and economy instability steers more unwanted activities to occur. As a growing leader in technology, the FRB Group foresee that the market for surveillance systems and applications are huge and viable as there are more requirements for better security protection in the market now. FTEC Resources Berhad 16 (588728-X)
Chairman’s Statement
The FRB Group believes that a potential market exist in The FRB Group’s e-Commerce enabled website this area and has launched its surveillance system by the (www.ftecdirect.com) will continue to be an effective TM brand of “Smart Eyes ”. With its continual efforts in the direct marketing tool for developing business to business research and development, its surveillance system is (B2B) and business to consumer (B2C) sales of the equipped with more features and convergence of Group’s products as evidenced by the increase in the latest technology of IT and surveillance. The FRB Group number of subscribers locally as well as within the South also foresees that the deployment of surveillance East Asian region. systems will certainly re q u i re more manpower to manage and often not effective as most of the time P r emised on the above, barring any unfore s e e n human will get tired and may not be aware if problem circumstances, the Directors of FRB are of the view that arises. But with constant research and development the financial performance of FRB Group will improve in effort of the FRB Group in the surveillance industry, we 2006. are seeking to develop a new breed of surveillance systems where the utilization of Artificial Intelligence, sophisticated algorithm video processing, Biometrics APPRECIATION (facial recognition) and access control technology in a On behalf of the Board, I would like to thank the new breed system. The FRB Group is confident that the management and staff for their invaluable introduction of the new breed of surveillance systems to contributions, dedication and commitment. In addition, the market will lower down human power, create more I would like to express our sincere gratitude to our accurate monitoring, eliminates false alarms and most customers, suppliers, business associates and bankers for important provide instant return of investment (ROI).With their continued support and loyalty. these, the FRB Group is confident of the huge market growth of our surveillance products in the market.
The FRB Group also recognizes that IT plays an important role in the security surveillance system market nowadays, as it provides a platform for the surveillance system to operate in. Taking this into consideration, the FRB Group has successfully negotiated and is being Gen (R) Tan Sri Yaacob bin Mat Zain appointed the “Exclusive Distributor” for Gigabyte Chairman (Surveillance motherboard) based on Intel latest R technology in surveillance which is known as Intel Digital Security Surveillance Platform Technology and the end product (surveillance motherboard) will definitely create a new trend in the surveillance world and make FRB Group the prominent surveillance platform in the region. FTEC Resources Berhad (588728-X) 17
MANAGING DIRECTOR’S MESSAGE
Kenneth Vun @ Vun Yun Liun
Dear Fellow Shareholders,
This Annual Report, covering the financial year to December 2005, describes another active year for FRB Group.
It was an exciting yet challenging year in 2005 for the FRB Group with intense and competitive business environment. We have been weathered with every sort of challenges such as political and economic situation and currency instability but we overcame with extreme adversity. Today as we stand on the brink of bright and exciting future, I am proud to report not only has FTEC survived some of the greatest challenges ever faced by any company, but we have emerged stronger than before.
FINANCIAL PERFORMANCE
For the financial year ended 31 December 2005, the Group had achieved another year of good profitability. The Group’s profit after tax has risen to RM7.57 million from RM6.4 million posted in the previous year whereas the earnings per share had also increased from 3.8 sen in year 2004 to 4.5 sen in year 2005.
The increase in profit was mainly due to the higher profit margin contributed from security, surveillance and server solutions business and the Group effort to control the operating expenses. The Group continues to venture into research and development area to further improve our products that could compete effectively with other major computer producer. FTEC Resources Berhad 18 (588728-X)
Managing Director’s Message
MILESTONES
In year 2005, our products and services had received numerous awards and recognition from the industry locally and internationally. Some of the awards that made us proud are as follows:
• Awarded the “Superbrands 2005 Award” status in August 2005 by Superbrands International Councils. • Awarded the “No.1 Brand Award” Status for 2005 for Notebook Category under Home Grown Manufacturer Segment in December 2005 by HWM-Low Yat Plaza Branding Survey. • Awarded the “No.1 Brand Award” Status for 2005 for Desktop Category under Home Grown Manufacturer Segment in December 2005 by HWM-Low Yat Plaza Branding Survey. • Awarded the “SMB Achievers Award” Status for 2005 in Public Listed Company Category in December 2005 by SMI/SME Association Malaysia. • Awarded the “Deloitte Technology Fast 500 (Asia Pacific) Award” Status for 2005 by Deloitte International Institution. • Awarded the “Best Build-To-Order Concept Award” Status in August 2005 by Intel Malaysia. • Awarded the “Microsoft System Builder of the Year 2005” Status by Microsoft Malaysia. • Awarded the “Top Dealer Award for Intel Desktop CPU 2005” Status by Intel Malaysia.
I am also proud to announce that TECASIA Sdn Bhd, one of the subsidiaries of FTEC Resources Berhad had been awarded the “Largest IT Concept Store in Malaysia” by The Malaysia Book of Records with its newly open retail outlet in Karamunsing Complex in Kota Kinabalu, Sabah with a total space of 10,580 sq ft. TECASIA is the new breathes for “Digital Lifestyle” experience for consumers. Instead of the usual retail shopping experience, TECASIA opens its door for many varieties of IT products, gadgets and solutions with everything under one roof.
These awards have further reaffirm our position as one of the leading computer producer in Malaysia and an established organization that is reckoned within the industry. This has also gone well with one of our strategy of producing innovative products that are of international standards and widely acceptable particularly in a demanding tech-savy customers environment.
PROSPECTS
With the continuous improved economic conditions together with the sound fundamentals of the Malaysian economy, the FRB Group is expected to achieve better results in the coming year.
Looking ahead, our Group would continue to expand abroad in terms of products and services especially in countries that already have our presence like Thailand and The People’s Republic of China. We are also looking at improve further on our distribution network for wider market coverage to countries at the Middle East as well as other Asian countries.
In the region, the Company has plans to open up to 10 more concept stores nationwide within 2 years timeframe. These stores will look into selling more “lifestyle” products in line with the 4Cs focus, namely computers, communications, consumer electronics and content. FTEC Resources Berhad (588728-X) 19
Managing Director’s Message
With the FRB Group’s continuous and effective marketing practices and implementation, the Group has successfully created a very strong premium brand positioning while at the same time developing new and more untapped potential channels, the end users reach of FTEC’s products especially its retailed products such as notebook and desktop computers are getting nearer and easier to all its potential customers.
We are also looking to tap into more ICT related technology and products such as the security and surveillance products and services. Security is becoming an important area in all the countries in the world nowadays as more terrorist act, increase of crime rates and economy instability steers more unwanted activities to occur. As a growing leader in technology, the FRB Group foresee that the market for surveillance systems and applications are huge and viable as there are more requirements for better security protection in the market now.
In addition, we are seeking to develop a new breed of surveillance systems where the utilization of Artificial Intelligence, sophisticated algorithm video processing, Biometrics (facial recognition) and access control technology in a new breed system. The FRB Group is confident that the introduction of the new breed of surveillance systems to the market will lower down human power, create more accurate monitoring, eliminates false alarms and most important provide instant return of investment (ROI).With these, the FRB Group is confident of the huge market growth of our surveillance products in the market.
To spread our wings, the FRB Group intends to continue making strategic and synergistic acquisitions/incorporations if the right opportunities arise.
I firmly believe that the dedication and commitment of our staffs would be the key driver to our Group’s objectives of delivering better results to our shareholders. The Group would continue to invest in human capital and provide a conducive working environment for all its staffs with good career prospects installed.
Having the efficient distribution network, strong information infrastructure, branding and dedicated and loyal staff force, I am confident that our Group would achieve greater heights in the future.
APPRECIATION
Once again, on behalf of the Board of Directors, I would like to express my sincere appreciation to all that have contributed to the success of the company for the past year, namely to our loyal shareholders, customers, business associates, the relevant authorities, bankers, my management and staffs.
Thank you.
Kenneth Vun @ Vun Yun Liun Managing Director FTEC Resources Berhad 20 (588728-X)
GROUP FINANCIAL PERFORMANCE HIGHLIGHTS
2002 * 2003 2004 2005 RM'000 RM'000 RM'000 RM'000
Revenue 74,982 104,941 207,231 141,506 Profit before tax 1,994 3,816 7,014 6,974 Profit after tax and Minority interest 1,446 3,189 6,378 7,572 Net EPS (Sen) 1.1 2.4 3.8 4.5 Net Assets per share (Sen) 8.0 17.3 21.2 25.7
05 04 03 02 05 04 03 02
Revenue (RM’000) Profit before tax (RM’000)
05 04 03 02
Profit after tax and Minority interest (RM’000)
05 04 03 02 05 04 03 02
Net EPS Net Assets per share (Sen) (Sen)
* FTEC Resources Berhad was incorporated on 7 August 2002 The 2002 Proforma Group Figures are presented as if the company had been incorporated 1January 2002 and the merger had been effected on that date. FTEC Resources Berhad (588728-X) 21
CALENDAR OF SIGNIFICANT EVENTS 2005-2006
2 0 0 5 calendar of significant events
1. FRB 3rd Annual General Meeting 2005 5 Superbrand Malaysia 2005 28 June 2005 21 July 2005
The Company’s 3rd Annual General FTEC was awarded the Superbrand Meeting was held at Tropicana Golf & Malaysia 2005 by The Superbrands Council Country Club, Petaling Jaya. Malaysia.
T M 2 The Launching of new FTEC W2 Series new 6 The Launching of FTEC SmartEyes models Surveillance Products 29 June 2005 26 July 2005
FTEC enhanced its product line of W2 series The Company launched its new range of notebooks by introducing two new digital surveillance products under the T M notebook models namely FTEC W2 brand name of “FTEC SmartEyes ” in Series-8260 and FTEC W2 Series- 8031S at the conjunction with the Securitex and Fire Plaza Alam Sentral, Shah Alam, which offers exhibition 2005 held in Kuala Lumpur extra mileages for up-to-beat notebook Convention Centre. At the same time, FTEC users. These two new models offers high also announced its partnership with technology, stylish and cool outlook with GE Security, Kampro from Taiwan that futuristic charm and several color options to specialized in CCTV Cameras. This cater for variety of tastes. partnership will definitely lead FTEC into the highly demand electronic security industry apart from its core IT business. 3 FTEC and I-Gate Official Tie Up Ceremony 29 June 2005 7 PIKOM PC Fair (II) 2005 - Kuala Lumpur The official tie up ceremony between FTEC 5 - 7 August 2005 and I-Gate Chain store, an IT store under Homestead Shop (M) Sdn Bhd. The bonding FTEC participated in the PC fair held at of strategic business partnership between Kuala Lumpur Convention Centre. FTEC took FTEC and I-Gate Cyberstation extended up a premier booth to market its wide range network of FTEC’s product via the chains of notebooks. Driven by compassion, caring store of I-Gate Cyberstation. and sense of social responsibility, the P r esident of FTEC Group of Companies M r. Kenneth Vun launched the FTEC 4 FRB Extraordinary General Meeting 2005 Orphanage Future Fund as a mark of 13 July 2005 contribution to our society. In addition, The Company’s Extraordinary General FTEC has appointed the Malaysian Born Meeting was held at Tropicana Golf & International Model Ms Amber Chia to be Country Club, Petaling Jaya. the ambassador of this FTEC Charity Fund. FTEC Resources Berhad 22 (588728-X)
Calendar of Significant Events 2005-2006
2 0 0 5 calendar of significant events
8 PIKOM PC Fair (II) 2005 - Malacca 12 Summer Carnival 12 - 14 August 2005 18 September 2005
FTEC participated in PC Fair held at FTEC participated in the Summer Carnival Mahkota Parade, Malacca. FTEC booth Road Show held in Sungei Wang Plaza. displays wide range of notebooks and had attracted a large turnover of crowd. 13 Intel Mobility Road Show 17 - 20 September 2005
9 One Utama Digital Lifestyle Fair FTEC was appointed the hardware provider 15 - 17 Aug 2005 for the Intel Mobility Campaign in Low Yat FTEC participated in Digital Lifestyle Fair Plaza, Kuala Lumpur. held at One Utama Shopping Complex, Petaling Jaya. FTEC displayed wide range of notebooks and had sponsored the 14 Trio Charity Sales Event tournament of DOA game. 18 -20 November 2005 Move towards the charitable vision, the company took part at the Trio Charity Sales 10 Ezzap Games Competition event: “Take Charge” was the theme of this 20 - 21 August 2005 event and the purpose was to educate the FTEC was selected as the Premium IT public to be responsible for your own health Hardware Provider for the Ezzap Games and choices in your life. During this event, a Competition. This was the 6 nation series of fun and exciting activities were championship, and gamers from Thailand, carried out to raise public awareness for Indonesia, Brunei, Singapore, Philippines early detection of cancer. and Malaysia participated at this competition.
11 Miss Hong Kong Charity Fundraising Dinner 5 September 2005
All the winners of Miss Hong Kong 2005, a few popular TVB actors and actresses, members of the television crew and press were in Kota Kinabalu for a goodwill visit. FTEC sponsored 5 units of notebooks during this event for charity purposes. FTEC Resources Berhad (588728-X) 23
Calendar of Significant Events 2005-2006
2 0 0 5 calendar of significant events
15 Miss Malaysia Pageant 2005 technology companies that have achieved 20 November 2005 the fastest rates of annual revenue growth in Asia Pacific during the past three years. It FTEC has been appointed as the hardware covers countries such as Australia, China, p rovider for the event of Miss Malaysia Hong Kong, India, Indonesia, Japan, Pageant 2005 which held at Sunway Resort Macau, Malaysia, Philippines, New Zealand, Hotel, Bandar Sunway. S i n g a p o re, South Korea, Taiwan and Thailand. 16 FTEC & A1 Grand Prix 20 November 2005 19 Microsoft System Builder 2005 FTEC was the A1 Team Malaysia IT hardware 9 December 2005 main sponsor. Unlike the F1, the grand prix FTEC had been awarded the Microsoft involved competition between countries, System Builder of the year 2005 to recognize where drivers would be pitted against one the company excellence effort in the another using identical single-seater racing System Builder Channel. This award was cars. This association had shown that FTEC’s based on the impact that the System Builder p roduct quality on perf o r ming tough had on a solution to the customer and analytical task to fine tune racing car. p roactive measures taken to drive awareness in the value of genuine software. 17 PIKOM PC Fair (III) 2005 - Kuala Lumpur 2 - 4 December 2005 20 SMI Award 2005 FTEC participated in the PC fair held at 15 December 2005 Kuala Lumpur Convention Centre. By taking FTEC had been awarded the SMB Achiever the premium booth location, FTEC Award 2005. This award was bestowed to a g g ressively promote its wide range of Company based on its successful transition notebooks. f rom a privately owned company to a public listed company. 18 Deloitte Technology Fast 500 Asia Pacific Program 21 Launch of The 3rd Generation Origin Movie 8 December 2005 Soundtrack & Book With the 3 years growth of 176%, FTEC had 17 December 2005 been recognized as one of the top growing Malaysia first art movie: The 3rd Generation companies in Asia Pacific under Deloitte was launched at Berjaya Times Square Technology Fast 500 Asia Pacific Program. Hotel. FTEC was one of the exclusive partner The Deloitte Technology Fast 500 Asia Pacific and sponsor for this local Chinese movie. 2005 program was to recognize the FTEC Resources Berhad 24 (588728-X)
Calendar of Significant Events 2005-2006
2 0 0 6 calendar of significant events
1 The 3rd Generation Gala Premiere 6 O f ficial Opening of TECASIA IT Concept 5 January 2006 Store & “Malaysia Book of Records” Award 25 March 2006 FTEC was one of the exclusive partner and sponsor for the movie “The 3rd Generation”. TECASIA SDN BHD, a retail division of FTEC The Gala Premiere Event of the official “The Group of Companies, officiated its grand 3rd Generation” movie was held at GSC Mid opening of its retail outlet at Kompleks Valley. Karamunsing, Kota Kinabalu, Sabah. TECASIA is the new breathes for “Digital Lifestyle” experience for the consumers. 2 Intel Award 2005 Instead of the usual retail shopping 17 January 2006 experience, TECASIA opens its door for FTEC was awarded the Best Mobility many varieties of IT products, gadgets and Platform Transition Award 2005 solutions with everything under one roof. With its retail space of 10,580 sq ft, TECASIA had been awarded “The Largest IT Concept 3 Recognition of FTEC Staff - Intel Award 2005 Store in Malaysia” by the Malaysia Book of 17 January 2006 Records. Something to be proud of!! FTEC Director of Marketing, Mr. Law Chor Soon had been awarded the Outstanding Individual Contributor Award 7 Microsoft Smart Kids Fair 2006 31 March - 2 April 2006 4 Recognition of FTEC Branding PC.com FTEC was one of the sponsor for the Award multimedia computer system during the 18 January 2006 Smart Kids Fair 2006 held at PWTC, Kuala Lumpur in collaboration with Microsoft. The FTEC had been awarded the Gold Prize for objective of this fair is to promote the PC.com Best Product Aw a r d under e-knowledge to children and parents and category of Best Local Notebook. children who attended this event and they w e re exposed to the effectiveness & 5 Recognition of FTEC Genius - PC.Com efficiency of IT technology in their process of Award pursuing knowledge. 18 January 2006
FTEC’s President Mr. Kenneth Vun had been a w a rded Gold Prize for PC.com Best P r oduct Aw a rd under category of Recognition Award. FTEC Resources Berhad (588728-X) 25
STATEMENT ON CORPORATE GOVERNANCE
The Board of Directors (“Board”) is committed to achieving and maintaining the highest standards of Corporate G o v e r nance throughout the Group. Good corporate governance is the fundamental part of the Gro u p ’ s responsibility to protect and enhance shareholder value and the financial performance of FRB Group.
