Notice of the Twenty-Fourth Annual General Meeting 02-03

Statement Accompanyning Notice of Annual General Meeting 04-06

Corporate Information 07

Corporate Structure 08

Financial Highlights 09

Board of Directors 10

Executive Committee / Audit Committee / Management Committee 11

Board of Directors Proﬁ le 12-19

Chairman’s Statement 20-24

Audit Committee Report 25-26

Corporate Governance Statements 27-34

Statement on Internal Control 35-36

Disclosure Statements 37-38

Financial Statements 39-100

Statistics of Shareholdings 101-103

List of Properties 104-105

Location Map 106

Proxy Form 107 NOTICE OF ANNUAL GENERAL MEETING

NOTICE IS HEREBY GIVEN THAT the Twenty-Fourth Annual General Meeting of the Company will be held at Holiday Villa, Classics 2, No. 9, Jalan SS12/1, Subang Jaya, 47500 Petaling Jaya, Selangor Darul Ehsan on Tuesday, 27 June 2006 at 10.00 a.m. for the following purposes:-

1. To receive and adopt the Audited Financial Statements for the year ended 31 December 2005 and the Reports of the Directors and the Auditors thereon. RESOLUTION 1

2. To approve the payment of Directors’ Fees for the year ended 31 December 2005. RESOLUTION 2

3. To re-elect the following Directors who retire pursuant to Article 104 of the Company’s Articles of Association : - a) Dato’ Haji Mohd. Iqbal Bin Kuppa Pitchai Rawther RESOLUTION 3 b) Encik Ahmad Kamarudin Bin Ismail RESOLUTION 4

4. To consider and, if thought fit, pass with or without modifications the following resolutions as Resolutions pursuant to Section 129(6) of the Companies Act, 1965:-

“ THAT Dato’ Zainol Abidin Bin Dato’ Haji Salleh, a Director who retires pursuant to Section 129 of the Companies Act, 1965, be and is hereby re-appointed as a Director of the Company to hold office until the next Annual General Meeting. ” RESOLUTION 5

“ THAT Mr. Lam Chin Loong, a Director who retires pursuant to Section 129 of the Companies Act, 1965, be and is hereby re-appointed as a Director of the Company to hold office until the next Annual General Meeting. ” RESOLUTION 6

5. To re-appoint Messrs. Monteiro & Heng as Auditors and to authorise the Directors to fix their remuneration. RESOLUTION 7

6. As special business, to consider and, if thought fit, pass with or without modifications the following resolution as an Ordinary Resolution:-

“ THAT, subject always to the Companies Act, 1965, the Articles of Association of the Company and approvals of the relevant governmental and/or regulatory authorities, approval be and is hereby given for the Directors to exercise, pursuant to Section 132D of the Companies Act, 1965, the power to issue shares in the Company from time to time and upon such terms and conditions and for such purposes as the Directors may deem fit provided that the aggregate number of shares issued pursuant to this resolution does not exceed ten per centum (10%) of the total issued capital of the Company and that such approval shall continue in force until the conclusion of the next Annual General Meeting of the Company. ” RESOLUTION 8

7. To transact any other business for which due notice shall have been given in accordance with the Company’s Articles of Association and the Companies Act, 1965.

By Order of the Board

Kwong Yook Faan (MAICSA 7031263) Margaret Pelly (LS 04402) Sin May Peng (MAICSA 7018354) Company Secretaries

5 June 2006

2 FARLIM GROUP (MALAYSIA) BHD (82275-A) NOTICE OF ANNUAL GENERAL MEETING (cont’d)

Notes

A member entitled to attend and vote at this Meeting is entitled to appoint a proxy to attend and vote instead of him/her. A proxy need not be a member of the Company. If the member is a corporation, the proxy form must be executed either under its common seal or under the hand of an officer or attorney duly authorised in writing. To be valid, the proxy form must be completed, signed and deposited at the Company’s Registered Office situated at No. 2-8, Bangunan Farlim, Jalan PJS 10/32, Bandar Sri Subang, 46000 Petaling Jaya, Selangor Darul Ehsan, Malaysia not less than forty-eight (48) hours before the time appointed for holding the Meeting or any adjournment thereof.

Resolution pursuant to Section 132D of the Companies Act, 1965

The Ordinary Resolution proposed under item 6 of the agenda, if passed, will give the Directors of the Company, from the date of the above General Meeting, power to allot and issue shares from