Principles Statement
The Board is pleased to set out below the Group’s application of the principles as set out in Part 1 of the Malaysian Code on Corporate Government (“the Code”).
1. Board of Directors
1.1 Board Responsibilities
The Group is led and managed by an effective Board with a wide and varied range of expertise. This includes experience and qualification in technology, technical, financial, business management and public service.
In carrying out its functions, the Board has delegated specific responsibilities to several Board Committees, namely Audit Committee, Nomination Committee and Remuneration Committee. These Board Committees have the authority to scrutinise particular issues and report back to the Board with their recommendations. However, the ultimate responsibility for the final decisions on all matters is reserved with the entire Board.
All Board Committees have written terms of reference and procedures and the Board receives report of their proceedings and deliberations.
The compositions of Board Committees are as follows:-
Board Members Audit Nomination Remuneration Committee Committee Committee
Gen (R) Tan Sri Yaacob bin Mat Zain C C C Kenneth Vun @ Vun Yun Liun M M Chieng Siong Kuong M M M Ameezan Bin Jamal Wong Teck Wei Ang Chai Kok (resigned on 4.5.2006) Pow Kim Guan
C - Chairman M - Member
1.2 Board Balance Part 2 of the Code states that independent non-executive directors need to make up at least one third of the membership of the Board in order for the Board to be effective. The Company has fully complied, as the Board currently has six (6) members, comprising an Independent Non-Executive Chairman, three (3) Executive Directors and two (2) Independent Non-Executive Directors.
In addition, the Company has also complied with Paragraph 13.2 of the Listing Requirements of Bursa Malaysia Securities Berhad (“Bursa Securities”) under MESDAQ Market, which requires the Board to have at least two (2) independent directors. The profiles of the Directors are presented on pages 8 and 9 of this Annual Report. FTEC Resources Berhad 26 (588728-X)
Statement on Corporate Governance
The roles of the Chairman of the Board and the Managing Director are separated and clearly defined to ensure that there is a balance of power and authority. The Board is led by Gen (R) Tan Sri Yaacob bin Mat Zain as the Independent Non-Executive Chairman whilst the executive management of the Company is led by Mr Kenneth Vun, the Managing Director.
The Independent Non-Executive Chairman leads strategic planning at the Board level whilst Executive Directors are generally responsible for the implementation of the policies laid down and making executive and investment decisions.
Independent Non-Executive Directors are of the calibre necessary to provide an independent judgement on the issues of strategy, performance, resources allocation and standards of conducts.
The Board is of the opinion that its current composition is fairly balanced to ensure the long-term interest of the shareholders, employees, customers and other stakeholders.
1.3 Supply of Information
The Directors have full and timely access to all information pertaining to the Group’s business and affairs, whether as a full Board or in their individual capacity, to enable them to discharge their duties.
Prior to the Board meetings, the agenda for each meeting together with a full set of Board papers containing information relevant to the business of the meetings are circulated to the Directors. This allows the Directors sufficient time to obtain further explanations or clarifications, where necessary, in order to be properly briefed before the meetings.
The Board normally meets at least four (4) times a year at quarterly intervals, although additional meetings may be convened when important matters need to be deliberated and decided at the Board meeting between the scheduled meetings.
The attendances of the Board meetings by the Director in 2005 are as follows:
Date of Meeting Total Directors Attendance by Directors attended (Percentage of Attendance) Non-Independent Independent
24 February 2005 7 4 (57%) 3 (43%) 30 May 2005 7 4 (57%) 3 (43%) 22 August 2005 7 4 (57%) 3 (43%) 25 Nov 2005 7 4 (57%) 3 (43%)
The details of the attendances by individual Directors in 2005 are as follows:
Name of Directors Total Meetings Percentage of Attended Attendance
Gen (R) Tan Sri Yaacob bin Mat Zain 4 of 4 100% Kenneth Vun @ Vun Yun Liun 4 of 4 100% Ameezan Bin Jamal 4 of 4 100% Wong Teck Wei 4 of 4 100% Ang Chai Kok (resigned on 4 May 2006) 4 of 4 100% Pow Kim Guan 4 of 4 100% Chieng Siong Kuong 4 of 4 100% FTEC Resources Berhad (588728-X) 27
Statement on Corporate Governance
During the Board meetings, the Board shall discuss and deliberate on the issues being raised of which all proceedings and resolutions from the Board meetings will be documented by the Company Secretaries in the minutes of the Board Meeting, which are kept at the registered office.
Besides Board meetings, the Board exercises control on matters that requires the Boards’ approval through circulation of Directors’ resolutions. Similarly for circular resolutions, Board members will be provided with sufficient information for approvals.
All Board members have unhindered access to the advice and services of the Company Secretaries, and may seek external independent professional advice at the Company’s expense, where necessary, in furtherance of their duties to make well-informed decisions. Before incurring such professional fees, the Director concerned must consult with the Chairman of the Board.
The appointment of the Company Secretaries is based on the capability and proficiency determined by the Board. The Company Secretaries are responsible for ensuring the Board meetings procedures are followed and that applicable rules and regulations are complied with.
1.4 Appointments to the Board
The Nomination Committee (“NC”) consists of two (2) Independent Non-Executive Directors:
* Gen (R) Tan Sri Yaacob bin Mat Zain (Chairman) * Chieng Siong Kuong
The NC’s terms of reference are as follows:-
Terms of Reference of Nomination Committee
In accomplishing its objectives, the NC shall perform the following functions:
a) To determine the criteria for Board membership, including qualities, experience, skills, education and other factors that will best qualify as a nominee to serve on the Board; b) To review and recommend to the Board the structure, size, balance and composition of the Board and Board Committees including the required mix of skills and experience, core competencies which Non-Executive Directors should bring to the Board and other qualities to function effectively and efficiently; c) To consider, evaluate and propose to the Board any new Board appointments, whether executive or non-executive positions. In making a recommendation to the Board on the candidate for directorship, the NC shall have regard to:- * Size, composition, mix of skills, experience, competencies and other qualities of the existing Board, level of commitment, resources and time that the recommended candidate can contribute to the existing Board and Group; and * Best practices of the Malaysian Code on Corporate Governance Part 2 AAIII which stipulates that Non-Executive Directors should be a person of calibre, credibility and have the necessary skills and experience to bring independent judgements to bear on issues under consideration by the Board. To be effective, Independent Non-Executive Directors should make up at least one- third of the membership of the Board; FTEC Resources Berhad 28 (588728-X)
Statement on Corporate Governance
d) To propose to the Board responsibilities of Non-Executive Directors, including membership and chairmanship of Board Committees; e) To evaluate Management’s recommendation for the appointment, promotion, transfer, dismissal and scope of duties of senior executive positions, including that of the Executive Directors; f) To evaluate and review the processes for assessing the effectiveness of the Board as a whole, the Board Committee and for assessing the contribution of each Director; g) To ensure adequate training and orientation of new Directors with respect to the business, structure and management of the Group as well as the expectations of the Board with regards to their contribution to the Board and Group; and h) To consider other matters as referred to the NC by the Board.
1.5 Directors’ Training
As an integral element of the process of appointing new directors, the NC ensures that there is an orientation and education program for new Board members. Directors also receive further training from time to time, particularly on relevant new laws and regulations and changing business risks.
All Directors of the Company have attended the Mandatory Accreditation Programme (“MAP”) held by Research Institute of Investment Analyst Malaysia. The directors shall continue to attend the relevant Continuing Education Programme (“CEP”) on annual basis to further enhance and update their skills and knowledge and to keep abreast with developments in the dynamic business environments.
1.6 Re-election
In accordance with the Company’s Articles of Association, one third of the Board, excluding the Managing Director shall retire from office and be eligible for re-election at each Annual General Meeting and all the directors except for Managing Director shall retire from office once in every three (3) years but shall be eligible for re-election.
Directors appointed by the Board during the financial year shall be subject to retirement and re-election by shareholders in the next Annual General Meeting held following their appointments.
2. Directors’ Remuneration
2.1 Objective of Directors’ Remuneration The Company has adopted the objective as recommended by the Code to determine the remuneration for a Director so as to ensure that the Company attracts and retains the Director needed to run the Group successfully. In the case of Executive Directors, the component parts of remuneration are structured so as to link rewards to corporate and individual performance. In the case of Non-Executive Directors, the level of remuneration reflects the experience and level of responsibilities undertaken by the particular non-executive concerned. FTEC Resources Berhad (588728-X) 29
Statement on Corporate Governance
2.2 Remuneration Committee
The Remuneration Committee (“RC”) consists of the following members:
* Gen (R) Tan Sri Yaacob bin Mat Zain (Chairman) * Kenneth Vun @ Vun Yun Liun * Chieng Siong Kuong
The RC met once during the financial year.
The RC is responsible for recommending to the Board the remuneration structure for each individual Director to ensure that the remuneration policy and structure are:-
* Competitive to attract and retain high calibre Directors needed to run the Company successfully; * Linked rewards to both the Company and individual performance for Executive Directors; * Reflect the experience and level of responsibilities undertaken particularly by Non-Executive Directors; and * Align the interests of Directors and Stakeholders in promoting the Company’s progress.
No Director, Executive or Non-Executive, shall make the decisions pertaining to their own remuneration packages.
2.3 Details of Directors’ Remuneration
The remuneration paid to the Directors for the financial year ended 31 December 2005 is summarized as follows:
Amount in RM’000 Executive Directors Non-Executive Directors
Directors’ Fee 474 84 Salaries and other emoluments 123 -
Band of Remuneration Executive Directors Non-Executive Directors
Less than RM50,000 - 2 RM50,001 to RM200,000 3 1 Above RM200,000 1 -
This method of disclosure represents a deviation from the Best Practice set out in the Code, which suggests separate disclosure of each Director’s remuneration. The Board is of the opinion that separate disclosure would impinge upon the Directors’ right of privacy and would not add value significantly to the understanding of shareholders and other interested investors in this area. FTEC Resources Berhad 30 (588728-X)
Statement on Corporate Governance
3. Shareholders
3.1 Dialogue between the Company and Investors
The Board recognizes the importance of keeping the shareholders and investors informed of the Group’s business and corporate developments. Such information is disseminated via the Group’s annual reports, quarterly financial results and the various prescribed announcements made to Bursa Securities from time to time in the Bursa Securities’ website at www.bursamalaysia.com.
In addition, the Group has established a website at www.ftec.com.my to provide public access to Group information and business activities.
3.2 Annual General Meeting (“AGM”)
The AGM represents the principal forum for dialogue and interaction with all the shareholders of the Company. At each AGM, the Board provides opportunities for shareholders to participate in the question and answer session. All Directors and Senior Management as well as the Chairman of the Audit Committee and external auditors are available to respond to the shareholders’ questions during the AGM.
4. Accountability and Audit 4.1 Financial Reporting
The Board has a responsibility and aims to provide and present a fair, balanced, clear and meaningful assessment of the Group’s financial performance for the current financial year and its prospects. This is achieved primarily through the annual financial statements, quarterly announcements / reports to Bursa Securities and the annual report to the shareholders.
The Audit Committee assists the Board in the following manners: * scrutinize information for disclosure to ensure accuracy and completeness; and * oversee the Group’s financial reporting processes and the quality of its financial reporting.
4.2 Statement of Directors’ Responsibility for preparing the Financial Statements
The Directors are required by the Companies Act, 1965 to prepare the financial statements for each financial year which 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. In preparing the financial statements, the Directors have ensured that the applicable approved accounting standards in Malaysia and the provisions of the Companies Act, 1965 have been applied.
In preparing the above financial statements, the Directors have:- * selected suitable accounting policies and applied them consistently; * made judgements and estimates that are prudent and reasonable; * ensured that all applicable accounting standards have been followed; and * prepared financial statements on a going concern basis as the Directors have a reasonable expectation, having made enquiries, that the Group and Company have adequate resources to continue in operational existence for the foreseeable future. FTEC Resources Berhad (588728-X) 31
Statement on Corporate Governance
The Directors have responsibility for ensuring that the Company keeps accounting records which disclose with reasonable accuracy the financial position of the Group and Company and which enables them to ensure that the financial statements comply with the Companies Act, 1965.
The Directors have overall responsibilities for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
4.3 Internal Control
The Board acknowledges its overall responsibility for maintaining a sound system of internal control and the need to review its effectiveness regularly in order to safeguard the Group’s assets and therefore shareholders’ investments in the Group. This system, by its nature, can only provide reasonable but not absolute assurance against material misstatement, fraud or loss.
Currently, the Group does not maintain an Internal Audit Department due to cost considerations. However at this juncture, the Board considers the system of internal controls instituted throughout the Group is sound and sufficient. The Group is continuously looking into the adequacy and integrity of its system of internal controls to ensure the effectiveness of the system.
The Statement on Internal Control furnished on page 32 of the annual report provides an overview on the state of internal controls within the Group.
4.4 Relationship with the Auditors
Through the Audit Committee of the Board, the Company has always established and maintained a transparent and appropriate relationship with its external auditors in seeking professional advice and ensuring compliance with the accounting standards in Malaysia.
A summary of the activities of the Audit Committee during the year are set out under the Audit Committee Report on pages 33 to 37 of the annual report.
4.5 Other Information - Material Contracts Involving Directors’ and Major Shareholders’ Interests
There were no material contracts entered into by the Company and its subsidiaries involving the Directors’ and major shareholders’ interests during the financial year. FTEC Resources Berhad 32 (588728-X)
STATEMENT ON INTERNAL CONTROL
Introduction
The Board is committed to maintain a sound system of internal control in the Group and is pleased to provide the following statement, which outlines the nature and scope of internal control of the Group during the financial year under review. This statement is guided by the Statement on Internal Control: Guidance for Directors of Public Listed Companies issued by The Institute of Internal Auditors Malaysia (“the Internal Control Guidance”).
Board Responsibility The Board affirms its overall responsibility for maintaining a sound internal control and risk management practices towards maintaining good corporate governance. This includes reviewing the effectiveness, adequacy and integrity of these systems throughout the Group. However, the Board recognizes that reviewing the effectiveness of the Group’s system of internal control is concerted and continuous process, designed to manage rather than to eliminate the risk of failure to achieve business objectives. Accordingly, the Board is of the view that the Group’s system of internal control can only provide reasonable but not absolute assurance against material misstatement, operational failures, fraud or loss.
In accordance with the Internal Control Guidance, the Group has in place an ongoing informal process for identifying, evaluating, monitoring and managing significant risks faced by the Group throughout the year up to the date of approval of the annual report and financial statements. This process is regularly reviewed by the management and reported to the Board as and when required.
Key Processes of Internal Control
The key processes that the Board have established in reviewing the effectiveness, adequacy and integrity of the system of internal control, are as follows:
* The Group has in place an organizational structure that is aligned to business and operational requirements, with clearly defined level of responsibility, lines of accountability and delegated authority with appropriate reporting procedures.
* There is active involvement by the Executive Directors in the day-to-day business operations of the Group and regular dialogue with senior management. Scheduled operational and management meetings are held regularly to identify, discuss and resolve business and operational issues. Significant matters identified during these meetings are highlighted to the Board on a timely basis.
* In addition to active participation of the Executive Directors and management, the Board is also assisted by the Audit Committee in specific areas with enhanced system of internal control and governance.
Presently the Group does not have an internal audit department. The Board has determined that the current control mechanisms are sufficient for the size of the Group. The Board and the Audit Committee shall review this decision annually.
Board Conclusion Based on the above, the Board is pleased to disclose that the systems of internal control of the Group are sufficient in line with the Internal Control Guidance. No major internal control weaknesses were identified nor did any of the reported weaknesses that have resulted in material losses or contingencies requiring disclosure in the Annual Report. The Board and the management continue to take necessary measures to strengthen its internal control structure and to manage the risks more effectively. FTEC Resources Berhad (588728-X) 33
AUDIT COMMITTEE REPORT
1. MEMBER OF THE AUDIT COMMITTEE
The members of the Audit Committee (“Committee”) are:
Name Designation Directorship
Gen (R) Tan Sri Yaacob bin Mat Zain Committee Chairman Independent Non-Executive Director Kenneth Vun @ Vun Yun Liun Member Managing Director Chieng Siong Kuong Member Independent Non-Executive Director
Mr Chieng Siong Kuong is a member of the Malaysian Institute of Accountants (“MIA”).
2. TERMS OF REFERENCE OF THE COMMITTEE
The terms of reference of the Committee are as follows:
2.1 OBJECTIVES
The Committee was established to act as a Committee of the Board to fulfil its fiduciary responsibilities. The authority, functions and duties of the Committee shall be extended to FTEC Resources Berhad (“the Company”) and its subsidiary companies (“Group”).
2.2 MEMBERSHIP 2.2.1 Composition
The Committee shall be appointed by the Board from amongst its Directors and consists of no fewer than three (3) members, the majority of whom shall be Independent Non-Executive Directors, independent of senior management and operating executive and unencumbered by any relationships that might, in the opinion of the Board be considered to be a conflict of interest.
The members of the Committee shall elect a Chairman from among their number who shall be an Independent Non-Executive Director.
At least one member of the Committee shall be: -
a) a member of the MIA; or b) if he is not a member of the MIA, he shall have at least 3 years’ working experience and: * he shall have passed the examinations specified in Part 1 of the 1st Schedule of the Accountants Act 1967; or * he shall be a member of one of the Associations of Accountants specified in Part II of the Accountants Act 1967.
2.2.2 Disqualification as Committee member
An alternate Director shall not be appointed as a member of the Committee. FTEC Resources Berhad 34 (588728-X)
Audit Committee Report
2.2.3 Retirement and Resignation
In the event of any vacancy in the Committee resulting in the non-compliance of the Bursa Malaysia Securities Berhad (“Bursa Securities”) Listing Requirements, the Company shall fill the vacancy within two (2) months, but in any case not later than three (3) months.
2.2.4 Review of the Committee by the Board
The Board shall review the term of office and performance of the Committee and each of its members at least once every three (3) years to determine whether such Committee and its members have carried out their duties in accordance with their terms of reference.
2.3 AUTHORITY
The Committee is authorised by the Board:
a) to investigate any matter within its terms of reference; b) to have the resources which are required to perform its duties as set out in its terms of reference; c) to request with full and unrestricted access to any information it seeks as relevant to its activities from any employees of the Company or the Group and all employees are directed to co-operate with any request made by the Committee; d) to have direct communication channels with the internal and external auditors; e) to seek and accept independent professional advice and to secure the attendance of outsiders with relevant experience and expertise as it considers necessary; and f) to be able to convene meetings with the external auditors, excluding the attendance of the executive members of the committee and management, whenever deemed necessary.
2.4 DUTIES In fulfilling its primary objectives, the Committee shall review, appraise and report to the Board on:
a) The discussion with the external auditors, prior to the commencement of audit, the audit plan which states the nature and scope of the audit and to ensure co-ordination of audit where more than one audit firm is involved; b) The review with the external auditors, his evaluation of the system of internal controls, his management letter and management’s response; c) The discussion of problems and reservations arising from the half year (if any) and final year external audits, the audit report and any matters the external auditors may wish to discuss (in the absence of Management, where necessary); d) The assistance given by the employees of the Group to the external and internal auditors; FTEC Resources Berhad (588728-X) 35
Audit Committee Report
e) The review of the following in respect of Internal Audit (“IA”): * Adequacy of the scope, functions and resources of the IA and that it has the necessary authority to carry out its work; * IA programme; * The major findings of internal audit investigations and management’s responses, and ensure that appropriate actions are taken on the recommendations of the IA; * Co-ordination of external audit with internal audit; * Appraisal or assessments of the performance of the staff of the IA; * Approval of any appointment or termination of senior staff member of the IA; * Resignations of internal audit staff members and provide the resigning staff member an opportunity to submit his/her reason for resignation; f) The review of quarterly reporting to Bursa Securities and year end financial statements of the Group before the submission to the Board, focusing particularly on: - * Changes in or implementation of major accounting policy; * Significant or unusual events; and * Compliance with accounting standards and other legal requirements. g) The review of any related party transaction and conflict of interest situation that may arise within the Group or Company, including any transaction, procedure or course of conduct that raises questions of Management integrity; h) The review of any letter of resignation from the external auditors and any questions of resignation or dismissal; i) The review where appropriate whether there is a reason (supported by grounds) to believe that the Group’s external auditors is not suitable for re-appointment; j) The recommendation of the nomination and appointment of external auditors as well as the audit fee; k) The prompt reporting to Bursa Securities on any matter reported by it to the Board which has not been satisfactorily resolved resulting in a breach of Bursa Securities Listing Requirements; and l) Any other functions that may be mutually agreed upon by the Committee and the Board, which would be beneficial to the Company and ensure the effective discharge of the Committee’s duties and responsibilities.
2.5 MEETINGS
2.5.1 Frequency of Meetings
A minimum of four (4) meetings per year is planned, although additional meetings may be called at any time at the Committee Chairman’s discretion. An agenda shall be sent to all members of the Committee and any other persons who may be required to attend.
2.5.2 Attendance
In addition to the Committee members, the Managing Director, Chief Financial Officer and Internal Auditor (if appointed) shall normally be invited for attendance at each meeting. Representatives of the external auditors are also normally invited from time to time to brief the Committee on audit related matters. Other members of the Board may attend the meetings upon invitation of the Committee.
The Secretary of the Committee shall be the Company Secretary. FTEC Resources Berhad 36 (588728-X)
Audit Committee Report
At least once a year, the Committee shall meet the external auditors without any executive directors present.
The details of attendance at the Committee Meetings in 2005 are as follows:
Date of Meeting Total Committee Attendance by Committee Members Members attended (Percentage of Attendance) Independent Non-Independent
24 February 2005 3 2 (67%) 1 (33%) 30 May 2005 3 2 (67%) 1 (33%) 22 August 2005 3 2 (67%) 1 (33%) 25 November 2005 3 2 (67%) 1 (33%)
The details of attendance by individual Committee member in 2005 are as follows:
Name Total Meetings Percentage of attended by Directors Attendance
Gen (R) Tan Sri Yaacob bin Mat Zain 4 of 4 100% Kenneth Vun @ Vun Yun Liun 4 of 4 100% Chieng Siong Kuong 4 of 4 100%
2.5.3 Procedures
The procedures of the meetings are as follows: -
a) The minimum quorum for the meeting is two (2) members of the Committee, the majority of members present shall be Independent Non-Executive Directors; b) The Chairman of the Committee shall preside at all meetings. In his absence, Committee members present shall elect among themselves an independent director to be the chairman of the meeting; c) Chairman may call for a meeting upon the request of the internal or external auditors or any Committee Member or Company’s Chairman or Managing Director, in order to consider any matter that should be brought to the attention of the Directors or shareholders; d) The Secretary of the Committee shall draw up the agenda for the meeting; e) A minimum seven (7) days’ notice shall be given for all meetings. Nevertheless, a shorter notice is permitted subject to agreement by all Committee members; f) All decisions are determined by a majority of votes. In case of equality of votes, the Chairman shall have a casting vote; g) The Secretary shall attend the meetings of the Committee and minute all the proceedings of the meetings; h) Minutes of meetings shall be signed by the Chairman of the meeting; i) Minutes are kept at the registered office of the Company and open for inspection by any Committee members; and j) A resolution in writing signed by a majority of the Committee members and constituting a quorum shall be effective as a resolution passed at a meeting of the Committee. FTEC Resources Berhad (588728-X) 37
Audit Committee Report
2.6 SUMMARY OF ACTIVITIES
During the financial year, the Committee met at scheduled times, with due notices of meetings issued, and with agendas planned and itemised so that issued raised in respect of financial statement and any audit related matters were deliberated and discussed in a focused and detailed manner.
The Committee had carried out the following reviews:
* The audit plan, with the external auditors, for the statutory audit of the Group accounts for the year ended 31 December 2005; * The audited financial statements of the Group, the audit report (with the external auditors) and the annual report to ensure adequacy of the disclosure of information essential for a fair and full presentation of the financial affairs of the Group for recommendation to the Board for approval; and * The quarterly unaudited financial reporting to Bursa Securities and year end financial statements of the Group before the submission to the Board for approval, focusing particularly on:- * Changes in or implementation of major accounting policy; * Significant or unusual events; and * Compliance with accounting standards and other legal requirements.
Hence, the Committee had carried out and discharged its duties and responsibilities in accordance with its terms of reference. Financial Statements Directors’ Report 40 Statement by Directors 46 Statutory Declaration 46 Report of the Auditors 47 Income Statements 48 Consolidated Statement of Changes in Equity 49 Company Statement of Changes in Equity 49 Balance Sheets 50 Cash Flow Statements 52 Summary of Significant Accounting 55 Notes to the Financial Statements 62 FTEC Resources Berhad 40 (588728-X)
DIRECTORS’ REPORT
The Directors present their report to the members together with the audited financial statements of the Group and the Company for the financial year ended 31 December 2005.
PRINCIPAL ACTIVITIES
The principal activities of the Company are investment holding and provision of management services to subsidiaries. The principal activities of the Group consist of manufacturing, marketing and distribution of application software, server, security and surveillance appliances, computer and IT systems, brands and intellectual property holdings, provision of education and online computer game academy, training and consulting services, publishing and development of online computer games and management of internet cafes. There have been no significant changes in the nature of these activities during the financial year.
FINANCIAL RESULTS
Group Company RM’000 RM’000
Profit / (loss) after tax 6,248 (67) Minority interest 1,324 0
Net profit for the year 7,572 (67)
DIVIDENDS
No dividend was paid or declared by the Company during the financial year. The Directors do not recommend the payment of any dividend for the financial year ended 31 December 2005.
ISSUE OF SHARES AND DEBENTURES
There were no shares and debentures issued by the Company during the financial year.
RESERVES AND PROVISIONS There were no material transfers to or from reserves or provisions during the financial year except as disclosed in the financial statements.
OPTIONS
During the financial year, no options were granted by the Company.
DIRECTORS
The Directors who served office since the date of the last report are: -
Gen (R) Tan Sri Yaacob Bin Mat Zain Kenneth Vun @ Vun Yun Liun Ameezan Bin Jamal Wong Teck Wei Ang Chai Kok Chieng Siong Kuong Pow Kim Guan FTEC Resources Berhad (588728-X) 41
Directors’ Report
DIRECTORS’ BENEFITS
During and at the end of the financial year, no arrangements subsisted to which the Company is a party, being arrangements with the object or objects of enabling 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.
Since the end of the previous financial year, no Director of the Company has received or become entitled to receive any benefits (other than the benefits included in the Directors’ remuneration as disclosed in Note 7 to the financial statements) by reason of a contract made by the Company or a related corporation with the Directors or with a firm of which the Director is a member, or with a company in which the Director has substantial financial interest.
DIRECTORS’ INTEREST IN SHARES
According to the Register of Directors’ Shareholdings, the interests of Directors in office at the end of the financial year in shares of the Company are as follows:-
Ordinary Shares of RM 0.10 each Balance Balance as at as at 01.01.05 Bought (Sold) 31.12.05
Direct Kenneth Vun @ Vun Yun Liun 23,654,350 1,429,300 (7,261,200) 17,822,450 Ameezan Bin Jamal 1,136,508 0 (103,200) 1,033,308 Wong Teck Wei 1,336,508 0 (300,000) 1,036,508 Ang Chai Kok 1,346,508 0 (252,000) 1,094,508 Chieng Siong Kuong 50,000 0 0 50,000
Indirect Kenneth Vun @ Vun Yun Liun 48,821,426 0 (16,467,700) 32,353,726
SIGNIFICANT EVENTS
(1) On 30 May 2005, the Company announced that there is an allegation of misuse of funds by the Representative Director of Fovix IT. Co. Ltd (“Fovix”), Fovix is a 51% owned subsidiary operating in the Republic of South Korea.
Due to the alleged misuse of funds, Fovix has defaulted under its loans and credit facilities and some of Fovix’s creditors have commenced legal proceedings to recover the amounts outstanding.
A representative legal firm in Korea has been appointed to investigate the matter and the outcome of the investigation is still in progress. FTEC Resources Berhad 42 (588728-X)
Directors’ Report
SIGNIFICANT EVENTS (cont’d)
(2) At an Extraordinary General Meeting held on 13 July 2005, the following resolutions were passed :
(i) Proposed acquisition by FTEC Ventures Sdn. Bhd. (“FVSB”), a wholly owned subsidiary of the Company, of 5,000,000 ordinary shares of RM1.00 each in UCH Technology Sdn. Bhd. (“UCH”), representing the entire issued and paid-up shares capital of UCH, for a total purchase consideration of RM32,000,000 (“Proposed acquisition of UCH”).
(ii) Proposed acquisition by FVSB of 1,500,000 ordinary shares of RM1.00 each in Atoz Computer Sdn. Bhd. (formerly known as Softcal Sdn. Bhd.) (“Atoz”), representing the entire issued and paid-up share capital of Atoz, for a total purchase consideration of RM16,000,000 (“Proposed acquisition of Atoz”).
(iii) Proposed acquisition by FVSB of 60,000 ordinary shares of RM1.00 each in E-CTAsia Technology Sdn. Bhd. (“E-CTAsia”), representing the entire issued and paid-up share capital of E-CTAsia, for a total purchase consideration of RM240,000 (“Proposed acquisition of E-CTAsia”).
(iv) Proposed Bonus Issue of 84,999,500 new ordinary shares on the basis of 1 new share for every 2 existing shares held, prior to the proposed rights issue with warrants and the proposed acquisition of UCH, ATOZ and E-CTAsia (“Proposed Bonus Issue”).
(v) Proposed renounceable rights issue of 84,999,500 new ordinary shares with 84,999,500 free detachable warrants (“Warrants”) on the basis of 1 new share with 1 free warrant for every 2 existing shares held, prior to the Proposed Bonus Issue and the Proposed Acquisitions at an issue price to be determined (“Proposed Rights Issue with Warrants”).
(vi) P roposed establishment of an Employees’ Share Option Scheme for eligible Executive Directors and employees of the Company and its subsidiaries (excluding dormant subsidiaries) (“Proposed ESOS”).
(vii) Proposed issue of options under the Proposed ESOS to Kenneth Vun @ Vun Yun Liun, Ang Chai Kok, Wong Teck Wei and Ameezan Bin Jamal, Executive Directors of the Company.
(viii) Proposed issue of options under the Proposed ESOS to Chong Phui Lan, Grace Vun Siaw Nei, Carol Vun On Nei and Ooi Wei Leng, persons connected to Kenneth Vun @ Vun Yun Liun, a Director of the Company.
(ix) Proposed write off of up to RM41,000,000 of the goodwill arising from the Proposed Acquisitions by the reduction of an equivalent amount from the share premium account of the Company under Section 64 of the Companies Act, 1965 (“Proposed Write Off of Goodwill”).
(x) Proposed increase in the authorised share capital of the Company from RM25,000,000 comprising 250,000,000 shares of RM0.10 each to RM100,000,000 comprising 1,000,000,000 shares of RM0.10 each.
On 22 December 2005, FVSB entered into second supplemental agreements to the Conditional Share Sale Agreements dated 24 June 2004 relating to the Proposed Acquisitions of UCH, Atoz and E-CTAsia (“Share Sale Agreements”) for the following:
(a) Extension of Unconditional Date of the Share Sale Agreements for a further 3 months expiring on 24 March 2006; and
(b) Increase in the issued and paid-up share capital of UCH.
The proposals in items (i) to (v), (ix) and (x) above were aborted on 24 March 2006 as disclosed in subsequent events Note (2). FTEC Resources Berhad (588728-X) 43
Directors’ Report
SIGNIFICANT EVENTS (cont’d)
(3) On 30 August 2005, the Company received a Notice of Conditional Voluntary General Offer (“VGO”) from Avenue Securities Sdn. Bhd., on behalf of Online One Corporation Berhad (“Online One”) to acquire 169,999,000 ordinary shares of RM0.10 each representing 100% of the issued and paid-up share capital of the Company.
The VGO is subject to the approvals of the relevant authorities.
On 27 October 2005, the Securities Commission had approved the appointment of PM Securities Sdn. Bhd. as the independent Advisor of the Company in relation to the VGO.
(4) On 1 September 2005, the Company acquired 2 ordinary shares of RM1.00 each, representing the entire issued and paid-up capital of FTEC Communications Sdn. Bhd. (formerly known as Cetoz Sdn. Bhd.) for a total cash consideration of RM2.00.
On 20 September 2005, the paid-up capital of FTEC Communications Sdn. Bhd. was increased from RM2.00 to RM500,000 of which the Company subscribed 399,998 shares of RM1.00 each, representing 80% of the entire issued and paid-up capital of FTEC Communications Sdn. Bhd.
SUBSEQUENT EVENTS
(1) On 13 January 2006, the Company resolved to acquire 2 ordinary shares of RM1.00 each, representing the entire issued and paid-up capital of Tecasia Sdn. Bhd. (formerly known as Cuve Group Sdn. Bhd.) for a total cash consideration of RM2.00.
(2) On 24 March 2006, the Company announced that FVSB and the vendors of UCH, Atoz and E-CTAsia have mutually agreed to terminate the Conditional Share Sale Agreements dated 24 June 2004, as supplemented by the agreements relating to the Proposed Acquisitions of UCH, Atoz and E-CTAsia as certain of the conditions precedent set out in the Share Sale Agreements were not fulfilled by the extended unconditional date of 24 March 2006.
As a result of the mutual termination of the Share Sale Agreements, the Company has decided to abort the Proposed Acquisitions of UCH, Atoz and E-CTAsia, Proposed Bonus Issue, Proposed Rights Issue with Warrants, the Proposed Write Off of Goodwill and the Proposed Increase in Authorised Share Capital as the Proposals are inter- conditional upon each other.
(3) On 18 April 2006, the Company proposed to implement a private placement of up to 16,999,900 new ordinary shares of RM0.10 each (“Private Placement Shares”) in the Company (“Private Placement”), representing 10% of the issued and paid-up share capital of the Company. The Private Placement Shares will be placed out to investor(s) to be identified at a later stage in accordance with the listing requirements of Bursa Malaysia Securities Berhad for the MESDAQ Market.
The Proposed Placement has not been submitted to the relevant authorities at the date of this report. FTEC Resources Berhad 44 (588728-X)
Directors’ Report
STATUTORY INFORMATION ON THE FINANCIAL STATEMENTS
Before the financial statements of the Group and the Company were made out, the Directors took reasonable steps:
(a) to ascertain that proper action had been taken in relation to the writing off of bad receivables and the allowance for doubtful receivables and had satisfied themselves that all known bad receivables had been written off and that adequate allowance had been made for doubtful receivables; and
(b) to ensure that any current assets, which were unlikely to realise in the ordinary course of business their values had been written down to their estimated realisable values.
At the date of this report, the Directors are not aware of any circumstances:
(a) which would render the amounts written off for bad receivables or the amount of allowance for doubtful receivables in the financial statements of the Group and of the Company inadequate to any substantial extent; or
(b) which would render the values attributed to the current assets in the financial statements of the Group and of the Company misleading; or
(c) 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
(d) not otherwise dealt with in this report or the financial statements which 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:
(a) any charge on the assets of the Group and of the Company which has arisen since the end of the financial year which secures the liabilities of any other person; or
(b) any contingent liability of the Group and of the Company which has arisen since the end of the financial year. FTEC Resources Berhad (588728-X) 45
Directors’ Report
Except as disclosed in Note 25 to the financial statements, 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 when they fall due.
In the opinion of the Directors, except as disclosed in the financial statements, the results of the operations of the Group and of the Company for the financial year ended 31 December 2005, 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 the financial year and the date of this report.
AUDITORS
The auditors, H. Law & Co., will not be seeking re-election at the forthcoming Annual General Meeting.
Signed on behalf of the Board of Directors in accordance with a resolution of the Directors.
KENNETH VUN @ VUN YUN LIUN AMEEZAN BIN JAMAL Director Director
Date : 25 April 2006 Petaling Jaya, Selangor Darul Ehsan FTEC Resources Berhad 46 (588728-X)
STATEMENT BY DIRECTORS [PURSUANT TO SECTION 169(15) OF THE COMPANIES ACT, 1965]
We, KENNETH VUN @ VUN YUN LIUN and AMEEZAN BIN JAMAL, being two of the Directors of FTEC RESOURCES BERHAD, state that, in the opinion of the Directors, the financial statements set out on pages 48 to 84 are drawn up so as to give a true and fair view of the state of affairs of the Group and the Company as at 31 December 2005 and of the results and cash flows of the Group and the Company for the financial year ended on that date in accordance with the provisions of the Companies Act, 1965 and the applicable Approved Accounting Standards in Malaysia.
Signed on behalf of the Board of Directors in accordance with a resolution of the Directors.
KENNETH VUN @ VUN YUN LIUN AMEEZAN BIN JAMAL Director Director
Petaling Jaya, Selangor Darul Ehsan Date : 25 April 2006
STATUTORY DECLARATION [PURSUANT TO SECTION 169(16) OF THE COMPANIES ACT, 1965]
I, KENNETH VUN @ VUN YUN LIUN, the Director primarily responsible for the financial management of FTEC RESOURCES BERHAD, do solemnly and sincerely declare that the financial statements set out on pages 48 to 84 are, in my opinion, correct and I make this solemn declaration conscientiously believing the same to be true, and by virtue of the provisions of the Statutory Declaration Act, 1960.
Subscribed and solemnly declared by the } abovenamed KENNETH VUN @ VUN YUN LIUN, } at Petaling Jaya in the state of Selangor } Darul Ehsan on this day of 25 April 2006 } KENNETH VUN @ VUN YUN LIUN
Before me,
N. MADHAVAN NAIR (B 064) Commissioner for Oaths Petaling Jaya, Selangor Darul Ehsan FTEC Resources Berhad (588728-X) 47
REPORT OF THE AUDITORS To The Members of FTEC Resources Berhad (Incorporated in Malaysia)
We have audited the financial statements set out on pages 48 to 84. 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 contents of this report.
We conducted our audit in accordance with approved standards of auditing 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 misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Directors as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
In our opinion:
(a) the financial statements have been properly drawn up in accordance with the provisions of the Companies Act, 1965 and applicable Approved Accounting Standards in Malaysia so as to give a true and fair view of:
(i) the matters required by section 169 of the Companies Act, 1965 to be dealt with in the financial statements; and
(ii) the state of affairs of the Group and the Company as at 31 December 2005 and of the results and cash flows of the Group and the Company for the financial year ended on that date;
and
(b) the accounting and other records and registers required by the Act 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 Act.
Without qualifying our opinion, we draw attention to Notes 25 and 26(1) to the financial statements as the quantum of the contingent liabilities of one of its foreign subsidiaries is not quantifiable at the date of this report.
The names of the subsidiaries of which we have not acted as auditors are indicated in Note 13 to the financial statements. We have considered the financial statements of these subsidiaries and the auditors’ reports there on.
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 required by us for those purposes.
The auditors’ reports on the financial statements of the subsidiaries were not subject to any qualification other than as disclosed in Note 13 to the financial statements and did not include any comment made under subsection 3 of section 174 of the Act.
H. LAW & CO. HENRY LAW NGO ENG (AF: 0817) @ LAW NAI HEE Chartered Accountants [No. 642/05/06 (J)] Kota Kinabalu, Sabah Date : 25 April 2006 FTEC Resources Berhad 48 (588728-X)
INCOME STATEMENTS For the Financial Year Ended 31 December 2005
Group Company 2005 2004 2005 2004 Note RM’000 RM’000 RM’000 RM’000
Revenue 5 141,506 207,231 350 500
Cost of sales (109,754) (186,099) 0 0
Gross profit 31,752 21,132 350 500
Other income 583 356 0 29
Selling and distribution costs (587) (670) 0 0
Administrative expenses (20,954) (12,928) (416) (359)
Other operating expenses : Bad receivables written off 550 0 0 0 Impairment loss : - property, plant and equipment 170 0 0 0 - research and development cost 1,131 0 0 0 Fixed deposits, cash and bank balances written off 630 0 0 0 Goodwill written off 400 0 0 0 Others 214 297 0 0
Other operating expenses (3,095) (297) 0 0
Profit / (loss) from operations 6 7,699 7,593 (66) 170
Finance costs 8 (725) (579) 0 0
Profit / (loss) before tax 6,974 7,014 (66) 170
Taxation 9 (726) (634) (1) (65)
Profit / (loss) after tax 6,248 6,380 (67) 105
Minority interest 1,324 (2) 0 0
Net profit / (loss) for the year after tax and minority interests 7,572 6,378 (67) 105
Earnings per share (sen) - basic 10 4.5 3.8
The accompanying notes form an integral part of these financial statements. FTEC Resources Berhad (588728-X) 49
C O N S O L I D AT E D S TATEMENT OF CHANGES IN EQUITY For the Financial Year Ended 31 December 2005
Non- Distributable Distributable Foreign Currency Share Share Retained Translation Merger Capital Premium Profits Reserves Deficit Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
Balance as at 31 December 2003 17,000 11,959 5,759 0 (5,226) 29,492
Net profit for the year 0 0 6,378 0 0 6,378
Currency translation differences 0 0 0 176 0 176
Balance as at 31 December 2004 17,000 11,959 12,137 176 (5,226) 36,046
Net profit for the year 0 0 7,572 0 0 7,572
Currency translation differences 0 0 0 24 0 24
Balance as at 31 December 2005 17,000 11,959 19,709 200 (5,226) 43,642
COMPANY S TATEMENT OF CHANGES IN EQUITY For the Financial Year Ended 31 December 2005
Non Distributable Share Share A c c u m u l a t e d Capital Premium Losses Total RM’000 RM’000 RM’000 RM’000
Balance as at 31 December 2003 17,000 11,959 (130) 28,829
Net profit for the year 0 0 105 105
Balance as at 31 December 2004 17,000 11,959 (25) 28,934
Net loss for the year 0 0 (67) (67)
Balance as at 31 December 2005 17,000 11,959 (92) 28,867
The accompanying notes form an integral part of these financial statements. FTEC Resources Berhad 50 (588728-X)
BALANCE SHEETS As At 31 December 2005
Group Company 2005 2004 2005 2004 Note RM’000 RM’000 RM’000 RM’000
NON CURRENT ASSETS Property, plant and equipment 11 10,869 6,408 0 0 Intangible assets 12 564 2,245 0 0 Investment in subsidiaries 13 0 0 13,402 13,002 Other investments 14 87 87 0 0
11,520 8,740 13,402 13,002
CURRENT ASSETS Inventories 15 20,760 11,670 0 0 Receivables, deposits and prepayments 16 21,847 20,405 641 269 Tax receivable 2 0 2 0 Amount due from subsidiaries 17 0 0 14,839 15,382 Deposits, cash and bank balances 18 12,984 18,250 29 378
55,593 50,325 15,511 16,029
CURRENT LIABILITIES Payables and accruals 19 9,110 4,816 46 29 Provision for FTEC orphanage future fund 20 91 0 0 0 Borrowings : 21 - interest bearing 12,486 15,024 0 0 - non-interest bearing 237 232 0 0 Provision for taxation 444 1,014 0 68
22,368 21,086 46 97
NET CURRENT ASSETS 33,225 29,239 15,465 15,932
44,745 37,979 28,867 28,934
The accompanying notes form an integral part of these financial statements. FTEC Resources Berhad (588728-X) 51
Balance Sheets As At 31 December 2005
Group Company 2005 2004 2005 2004 Note RM’000 RM’000 RM’000 RM’000
SHAREHOLDERS’ EQUITY Share capital 22 17,000 17,000 17,000 17,000 Share premium 11,959 11,959 11,959 11,959 Retained profits - distributable / (Accumulated losses) 19,709 12,137 (92) (25) Foreign currency translation reserves 200 176 0 0 Merger deficit 23 (5,226) (5,226) 0 0
43,642 36,046 28,867 28,934
MINORITY INTEREST (341) 883 0 0
NON CURRENT LIABILITIES Borrowings - interest bearing 21 1,123 946 0 0 Deferred tax liabilities 24 321 104 0 0
1,444 1,050 0 0
44,745 37,979 28,867 28,934
The accompanying notes form an integral part of these financial statements. FTEC Resources Berhad 52 (588728-X)
CASH FLOW STATEMENTS For the Financial Year Ended 31 December 2005
Group Company 2005 2004 2005 2004 Note RM’000 RM’000 RM’000 RM’000
CASH FLOWS FROM OPERATING ACTIVITIES Net profit / (loss) after taxation 7,572 6,378 (67) 105
Adjustment for non-cash-items: Amortisation for : - goodwill 0 79 0 0 - intellectual property and licence rights 50 50 0 0 - research and development cost 127 145 0 0 Depreciation of property, plant and equipment 1,842 757 0 0 Gain on disposal of property, plant and equipment (155) 0 0 0 Goodwill written off 400 0 0 0 Impairment loss : - property, plant and equipment 170 0 0 0 - research and development cost 1,131 0 0 0 Interest expenses 725 579 0 0 Pledged fixed deposit written off 260 0 0 0 Minority interest (1,324) 2 0 0 Taxation 726 634 0 65 Interest income (235) (254) 0 (29)
11,289 8,370 (67) 141 Changes in working capital: Increase in inventories (9,090) (4,185) 0 0 Increase in receivables, deposits and prepayments (1,442) (11,564) (372) (268) Decrease / (increase) in amount due from subsidiaries 0 0 543 (1,410) Increase / (decrease) in payables and accruals 4,294 (1,368) 17 2 Increase in provision for orphanage future fund 91 0 0 0
Cash generated from / (used in) operations 5,142 (8,747) 121 (1,535) Income tax paid (1,081) (221) (70) 0
Net cash generated from / (used in) operating activities 4,061 (8,968) 51 (1,535)
The accompanying notes form an integral part of these financial statements. FTEC Resources Berhad (588728-X) 53
Cash Flow Statements For the Financial Year Ended 31 December 2005
Group Company 2005 2004 2005 2004 Note RM’000 RM’000 RM’000 RM’000
CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property, plant and equipment (5,147) (4,373) 0 0 Acquisition of intellectual property and licensing 0 0 0 0 Acquisition of a subsidiary 0 0 (400) 0 Acquisition of other investments 0 (87) 0 0 Addition of research and development cost 0 (1,142) 0 0 Proceeds from disposal of property, plant and equipment 304 0 0 0 Cash inflow from investment in subsidiaries 4 94 408 0 0
Net cash used in investing activities (4,749) (5,194) (400) 0
CASH FLOWS FROM FINANCING ACTIVITIES Borrowings from a Director of a subsidiary 5 232 0 0 Interest received 235 254 0 29 Proceeds from bankers acceptance 24,302 16,418 0 0 Proceeds from letter of credits 3,240 4,665 0 0 Proceeds from trust receipts 12,244 17,728 0 0 Withdrawal of pledged fixed deposits 530 100 0 0 Interest paid (725) (579) 0 0 Placement of pledged fixed deposits (1,005) (1,279) 0 0 Repayment of hire purchase (531) (106) 0 0 Repayment of term loans (952) (325) 0 0 Repayment of bankers acceptance (22,392) (14,308) 0 0 Repayment of letter of credits (3,513) (4,004) 0 0 Repayment of trust receipts (16,460) (14,451) 0 0
Net cash (used in) / generated from financing activities (5,022) 4,345 0 29
The accompanying notes form an integral part of these financial statements. FTEC Resources Berhad 54 (588728-X)
Cash Flow Statements For the Financial Year Ended 31 December 2005
Group Company 2005 2004 2005 2004 Note RM’000 RM’000 RM’000 RM’000
NET DECREASE IN CASH AND CASH EQUIVALENTS (5,710) (9,817) (349) (1,506)
EFFECT OF EXCHANGE RATE CHANGES 0 176 0 0
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR 12,709 22,350 378 1,884
CASH AND CASH EQUIVALENTS AT END OF THE YEAR (NOTE A) 6,999 12,709 29 378
NOTE A
Cash and cash equivalents:
Deposits, cash and bank balances (Note 18) 12,984 18,250 29 378 Less : Fixed deposits pledged for banking facilities (Note 18) (4,828) (4,613) 0 0
8,156 13,637 29 378 Bank overdrafts (Note 21) (1,157) (928) 0 0
6,999 12,709 29 378
Cash and cash equivalents of the Group at the end of the year include bank balance of RMNIL (2004 : RM345,000) held by a subsidiary which is subject to withdrawal restrictions.
Additions of property, plant and equipment during the year is after net off of property, plant and equipment acquired under hire purchase arrangements of RM1,472,000 (2004 : RM NIL).
The accompanying notes form an integral part of these financial statements. FTEC Resources Berhad (588728-X) 55
S U M M A RY of SIGNIFICANT ACCOUNTING POLICIES 31 December 2005
(a) Basis of Accounting
The financial statements have been prepared under the historical cost convention except as disclosed in this summary of significant accounting policies. The financial statements comply with the applicable Approved Accounting Standards in Malaysia and the provisions of the Companies Act, 1965 except as disclosed in the notes to the financial statements.
The preparation of financial statements in conformity with the applicable Approved Accounting Standards and the provisions of the Companies Act, 1965 requires the Directors to make estimates and assumptions that affect the reported amounts 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 period. Actual results could differ from those estimates.
(b) Basis of Consolidation
Subsidiaries
The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries. Subsidiaries are those corporations or other entities in which the Group has power to exercise control over the financial and operating policies so as to obtain benefits from their activities.
The subsidiaries are consolidated on the acquisition method of accounting except where the acquisition of subsidiaries which meet the criteria for merger are accounted for using merger accounting principles in accordance with the provisions of the Financial Reporting Standard No. 122.
Under the acquisition method of accounting, the results of the subsidiaries acquired or disposed during the financial year are included from the date of acquisition or up to the date of disposal. The cost of an acquisition is the amount of cash paid and the fair value at the date of acquisition of other purchase consideration given by the acquirer together with directly attributable expenses of the acquisition. At the date of acquisition, the fair values of the subsidiaries’ net assets are determined and these values are reflected in the consolidated financial statements. The difference between the acquisition cost and the fair value of the net assets of the subsidiaries at the date of acquisition is reflected as goodwill or reserve on consolidation as appropriate.
Minority interest is measured at the minorities’ share of the post acquisition fair value of the identifiable assets and liabilities of the acquire.
In a piecemeal acquisition, the fair value adjustment attributable to previously held equity interests is accounted for as a post-acquisition revaluation.
Under the merger method of accounting, the cost of investment in the Company’s book is recorded at the nominal value of shares acquired. Expenditure incurred in connection with the merger is recognised as an expense in the income statement. Credit differences arising between the cost of acquisition and the nominal value of share capital of the subsidiary are regarded as a non-distributable merger reserve. Debit differences arising are accounted for as a merger deficit and are set-off against the Group’s reserve. The results of the companies being merged are included as if the merger had been effected throughout the current and previous financial years.
All significant inter-company transactions are eliminated on consolidation and the consolidated financial statements reflect external transactions only. Where necessary, adjustment are made to the financial statements of subsidiaries to ensure consistency of accounting policies with those of the Group.
The gain or loss on disposal of a subsidiary is the difference between net disposal proceeds and the Group’s share of its net assets together with any unamortised balance of goodwill on acquisition and exchange differences which were not previously recognised in the consolidated income statement. FTEC Resources Berhad 56 (588728-X)
Summary of Significant Accounting Policies 31 December 2005
(c) Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Depreciation is computed by the straight line method based on the estimated useful lives of the assets. The principal annual rates used are as follows:-
Leasehold land and building 2% Computer equipment 20% Furniture and fittings 10% Renovation 20% Office equipment 10% to 15% Motor vehicles 20% Signboard 10%
Gain or losses arising from the disposal of an asset is determined as the difference between the net disposal proceeds and the carrying amount of the asset, and is recognised in the income statement.
(d) Intangible Assets
(i) Goodwill
Goodwill represents the excess of the cost of acquisition of subsidiaries over the Group’s share of the fair value of their identifiable net assets at the date of acquisition.
Goodwill on acquisitions of subsidiaries are included in the balance sheet as intangible assets. Capitalised goodwill is amortised using the straight line method. The Directors determine the estimated useful life of goodwill based on its evaluation of the respective enterprises at the time of the acquisition, considering factors such as existing market share, potential growth and other factors inherent in the acquired enterprises. Goodwill on acquisitions of the Group is amortised over a period of 5 years.
At each balance sheet date, the Group assesses whether there is any indication of impairment. If such indication exists, an analysis is performed to assess whether the carrying amount of the asset is fully recoverable. A write down is made if the carrying amount exceeds the recoverable amount. See accounting policy Note (g) on impairment of assets.
Negative goodwill represents the excess of the Group’s share of the fair value of identifiable net assets acquired over the cost of acquisition. Negative goodwill is presented in the same balance sheet clarification of goodwill and is amortised on a straight line basis over a period of 5 years.
(ii) Intellectual Property and Licence Rights Intellectual property and licence rights are stated at cost less amortisation and any impairment losses, if any.
Amortisation is provided from the commencement of the commercial production of the product or process is available for sale or use to which they relate on the straight line basis over a period of 10 years of their expected benefit. FTEC Resources Berhad (588728-X) 57
Summary of Significant Accounting Policies 31 December 2005
(d) Intangible Assets (cont’d)
(iii) Research and Development Cost
Research costs are charged as an expense in the income statement in the year in which they are incurred. Development costs which relate to a definable product or process that is demonstrated to be technically feasible, and for which the Group has sufficient technical, financial and other resources to use or market, are recognised as assets to the extent that such costs are recoverable from related probable future economic benefits. Development costs which do not satisfy the established criteria are recorded as an expense in the year in which they are incurred. The expenditure capitalised includes cost of materials, direct labour and an appropriate proportion of overheads.
Capitalised development expenditure is amortised and recognised as an expense on a systematic basis so as to reflect the pattern in which the related economic benefits are recognised over 5 years upon the completion of development work.
(e) Investments
Investments in subsidiaries are stated at cost. Where an indication of impairment exists, the carrying amount of the investment is assessed and written down immediately to its recoverable amount. See accounting policy (g) on impairment of assets.
Investments in other non-current investment are stated at cost and an allowance for diminution in value is made where, in the opinion of the Directors, there is a decline other than temporary in the value of such investments. Where there has been a decline other than temporary decline in the value of an investment, such a decline is recognised as an expense in the period in which the decline is identified.
On disposal of an investment, the difference between net disposal proceeds and its carrying amount is charged / credited to the income statement.
(f) Inventories Inventories are stated at the lower of cost (determined on the first-in, first-out basis) and net realisation value. Cost includes the cost of materials and where applicable, the cost of direct labour and appropriate overheads. Net realisiable value represents the estimated selling price in the ordinary course of business less selling and distribution costs and all other estimated costs to completion.
(g) Impairment of Assets
The carrying amount of the Company’s 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 assets. The impairment loss is recognised in the income statement immediately except for the impairment on revalued assets 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 impairment loss on 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 assets. FTEC Resources Berhad 58 (588728-X)
Summary of Significant Accounting Policies 31 December 2005
(h) Cash and Cash Equivalents
Cash and cash equivalents include cash and bank balances, bank overdrafts, deposits and other short-term highly liquid investments which are readily convertible to cash and which are subject to insignificant risk of changes in value.
(i) Provision for Liabilities
Provisions for liabilities are recognised when the Group and the Company has a present obligation as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount can be made. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. Where the effect of the time value of money is material, the amount of a provision is the present value of the expenditure expected to be required to settle the obligation.
(j) Property, Plant and Equipment under Hire Purchase Arrangements
Property, plant and equipment acquired under hire purchase agreements are capitalised at the inception of hire purchase at the lower of the fair value of the hire purchase assets and the present value of the minimum hire purchase payments and depreciated according to the policy in (c) above. The total amount repayable under hire purchase arrangements are included under hire purchase payables. The interest charges are allocated to the income statement over the period of the hire purchase using the sum of digits method.
(k) Receivables Receivables are carried at anticipated realisable values (invoiced amount less allowance for doubtful receivables). Bad receivables are written off when identified. An estimate is made for doubtful receivables based on a review of all outstanding amounts as at the balance date.
(l) Payables
Payables are stated at cost which is the fair value of the consideration to be paid in the future for goods and services received.
(m) Interest-Bearing Borrowings
Interest-bearing bank loans and overdrafts are recorded at the amount of proceeds received, net of transaction costs.
Borrowing costs directly attributable to the acquisition of property, plant and equipment are capitalised as part of the cost of those assets, until such time as the assets are ready for their intended use or sale. All other borrowing costs are charged to the income statement as an expense in the period in which they are incurred. FTEC Resources Berhad (588728-X) 59
Summary of Significant Accounting Policies 31 December 2005
(n) Equity Instrument
Ordinary shares are classified as equity. Dividends on ordinary shares are recognised in equity in the period in which they are declared.
(o) Revenue Recognition
(i) Revenue from sale of goods is recognised upon delivery of products and when the risks and rewards of ownership has passed. Revenue from rendering of service is based on the percentage of completion determined by references to services performed todate as a percentage of total services to be performed.
(ii) Interest income is recognised on an accrual basis.
(p) Income Taxes
Income tax on the profit or loss for the year comprises current and deferred tax. Current tax is the expected amount of income taxes payable in respect of the taxable profits for the year and is measured using the tax rates that have been enacted at the balance sheet date.
Deferred tax is recognised in full using the liability method, on temporary differences arising between the amounts attributed to assets and liabilities for tax purposes and their carrying amounts in the financial statements.
Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences or unused tax losses can be utilised.
(q) Foreign Currencies (i) Reporting currency
The financial statements are presented in Ringgit Malaysia.
(ii) Foreign entities
The Group’s foreign entities are those operations that are not an integral part of the operations of the Company. Income statements of foreign entities are translated into Ringgit Malaysia at average exchange rates for the period and the balance sheets are translated at exchange rates ruling at the balance sheet date. On disposal of the foreign entity, such translation differences are recognised in the income statement as part of the gain or loss on disposal.
The local currency financial statements of foreign entities operating in hyperinflationary economics are restated using appropriate indices to current values at the balance sheet date before translation into Ringgit Malaysia. The gain or loss on the net monetary position is included in finance costs.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the Company and are translated accordingly at the exchange rate ruling at the date of the transaction. FTEC Resources Berhad 60 (588728-X)
Summary of Significant Accounting Policies 31 December 2005
(q) Foreign Currencies (cont’d)
(iii) Foreign operations
Financial statements of foreign operations that are integral to the operations of the Company are translated using procedures in the following paragraph as if the transactions of the foreign operations had been those of the Company.
(iv) Foreign currency transactions and balances
Foreign currency transactions in Group companies are accounted for at exchange rates prevailing at the transaction dates, unless hedged by forward foreign exchange contracts, in which case the rates specified in such forward contracts are used. Foreign currency monetary assets and liabilities are translated at exchange rates prevailing at the balance sheet date, unless hedged by forward foreign exchange contracts, in which case the rates specified in such forward contracts are used. Exchange differences arising from the settlement of foreign currency transactions and from the translation of foreign currency monetary assets and liabilities are included in the income statements.
(v) Closing rates The principal closing rates used in translation of foreign currency amounts are as follows:
31.12.2005 31.12.2004 Foreign currency: RM RM
1 Chinese Renminbi 0.46860 0.45915 1 Korean Won 0.00374 0.00367 1 Thai Baht 0.09205 0.09764 1 US Dollar 3.78000 3.80000
(r) Segment reporting
Segment reporting is presented for enhanced assessment of the Group’s risks and returns. Geographical segments provide products or services within a particular economic environment that is subject to risks and returns that are different from those components operating in other economic environments. Business segments provide products or services that are subject to risk and returns that are different from those of other business segments.
Segment revenue, expense, assets and liabilities are those amounts resulting from the operating activities of a segment that are directly attributable to the segment and the relevant portion that can be allocated on a reasonable basis to the segment. Segment revenue, expenses, assets and segment liabilities are determined before intragroup balances and intragroup transactions are eliminated as part of the consolidation process, except to the extent that such intragroup balances and transactions are between group enterprises within a single segment. FTEC Resources Berhad (588728-X) 61
Summary of Significant Accounting Policies 31 December 2005
(s) Employee Benefits
(i) Short term benefits
Salaries, wages, bonuses and social security contributions are recognised as an expense in the year in which the associated services are rendered by employees of the Group and the Company.
(ii) Defined contribution plan
Contributions to the Employees’ Provident Fund are charged to the income statement in the year to which they relate.
(iii) Termination benefits Employee termination benefits are payments due to employees as a result of redundant employment and are recognised when the Group and the Company has a detailed formal plan for termination and has made a decision to offer the termination benefits and the employees have accepted voluntary redundancy in exchange for those benefits.
(t) Financial Instruments
(i) Financial Instruments Recognised on the Balance Sheet
A 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.
The financial instruments which are recognised in the balance sheet comprise cash and cash equivalents, receivables, payables and ordinary shares. A financial instrument is recognised when a contractual relationship has been established. The accounting policies and methods adopted, including the basis of measurement applied, are disclosed in the individual policy statements associated with each item where relevant. The information about the extent and nature of these recognised financial instruments, including significant terms and conditions, that may affect the amount, timing and certainty of future cash flows are disclosed in the respective notes, where applicable.
There are no financial instruments not recognised in the balance sheet.
(ii) Fair Value
In assessing the fair value of financial instruments, the Company uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date. Quoted market prices or dealer quotes for the specific or similar instruments are used for long term debt. Other techniques, such as option pricing models and estimated discounts value of future cash flows, are used to determine fair value for the remaining financial instruments. In particular, the fair value of financial liabilities is estimated by discounting the future contractual cash flows at the current market interest rate available to the Company for similar financial instruments.
The carrying amounts of the financial assets and liabilities of the Company with tenure to maturity of less than one year at the balance sheet date are assumed to approximate their fair values. FTEC Resources Berhad 62 (588728-X)
NOTES TO THE FINANCIAL STATEMENTS 31 December 2005
1. GENERAL INFORMATION
The principal activities of the Company are investment holding and provision of management services to subsidiaries. The principal activities of the Group consist of manufacturing, marketing and distribution of application software, server, security and surveillance appliances, computer and IT systems, brands and intellectual property holdings, provision of education and online computer game academy, training and consulting services, publishing and development of online computer games and management of internet cafes. There have been no significant changes in the nature of these activities during the financial year.
The Company is a public limited liability company, incorporated and domiciled in Malaysia, and listed on the MESDAQ Market of Bursa Malaysia Securities Berhad.
The registered office and principal place of business of the Company is located at G.02, Ground Floor, Lot 4A, Wisma Academy, Jalan 19/1, 46300 Petaling Jaya, Selangor Darul Ehsan.
The number of employees was 132 (2004 : 111) in the Group and 2 (2004 : nil) in the Company respectively as at the end of the financial year.
2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The Group activities expose it to a variety of financial risks, including foreign currency exchange risk, credit risk, interest rate risk, market risk, liquidity and cash flow risk. The Group’s overall financial risk management objective is to ensure that adequate financial resources are available for the development of the Group’s business and to minimise potential adverse effects on the financial performance of the Group.
Foreign currency exchange risk
The Group whilst operating mainly in Malaysia, is exposed to foreign exchange risk. The Group has not entered into any financial instrument to hedge the movement in the foreign currency translation unless the risk is deemed to be significant.
Credit risk Credit risk arises from the possibility that a counter party may be unable to meet the terms of a contract. The Group minimises and monitors its credit risk by dealing with credit worthy business partners. Trade receivables are monitored on an on going basis via management reporting procedures.
Interest rate risk
The Group interest rate risk relates to interest bearing debt. The investments in financial assets are mainly short term in nature which are not held for speculative purposes and are all placed in fixed deposits. With regards to financial liabilities, the Group manages its interest rate exposure by an annual review of the rates of its borrowings with the respective financial institution.
Market risk
Risk on shortage of key product purchases is mitigated though the entering of supply agreements, where necessary, with the suppliers.
Liquidity and cash flow risk
The Group manages its operating cash flows and the availability of funding so as to ensure that all refinancing, repayment and funding needs are met. In the management of liquidity risk, the Group maintains a level of cash and cash equivalents deemed adequate to meet its obligations. FTEC Resources Berhad (588728-X) 63
Notes to the Financial Statements 31 December 2005
3. SEGMENT REPORTING
The Group is organised on a worldwide basis and is operating in a few principal geographical areas of the world.
• Malaysia* - Manufacturing and marketing of computer and IT systems, research and development of application software, server, security and surveillance appliances, managing of internet cafe and investment holding. • Republic of South Korea - Consulting, publishing and development of online computer games. • Other countries - Consulting, publishing and development of online computer games, p rovision of education and online game academy, training and consulting services, sales and services for online computer games and interactive entertainment related business, marketing and distributing the Group’s products.
* Company’s home country
Other countries include The People’s Republic of China and Thailand.
(a) Primary reporting format - geographical segments
Republic of South Other * Malaysia Korea Countries Eliminations Group 31.12.2005 RM’000 RM’000 RM’000 RM’000 RM’000
Revenue External revenue 141,497 0 9 0 141,506 Intersegment revenue 0 0 0 0 0
Total revenue 141,497 0 9 0 141,506
Results Segment results 9,620 (2,470) (212) 761 7,699 Unallocated corporate expenses 0
Profit from operations 7,699 Interest expenses (725) Taxation (726) Minority interest 1,324
Net profit for the year 7,572
Net assets Segment assets 67,072 0 851 (812) 67,111 Unallocated assets 0
Total assets 67,111 FTEC Resources Berhad 64 (588728-X)
Notes to the Financial Statements 31 December 2005
3. SEGMENT REPORTING (cont’d)
(a) Primary reporting format - geographical segments (cont’d)
Republic of South Other * Malaysia Korea Countries Eliminations Group 31.12.2005 RM’000 RM’000 RM’000 RM’000 RM’000
Net assets (cont’d) Segment liabilities 22,479 776 925 (812) 23,368 Unallocated liabilities 0
Total liabilities 23,368
Other information Capital expenditure 6,608 0 17 0 6,625 Depreciation and amortisation 2,006 0 10 0 2,016 Impairment loss 0 1,301 0 0 1,301 Other non-cash expenses 1,149 1,169 17 (755) 1,580
31.12.2004
Revenue External revenue 205,778 1,453 0 0 207,231 Intersegment revenue 0 0 0 0 0
Total revenue 205,778 1,453 0 0 207,231
Results Segment results 7,823 214 (400) (44) 7,593 Unallocated corporate expenses 0
Profit from operations 7,593 Interest expenses (579) Taxation (634) Minority interest (2)
Net profit for the year 6,378 FTEC Resources Berhad (588728-X) 65
Notes to the Financial Statements 31 December 2005
3. SEGMENT REPORTING (cont’d)
(a) Primary reporting format - geographical segments (cont’d)
Republic of South Other * Malaysia Korea Countries Eliminations Group 31.12.2004 RM’000 RM’000 RM’000 RM’000 RM’000
Net assets Segment assets 72,996 2,805 1,193 (17,929) 59,065 Unallocated assets 0
Total assets 59,065
Segment liabilities 38,257 762 1,046 (17,929) 22,136 Unallocated liabilities 0
Total liabilities 22,136
Other information Capital expenditure 4,067 1,868 53 0 5,988 Depreciation and amortisation 833 196 2 0 1,031
Capital expenditure comprises of additions on property, plant and equipment (Note 11) and intangible assets (Note 12), including additions resulting from acquisitions of subsidiaries.
In determining the geographical segments of the Group, sales are based on the locations of the Group’s customers. Total assets and capital expenditure are determined based on where the assets are located.
(b) Secondary reporting format - business segments
The Group comprises the following main business segments :
• Application software, server, - manufacturing and marketing of computer and IT systems, research security and surveillance and development of application software, server, security and appliance, computer and surveillance appliances. IT systems
• Managing of internet cafes - providing management services for internet cafes.
• Investment holding - investment holding.
• Others - includes provision of education and online game academy, training and consulting services, research and development, and publishing online computer games and interactive entertainment related business, brands and intellectual property holdings. FTEC Resources Berhad 66 (588728-X)
Notes to the Financial Statements 31 December 2005
3. SEGMENT REPORTING (cont’d)
(b) Secondary reporting format - business segments (cont’d)
Segment Capital Revenue Assets Expenditure 2005 2004 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
Application software, server, security and surveillance appliance, computer and IT systems 139,773 205,778 59,934 52,538 2,411 580
Managing of internet cafes 1,724 30 6,527 3,655 4,192 3,500
Investment holding 350 500 16,385 17,916 1 39
Others 9 1,453 493 2,926 15 1,869
141,856 207,761 83,339 77,035 6,619 5,988 Elimination (350) (530) (16,228) (17,970) 6 0
141,506 207,231 67,111 59,065 6,625 5,988
4. SIGNIFICANT ACQUISITION On 1 September 2005, the Company acquired 2 ordinary shares of RM1.00 each, representing the entire issued and paid-up capital of FTEC Communications Sdn. Bhd. (formerly known as Cetoz Sdn. Bhd. for a total cash consideration of RM2.00).
On 20 September 2005, the paid-up capital of FTEC Communications Sdn. Bhd. was increased from RM2.00 to RM500,000 and the Company subscribed 399,998 shares of RM1.00 each, representing 80% of the entire issued and paid-up capital of FTEC Communications Sdn. Bhd.
The effect of the above acquisitions on the financial results of the Group during the year are shown below:
2005 2004 RM’000 RM’000
Revenue 0 1,453 Expenses excluding finance cost and tax (including amortisations of goodwill on acquisition) (63) (1,657)
Profits from operations (63) (204) Tax expenses 0 (5)
Profit after tax (63) (209) Minority interest 13 157
Profit after tax and minority interest (50) (52) FTEC Resources Berhad (588728-X) 67
Notes to the Financial Statements 31 December 2005
4. SIGNIFICANT ACQUISITION (cont’d)
The effect of this acquisition on the Group’s financial position at the year end was as follows:
2005 2004 RM’000 RM’000
Non-current assets (including goodwill on acquisition) 0 1,802 Current assets 457 2,577 Current liabilities (26) (2,287)
Net assets 431 2,092 Minority interest (86) 83
Increase in Group net assets 345 2,175
Details of net assets acquired, goodwill and cash flow arising from the acquisition were as follows:
2005 2004 RM’000 RM’000
Goodwill 6 473 Cash and bank balances 100 1,310
Fair value of total net assets acquired 106 1,783 Minority interest (100) (642)
6 1,141 Cash settlement for the acquisitions 0 (239)
6 902 Less : Cash and cash equivalents of the subsidiaries acquired (100) (1,310)
Cash inflow of the Group on acquisition / cash inflow from investment in subsidiaries (94) (408)
The additional RM399,998 subscription of share capital in FTEC Communications Sdn. Bhd. has no impact on the Group cash flow on acquisition.
The following were acquired by the Group during the previous financial year and they were accounted for under the acquisition accounting:
(1) Fovix I.T. Co., Ltd. (2) FTEC Ventures Sdn Bhd (3) Beijing Fovix Technology Co., Ltd. (4) FTEC International Ltd. (5) FTEC Venture (Thailand) Co., Ltd. (6) FTEC System (Thailand) Co., Ltd. (7) CETOZ (Thailand) Co., Ltd. (8) Warnet Sdn. Bhd. FTEC Resources Berhad 68 (588728-X)
Notes to the Financial Statements 31 December 2005
5. REVENUE
Revenue represents the invoiced value of sales and services rendered less discounts.
6. PROFIT / (LOSS) FROM OPERATIONS
Group Company 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000
This has been arrived at after charging / (crediting):-
Auditors’ remunerations: - current year 134 195 24 18 - underprovision for prior years 0 0 10 0 - overprovision for prior years (32) 0 0 0 Allowance for doubtful receivables 37 8 0 0 Amortisation of: - goodwill 0 79 0 0 - intellectual property and licence rights 50 50 0 0 - research and development cost 127 145 0 0 Bad receivables written off 550 0 0 0 Fixed deposits, cash and bank balances written off 630 0 0 0 Goodwill written off 400 0 0 0 Impairment loss : - property, plant and equipment 170 0 0 0 - research and development cost 1,131 0 0 0 Property, plant and equipment: 0 0 - depreciation 1,842 757 0 0 - gain on disposal (155) 0 0 0 Incorporation expenses 0 6 0 0 Loss on foreign currency exchange : - realised 95 2 0 0 Management fees 0 7 0 0 Rental charges 618 504 0 0 Staff costs : - salaries and wages 2,382 2,548 84 0 - EPF contributions 261 174 0 0 - others 318 480 0 0 Interest income (235) (254) 0 (29) Gain on foreign currency exchange : - realised (26) (62) 0 0 FTEC Resources Berhad (588728-X) 69
Notes to the Financial Statements 31 December 2005
7. DIRECTORS’ REMUNERATION
Group Company 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000
Directors’ remuneration : - fee 558 460 84 52 - other emoluments 44 177 0 0 - contract wages 79 0 0 0
681 637 84 52
8. FINANCE COSTS
Interest expenses: - bankers acceptance 300 239 0 0 - bank overdrafts 70 45 0 0 - hire purchase 23 17 0 0 - letter of credits 13 12 0 0 - term loan 40 74 0 0 - trust receipts 279 192 0 0
725 579 0 0
9. TAXATION
Current year : Malaysian income tax 509 684 1 65 Deferred taxation (Note 24) 217 (50) 0 0
726 634 1 65 FTEC Resources Berhad 70 (588728-X)
Notes to the Financial Statements 31 December 2005
9. TAXATION (cont’d)
Group Company 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000
Reconciliation of income tax expenses Profit / (loss) before tax 6,974 7,014 (66) 170
Tax calculated at Malaysian tax rate of 28% 1,953 1,964 (18) 48 Tax effects of : - Expenses not deductible for tax purposes 1,019 182 19 17 - Tax exempt income (2,300) (1,604) 0 0 - Different tax rate for the first RM500,000 chargeable income (9) (10) 0 0 - Income not assessable for tax 0 (10) 0 0 - Different tax rate for other country (4) (6) 0 0 - Current year tax losses not recognised 67 118 0 0 - Current year deductible not recognised temporary difference 0 0 0 0
Tax charge 726 634 1 65
10. EARNINGS PER SHARE (SEN) - BASIC
The earnings per share for the year is calculated by dividing the Group’s profit after taxation of RM7,572,000 (2004 : RM6,378,000) by the weighted average number of ordinary shares in issue during the financial year of 169,999,000 (2004 : 169,999,000).
11. PROPERTY, PLANT AND EQUIPMENT
C u r re n c y A t I m p a i rm e n t D e - Tr a n s l a t i o n A t G r o u p 1 Jan A d d i t i o n s D i s p o s a l s L o s s p re c i a t i o n d i ff e re n c e s 31 Dec 2 0 0 5 R M ’ 0 0 0 R M ’ 0 0 0 R M ’ 0 0 0 R M ’ 0 0 0 R M ’ 0 0 0 R M ’ 0 0 0 R M ’ 0 0 0
Net book value
Leasehold land and building 889 0 0 0 (19) 0 870 Furniture and fittings 612 87 0 (170) (75) 3 457 Office equipment 1,094 57 0 0 (173) 0 978 Signboard 5 0 0 0 (2) 0 3 Computer equipment 3,585 4,810 0 0 (1,384) 0 7,011 Renovation 70 16 0 0 (30) 0 56 Motor vehicles 153 1,649 (149) 0 (159) 0 1,494
6,408 6,619 (149) (170) (1,842) 3 10,869 FTEC Resources Berhad (588728-X) 71
Notes to the Financial Statements 31 December 2005
11. PROPERTY, PLANT AND EQUIPMENT (cont’d)
Accumulated Net Accumulated Impairment Currency Book Cost Depreciation Loss Translation Value 2005 RM’000 RM’000 RM’000 RM’000 RM’000
Leasehold land and building 946 (76) 0 0 870 Furniture and fittings 1,034 (410) (170) 3 457 Office equipment 1,563 (585) 0 0 978 Signboard 22 (19) 0 0 3 Computer equipment 9,085 (2,074) 0 0 7,011 Renovation 238 (182) 0 0 56 Motor vehicles 2,045 (551) 0 0 1,494
14,933 (3,897) (170) 3 10,869
2004
Leasehold land and building 946 (57) 0 0 889 Furniture and fittings 947 (335) 0 0 612 Office equipment 1,506 (412) 0 0 1,094 Signboard 22 (17) 0 0 5 Computer equipment 4,275 (690) 0 0 3,585 Renovation 222 (152) 0 0 70 Motor vehicles 1,051 (898) 0 0 153
8,969 (2,561) 0 0 6,408
A motor vehicle with cost of RM312,000 (2004 : RM312,000) is registered in the name of a Director and is held on trust for the Company.
Leasehold land and building with net book value of RM870,000 (2004 : RM889,000) has been pledged for the banking facilities as disclosed in Note 21 to the financial statements.
Net book value of property, plant and equipment acquired under hire-purchase arrangements amounted to RM1,341,000 (2004 : RM146,000) as at the year end. FTEC Resources Berhad 72 (588728-X)
Notes to the Financial Statements 31 December 2005
12. INTANGIBLE ASSETS
Intellectual property Research and and development Goodwill licence rights cost Total RM’000 RM’000 RM’000 RM’000
At 1 Jan 2004 0 413 491 904 Additions 473 0 1,142 1,615 Amortisation (79) (50) (145) (274)
At 31 Dec 2004 394 363 1,488 2,245 Additions 6 0 0 6 Currency translation reserve 0 0 21 21 Amortisation 0 (50) (127) (177) Impairment loss 0 0 (1,131) (1,131) Written off (400) 0 0 (400)
At 31 Dec 2005 0 313 251 564
Accumulated Currency Accumulated impairment Written translation Net book Cost amortisation loss off reserve value 2005 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
Goodwill 473 (79) 0 (394) 0 0 Intellectual property and licence rights 500 (187) 0 0 0 313 Research and development cost 1,762 (401) (1,131) 0 21 251
2,735 (667) (1,131) (394) 21 564
2004 Goodwill 473 (79) 0 0 0 394 Intellectual property and licence rights 500 (137) 0 0 0 363 Research and development cost 1,762 (274) 0 0 0 1,488
2,735 (490) 0 0 0 2,245
Included in research and development cost is depreciation charge during the year of RM NIL (2004 : RM30,000). FTEC Resources Berhad (588728-X) 73
Notes to the Financial Statements 31 December 2005
13. INVESTMENT IN SUBSIDIARIES
Company 2005 2004 RM’000 RM’000
Unquoted shares, at cost 13,402 13,002
Details of the subsidiaries are as follows:
Equity Holding 2005 2004 By By By Subsi- By Subsi- Company diaries Company diaries Name of company Principal activities % % % %
Beijing Fovix Providing education and online 0 51 0 51 Technology Co. Ltd.*φ game academy, training and consulting services, research and development, sales and services for online computer games. CETOZ (Thailand) Co. Ltd. *ϕ Publishing and development 0 49 0 49 of online computer games and marketing and distribution of computer games and interactive entertainment related business.
FTEC Communications Currently dormant. 80 0 0 0 Sdn Bhd *# (formerly Its intended activity is an known as Cetoz application service provider. Sdn. Bhd.)
FTEC Distribution Marketing and distribution 100 0 100 0 (M) Sdn. Bhd. # of computer and IT systems.
FTEC Esolution Currently dormant. Its intended 100 0 100 0 Sdn. Bhd. # business is brands and intellectual property holdings.
FTEC International Offshore trading activities 100 0 100 0 Ltd. * # and investment holding.
FTEC Networks Research and development 100 0 100 0 Sdn. Bhd. # and marketing of application software, server, security and surveillance appliances. FTEC Resources Berhad 74 (588728-X)
Notes to the Financial Statements 31 December 2005
13. INVESTMENT IN SUBSIDIARIES (cont’d)
Equity Holding 2005 2004 By By By Subsi- By Subsi- Company diaries Company diaries Name of company Principal activities % % % %
FTEC System Production and manufacturing 100 0 100 0 Sdn. Bhd. # of computer and IT systems, and managing of internet cafes.
FTEC System Marketing and distribution 0 49 0 49 (Thailand) Co., Ltd. *ϕ of the Group’s product and services.
FTEC Venture Investment holding. 0 49 0 49 (Thailand) Co., Ltd. *ϕ
FTEC Ventures Investment holding. 100 0 100 0 Sdn. Bhd.#
Fovix I.T. Co. Ltd. * α Consulting, publishing and 0 51 0 51 development of online computer games.
Warnet Sdn. Bhd. # Management of internet cafes. 0 100 0 100
* - Audited by firms other than H. Law & Co. # - Incorporated in Malaysia ϕ - Incorporated in Thailand φ - Incorporated in The People’s Republic of China α - Incorporated in The Republic of South Korea
Fovix I.T. Co. Ltd.
The auditors’ report on the financial statements of this subsidiary company was qualified with a disclaimer due to insufficient information to assess the contingent liabilities of the Company (Note 25).
Beijing Fovix Technology Co. Ltd.
Consolidation of this subsidiariary is based on the unaudited management accounts for the year ended 31 December 2005 as there is no audited financial statement available at the date of this report. This is a departure of FRS 127 Consolidated Financial Statements and Investments in Subsidiaries. The Board of Directors of the Company is of the opinion that the departure has no significant impact on these financial statements as the operation of this subsidiary is not material. FTEC Resources Berhad (588728-X) 75
Notes to the Financial Statements 31 December 2005
14. OTHER INVESTMENTS
Other investments represent investments in corporate golf memberships which are stated at cost.
15. INVENTORIES
Group Company 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000
At cost, Trading goods, components and parts 20,760 11,670 0 0
16. RECEIVABLES, DEPOSITS AND PREPAYMENTS
Group Company 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000
Trade receivables 20,725 19,531 0 0 Less : Allowance for doubtful receivables (37) (8) 0 0
20,688 19,523 0 0 Other receivables 204 145 0 1 Sundry deposits 157 272 1 2 Prepayments 798 465 640 266
21,847 20,405 641 269
The currency profile for trade receivables is as follows:
Ringgit Malaysia 20,634 19,142 0 0 Korean Won 0 367 0 0 China Renminbi 0 0 0 0 Thai Baht 0 0 0 0 US Dollar 54 14 0 0
20,688 19,523 0 0
Credit terms of trade receivables vary from 0 to 60 days.
17. AMOUNT DUE FROM SUBSIDIARIES
The amount due from subsidiaries is unsecured, interest free and has no fixed terms of repayment. FTEC Resources Berhad 76 (588728-X)
Notes to the Financial Statements 31 December 2005
18. DEPOSITS, CASH AND BANK BALANCES
Group Company 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000
Fixed deposits 4,828 8,699 0 0 Cash and bank balances 8,156 9,551 29 378
12,984 18,250 29 378
The currency exposure profiles for deposits, cash and bank balances are as follow:
Group Company 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000
Fixed deposits Ringgit Malaysia 4,828 8,094 0 0 Korean Won 0 605 0 0
4,828 8,699 0 0
Cash and bank balances Ringgit Malaysia 3,582 8,639 29 378 Korean Won 0 13 0 0 China Renminbi 0 1 0 0 US Dollar 3,971 68 0 0 Thai Baht 603 830 0 0
8,156 9,551 29 378
The summary of maturity terms of the fixed deposits is as follow :
Effective Within 1 1 - 5 interest rate Total year years Group % RM’000 RM’000 RM’000
2005 3.7 4,828 4,828 0 2004 3.3 8,699 8,699 0
Fixed deposits of the Group are all placed with licenced banks and included is an amount of RM4,828,000 (2004 : RM4,613,000) pledged as security for the banking facilities granted to the subsidiaries as disclosed in Note 21 to the financial statements. FTEC Resources Berhad (588728-X) 77
Notes to the Financial Statements 31 December 2005
18. DEPOSITS, CASH AND BANK BALANCES (cont’d)
Bank balances represent deposit held at call with licensed banks and earned no interest.
Included in cash and bank balances of the Group is bank balance of RMNIL (2004 : RM345,000) held by a subsidiary which is subject to withdrawal restrictions.
19. PAYABLES AND ACCRUALS
Group Company 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000
Trade payables 8,165 3,927 0 0 Other payables 742 611 39 29 Accruals 196 277 7 0 Amount due to a Director 7 1 0 0
9,110 4,816 46 29
Group Company 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000
The currency profile for trade payables is as follows:
Ringgit Malaysia 7,208 3,769 0 0 Korean Won 0 0 0 0 US Dollar 957 158 0 0
8,165 3,927 0 0
Credit terms of trade payables vary from 0 to 60 days.
The amount due to a Director is unsecured, interest free and has no fixed terms of repayment. FTEC Resources Berhad 78 (588728-X)
Notes to the Financial Statements 31 December 2005
20. PROVISION FOR FTEC ORPHANAGE FUTURE FUND
The provision for FTEC Orphanage Future Fund is computed based on RM50 per unit of W2 8260 notebook sold during the period of 5 August 2005 to 16 August 2005 and on the amount derived from certain auctions sales held during the year.
21. BORROWINGS
Group Company 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000
Current Secured and interest bearing - Bank overdrafts 1,157 928 0 0 - Bankers acceptance 8,801 6,891 0 0 - Hire purchase borrowings 210 77 0 0 - Letter of credits 419 796 0 0 - Term loans 14 335 0 0 - Trust receipts 1,885 5,997 0 0
12,486 15,024 0 0 Unsecured and non-interest bearing - Borrowings from a Director of a subsidiary 237 232 0 0
12,723 15,256 0 0
Non-Current Secured and interest bearing - Hire purchase borrowings 877 69 0 0 - Term loans 246 877 0 0
1,123 946 0 0
Total borrowings 13,846 16,202 0 0
Except for the borrowings from a Director which is in Korean Won, all other borrowings of the Group are denominated in Ringgit Malaysia.
Letter of credits of RM104,000 (2004 : RM838,000) was converted to trust receipts during the year. FTEC Resources Berhad (588728-X) 79
Notes to the Financial Statements 31 December 2005
21. BORROWINGS (cont’d)
Average interest rate Effective interest rate per annum per annum 2005 2004 2005 2004
Bank overdrafts 7.85% 8.07% 7.87% 7.85% Bankers acceptance 4.55% 4.56% 4.82% 4.59% Letter of credits 1.20% 1.20% 1.20% 1.20% Term loans 7.48% 5.75% 7.50% 6.13% Trust receipts 5.88% 4.50% 5.67% 4.60%
The above banking facilities of the subsidiaries are secured by way of:-
(i) Pledged fixed deposits of the subsidiaries (Note 18); (ii) Third party charge over the leasehold land and building belonging to one of the subsidiaries (Note 11); and (iii) Corporate guarantee from the Company.
The borrowings from a Director of a subsidiary are unsecured, interest free and have no fixed terms of repayment. The hire purchase borrowings are effectively secured as the rights to the hire purchase assets revert to the finance company in the event of default.
The summary of the repayment terms of term loans and the minimum hire purchase borrowings for the Group is as follow:
Total Fair carrying Maturity profile value amount < 1 year 1 - 5 years > 5 years RM’000 RM’000 RM’000 RM’000 RM’000
2005 Hire purchase borrowings 1,127 1,087 210 877 0 Term loan 270 260 14 55 191
1,397 1,347 224 932 191
2004 Hire purchase borrowings 152 146 77 69 0 Term loan 1,247 1,212 335 681 196
1,399 1,358 412 750 196 FTEC Resources Berhad 80 (588728-X)
Notes to the Financial Statements 31 December 2005
21. BORROWINGS (cont’d)
The minimum lease payments of the hire purchase borrowings is as follows :
2005 2004 RM’000 RM’000
Not later than 1 year 259 86 Later than 1 year and not later than 5 years 957 76 Later than 5 years 0 0
1,216 162 Future finance charges (129) (16)
Present value 1,087 146
22. SHARE CAPITAL
Group Company 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000
Ordinary shares of RM0.10 each :- Authorised 25,000 25,000 25,000 25,000
Issued and fully paid 17,000 17,000 17,000 17,000
Group Company 2005 2004 2005 2004 Number of shares (‘000)
Authorised 250,000 250,000 250,000 250,000
Issued and fully paid 170,000 170,000 170,000 170,000
23. MERGER DEFICIT 2005 2004 RM’000 RM’000
The merger deficit arose in the previous years was arrived from the following : Issuance of shares for the acquisition of FTEC Distribution (M) Sdn Bhd and FTEC System Sdn Bhd 12,000 12,000 Less : Nominal value of shares acquired for - FTEC Distribution (M) Sdn Bhd (3,602) (3,602) - FTEC System Sdn Bhd (3,172) (3,172)
5,226 5,226 FTEC Resources Berhad (588728-X) 81
Notes to the Financial Statements 31 December 2005
24. DEFERRED TAXATION
Group Company 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000
Deferred tax assets 0 0 0 0 Deferred tax liabilities (321) (104) 0 0
At end of year (321) (104) 0 0
At start of year 104 154 0 0 Charged to / (Credited) Income Statement (Note 9) 217 (50) 0 0
At end of year 321 104 0 0
Subject to income tax: Deferred tax assets (before offsetting) 0 588 0 0 Property, plant and equipment 0 (588) 0 0
Deferred tax assets (after offsetting) 0 0 0 0
Deferred tax liabilities (before offsetting) Property, plant and equipment (321) (692) 0 0 Offsetting 0 588 0 0
Deferred tax liabilities (after offsetting) (321) (104) 0 0
25. CONTINGENT LIABILITIES
Unsecured Corporate guarantee given for subsidiaries in relation to : - banking facilities 0 0 27,750 14,000 - credit facilities 0 0 7,778 10,780 - hire purchase facilities 0 0 289 0
0 0 35,817 24,780
As disclosed in Note 26 (1), the outcome of the investigation by the representative legal firm in Korea in relation to the alleged misuse of funds in Fovix by the Representation Director in Fovix is still in progress.
Accordingly, no contingent liabilities are provided in these financial statements as the Company is unable to confirm the quantum of the contingent liabilities in relation to this matter at the date of this report. FTEC Resources Berhad 82 (588728-X)
Notes to the Financial Statements 31 December 2005
26. SIGNIFICANT EVENTS
(1) On 30 May 2005, the Company announced that there is an allegation of misuse of funds by the Representative Director of Fovix IT. Co. Ltd (“Fovix”), Fovix is a 51% owned subsidiary operating in the Republic of South Korea.
Due to the alleged misuse of funds, Fovix has defaulted under its loans and credit facilities and some of Fovix’s creditors have commenced legal proceedings to recover the amounts outstanding.
A representative legal firm in Korea has been appointed to investigate the matter and the outcome of the investigation is still in progress.
(2) At an Extraordinary General Meeting held on 13 July 2005, the following resolutions were passed :
(i) Proposed acquisition by FTEC Ventures Sdn. Bhd. (“FVSB”), a wholly owned subsidiary of the Company, of 5,000,000 ordinary shares of RM1.00 each in UCH Technology Sdn. Bhd. (“UCH”), representing the entire issued and paid-up shares capital of UCH, for a total purchase consideration of RM32,000,000 (“Proposed acquisition of UCH”).
(ii) Proposed acquisition by FVSB of 1,500,000 ordinary shares of RM1.00 each in Atoz Computer Sdn. Bhd. (formerly known as Softcal Sdn. Bhd.) (“Atoz”), representing the entire issued and paid-up share capital of Atoz, for a total purchase consideration of RM16,000,000 (“Proposed acquisition of Atoz”).
(iii) Proposed acquisition by FVSB of 60,000 ordinary shares of RM1.00 each in E-CTAsia Technology Sdn. Bhd. (“E-CTAsia”), representing the entire issued and paid-up share capital of E-CTAsia, for a total purchase consideration of RM240,000 (“Proposed acquisition of E-CTAsia”).
(iv) Proposed Bonus Issue of 84,999,500 new ordinary shares on the basis of 1 new share for every 2 existing shares held, prior to the proposed rights issue with warrants and the proposed acquisition of UCH, ATOZ and E-CTAsia (“Proposed Bonus Issue”).
(v) P r oposed renounceable rights issue of 84,999,500 new ordinary shares with 84,999,500 free detachable warrants (“Warrants”) on the basis of 1 new share with 1 free warrant for every 2 existing shares held, prior to the Proposed Bonus Issue and the Proposed Acquisitions at an issue price to be determined (“Proposed Rights Issue with Warrants”).
(vi) Proposed establishment of an Employees’ Share Option Scheme for eligible Executive Directors and employees of the Company and its subsidiaries (excluding dormant subsidiaries) (“Proposed ESOS”).
(vii) Proposed issue of options under the Proposed ESOS to Kenneth Vun @ Vun Yun Liun, Ang Chai Kok, Wong Teck Wei and Ameezan Bin Jamal, Executive Directors of the Company.
(viii) Proposed issue of options under the Proposed ESOS to Chong Phui Lan, Grace Vun Siaw Nei, Carol Vun On Nei and Ooi Wei Leng, persons connected to Kenneth Vun @ Vun Yun Liun, a Director of the Company. FTEC Resources Berhad (588728-X) 83
Notes to the Financial Statements 31 December 2005
26. SIGNIFICANT EVENTS (cont’d)
(2) (ix) Proposed write off of up to RM41,000,000 of the goodwill arising from the Proposed Acquisitions by the reduction of an equivalent amount from the share premium account of the Company under Section 64 of the Companies Act, 1965 (“Proposed Write Off of Goodwill”).
(x) Proposed increase in the authorised share capital of the Company from RM25,000,000 comprising 250,000,000 shares of RM0.10 each to RM100,000,000 comprising 1,000,000,000 shares of RM0.10 each.
On 22 December 2005, FVSB entered into second supplemental agreements to the Conditional Share Sale Agreements dated 24 June 2004 relating to the Proposed Acquisitions of UCH, Atoz and E-CTAsia (“Share Sale Agreements”) for the following:
(a) Extension of Unconditional Date of the Share Sale Agreements for a further 3 months expiring on 24 March 2006; and
(b) Increase in the issued and paid-up share capital of UCH.
The proposals in items (i) to (v), (ix) and (x) above were aborted on 24 March 2006 as disclosed in subsequent events Note 27(2).
(3) On 30 August 2005, the Company received a Notice of Conditional Voluntary General Offer (“VGO”) from Avenue Securities Sdn. Bhd., on behalf of Online One Corporation Berhad (“Online One”) to acquire 169,999,000 ordinary shares of RM0.10 each representing 100% of the issued and paid-up share capital of the Company.
The VGO is subject to the approvals of the relevant authorities.
On 27 October 2005, the Securities Commission had approved the appointment of PM Securities Sdn. Bhd. as the independent Advisor of the Company in relation to the VGO.
(4) On 1 September 2005, the Company acquired 2 ordinary shares of RM1.00 each, representing the entire issued and paid-up capital of FTEC Communications Sdn. Bhd. (formerly known as Cetoz Sdn. Bhd.) for a total cash consideration of RM2.00.
On 20 September 2005, the paid-up capital of FTEC Communications Sdn. Bhd. was increased from RM2.00 to RM500,000 of which the Company subscribed 399,998 shares of RM1.00 each, representing 80% of the entire issued and paid-up capital of FTEC Communications Sdn. Bhd. FTEC Resources Berhad 84 (588728-X)
Notes to the Financial Statements 31 December 2005
27. SUBSEQUENT EVENTS
(1) On 13 January 2006, the Company resolved to acquire 2 ordinary shares of RM1.00 each, representing the entire issued and paid-up capital of Tecasia Sdn. Bhd. (formerly known as Cuve Group Sdn. Bhd.) for a total cash consideration of RM2.00.
(2) On 24 March 2006, the Company announced that FVSB and the vendors of UCH, Atoz and E-CTAsia have mutually agreed to terminate the Conditional Share Sale Agreements dated 24 June 2004, as supplemented by the agreements relating to the Proposed Acquisitions of UCH, Atoz and E-CTAsia as certain of the conditions precedent set out in the Share Sale Agreements were not fulfilled by the extended unconditional date of 24 March 2006.
As a result of the mutual termination of the Share Sale Agreements, the Company has decided to abort the Proposed Acquisitions of UCH, Atoz and E-CTAsia, Proposed Bonus Issue, Proposed Rights Issue with Warrants, the Proposed Write Off of Goodwill and Proposed Increase in Authorised Share Capital as the Proposals are inter-conditional upon each other.
(3) On 18 April 2006, the Company proposed to implement a private placement of up to 16,999,900 new ordinary shares of RM0.10 each (“Private Placement Shares”) in the Company (“Private Placement”), representing 10% of the issued and paid-up share capital of the Company. The Private Placement Shares will be placed out to investor(s) to be identified at a later stage in accordance with the listing requirements of Bursa Malaysia Securities Berhad for the MESDAQ Market.
The Proposed Placement has not been submitted to the relevant authorities at the date of this report.
28. COMPARATIVE FIGURES
The following comparative figures have been reclassified to conform with the current year’s presentation :
2005 RM’000
Selling and distribution cost reclassified as : - cost of sales 483 - administrative expenses 6,536
In addition, comparatives for both primary and secondary reporting segments have been restated in order to reflect the newly reportable segment identified as a separate segment during the financial year.
29. APPROVAL OF FINANCIAL STATEMENTS
The financial statements have been approval for issue in accordance with a resolution of the Board of Directors on 25 April 2006. FTEC Resources Berhad (588728-X) 85
ANALYSIS OF SHAREHOLDINGS As At 5 May 2006
Authorised Share Capital RM25,000,000 Issued and Fully Paid Up Capital RM16,999,900 Class of Shares Ordinary shares of RM0.10 each Voting Right One vote per ordinary share
ANALYSIS BY SIZE OF SHAREHOLDING
No of % No of % of issued shareholders shareholders shares held capital
Less than 100 shares 6 0.09 283 0.00 100 to 999 shares 78 1.14 22,900 0.01 1,000 to 4,999 shares 2,640 38.59 5,905,800 3.47 5,000 to 10,000 shares 2,308 33.73 16,788,300 9.88 10,001 to 100,000 shares 1,652 24.14 47,907,300 28.18 100,001 to 1,000,000 shares 146 2.13 36,449,259 21.44 Above 1,000,000 shares 12 0.18 62,925,158 37.02
TOTAL 6,842 100.00 169,999,000 100.00
DIRECTORS’ SHAREHOLDINGS
No of Shares Held Name Direct % Indirect %
Gen (R) Tan Sri Yaacob bin Mat Zain - - - - Kenneth Vun @ Vun Yun Liun 1,7822,450 10.48 32,353,726 * 19.03 Ameezan Bin Jamal 800,008 0.47 - - Wong Teck Wei 809,408 0.48 - - Ang Chai Kok (Resigned on 4.5.2006) 934,608 0.55 - - Chieng Siong Kuong 50,000 0.03 - - Pow Kim Guan - - - -
* Deemed interest by virtue of interest in Millennium Score Sdn Bhd, Ooi Wei Leng being his wife, Chong Phui Lan being his mother, Grace Vun Siaw Nei and Carol Vun On Nei being his sisters’ direct interests in FRB.
SUBSTANTIAL SHAREHOLDERS
No of Shares Held Name Direct % Indirect %
Millennium Score Sdn Bhd 26,435,662 15.55 - - Kenneth Vun @ Vun Yun Liun 17,822,450 10.48 32,353,726 * 19.03 Chong Phui Lan 3,866,784 2.27 46,229,392 ** 27.19 Grace Vun Siaw Nei 1,302,645 0.77 48,793,531 *** 28.70 Carol Vun On Nei 668,635 0.39 49,427,541 **** 29.08 Ooi Wei Leng 80,000 0.05 44,258,112 ***** 26.03 FTEC Resources Berhad 86 (588728-X)
Analysis of Shareholdings As At 5 May 2006
* Deemed interest by virtue of his interest in Millennium Score Sdn Bhd, Ooi Wei Leng being his wife, Chong Phui Lan being his mother, Grace Vun Siaw Nei and Carol Vun On Nei being his sisters’ direct interests in FRB.
** Deemed interest by virtue of Kenneth Vun @ Vun Yun Liun being her son, Grace Vun Siaw Nei and Carol Vun On Nei being her daughters’ direct and indirect interests in FRB.
*** Deemed interest by virtue of Chong Phui Lan being her mother, Kenneth Vun @ Vun Yun Liun being her brother and Carol Vun On Nei being her sister’s direct and indirect interests in FRB.
**** Deemed interest by virtue Chong Phui Lan being her mother, Kenneth Vun @ Vun Yun Liun being her brother and Grace Vun Siaw Nei being her sister’s direct and indirect interests in FRB.
***** Deemed interest by virtue of her interest in Millennium Score Sdn Bhd and Kenneth Vun @ Vun Yun Liun being her husband’s direct and indirect interests in FRB.
TWENTY (20) LARGEST SHAREHOLDERS
No Shareholder No of shares %
1. MILLENNIUM SCORE SDN BHD 26,435,662 15.55 2. KENNETH VUN @ VUN YUN LIUN 8 ,196,534 4.82 3. KENANGA NOMINEES (TEMPATAN) SDN BHD Pledged Securities Account for Kenneth Vun @ Vun Yun Liun 8,125,833 4.78 4. KE-ZAN NOMINEES (ASING) SDN BHD Kim Eng Securities Pte Ltd for Cube Capital Group Limited 5,557,200 3.27 5. CHONG PHUI LAN 3,866,784 2.27 6. SIMON LING SIANG HOCK 2,103,000 1.24 7. PUBLIC NOMINEES (TEMPATAN) SDN BHD Pledged Securities Account for Hii Sui Chung (E-JCL) 1,976,500 1.16 8. ALLIANCEGROUP NOMINEES (TEMPATAN) SDN BHD Pledged Securities Account for Kenneth Vun @ Vun Yun Liun (100719) 1,500,000 0.88 9. NGU KEE LENG 1,422,000 0.84 10. GRACE VUN SIAW NEI 1,302,645 0.77 11. TEN CHOO TEIK 1,299,000 0.76 12. LEE CHUNG FONG 1,140,000 0.67 13. GAN SURT NEO 983,200 0.58 14. CHEE WAI MENG 877,500 0.52 15. PUBLIC NOMINEES (TEMPATAN) SDN BHD Pledged Securities Account for Yap Kun Lee (E-KPG) 844,000 0.50 16. AMEEZAN BIN JAMAL 800,008 0.47 17. ANG CHAI KOK 784,608 0.46 18. MAYBAN NOMINEES (TEMPATAN) SDN BHD Pledged Securities Account for Wee Kam Siak @ Julian Wee Kam Siak (178AW0079) 756,000 0.44 19. RC NOMINEES (TEMPATAN) SDN BHD Pledged Securities Account for Yap Terng Sheng (CO3RMP2MPY747M) 727,100 0.43 20. SOR AH KEE 706,000 0.42
TOTAL 69,403,574 40.83 FTEC Resources Berhad (588728-X) 87
LIST OF PROPERTY 31 December 2005
The following is the landed property owned by FTEC Distribution (M) Sdn Bhd:
Location/ Description Approx. Net Book Address And Age of Build Up Tenure Value as at Date of Existing Use Building Area of Land 31.12.2005 Purchase (Years) (Sq. Ft.) RM’000
Ground, 1st, 4 Storey 23 years Ground 99 years 870 30 October 2nd and 3rd Intermediate floor - leasehold 2002 Floor, Lot No. 22, Shophouse: 1,250 sq land Damai Plaza, Office expiring in Block D, Phase III, 1st floor - 31 December Reservoir / Damai 1,250 sq 2081 Road, Kota Kinabalu, Sabah, Malaysia 2nd floor 1550 sq
3rd floor - 1,550 sq This page has been left blank intentionally. Proxy Form
Number of shares held CDS Account No.
I/ We (PLEASE USE BLOCK LETTERS) NRIC/ Co. No. of being a member / members of FTEC RESOURCES BERHAD hereby appoint NRIC No. of or whom failing , NRIC No. of as my/ our proxy/ proxies to vote for me/us and on my/our behalf at the Fourth Annual General Meeting of the Company to be held at Ballroom 1, Tropicana Golf & Country Club, Jalan Kelab Tropicana, Persiaran Tropicana, 47410 Petaling Jaya, Selangor Darul Ehsan on Wednesday, 28th June 2006 at 10.00 a.m. and at any adjournment thereof, in the manner indicated below:-
Resolution Resolutions For Against No.
1 To receive the Audited Financial Statements for the financial year ended 31 December 2005 together with the Directors’ and Auditors’ Reports thereon.
2 To approve the payment of Directors’ fee for the financial year ended 31 December 2005.
3 To re-elect Mr. Wong Teck Wei as a Director.
4 To re-elect Gen (R) Tan Sri Yaacob bin Mat Zain as Director.
5 To appoint Messrs Moore Stephens as Auditors of the Company and to authorise the Board of Directors to fix their remuneration.
6 Authority to issue shares by Company pursuant to Section 132D of the Companies Act, 1965.
(Please indicate with an “X” in the space provided above on how you wish your vote to be cast. In the absence of specific directions, the proxy may vote or abstain as he/she thinks fit).
Signed this day of 2006
______Signature/Common Seal of Shareholder (s)
Notes 1. A member of the Company entitled to attend and vote at the Fourth Annual General Meeting is entitled to appoint a proxy or proxies, to attend and vote instead of him/her. The proxy may but need not be a member of the Company, and the provisions of Section 149(1)(a) and (b) of the Companies Act, 1965 shall not apply to the Company.
2. Where a member appoints two (2) or more proxies, the appointment shall be invalid unless the member specifies the proportion of his shareholding to be represented by each proxy.
3. The instrument appointing a proxy shall be in writing under the hand of the appointer or his attorney duly authorised in writing or, if the appointer is a corporation, either under its Common Seal or under the hand of its officer or attorney duly authorised.
4 The instrument appointing a proxy must be deposited at 312, 3rd Floor, Block C, Kelana Square, 17 Jalan SS7/26, 47301 Petaling Jaya, Selangor Darul Ehsan, not less than forty-eight (48) hours before the time set for holding the Annual General Meeting or any adjournment thereof. Please fold here
STAMP
Share Registrar FTEC RESOURCES BERHAD (Company No. 588728-X)
312, 3rd Floor, Block C, Kelana Square, 17 Jalan SS7/26, 47301 Petaling Jaya, Selangor Darul Ehsan.
Please fold here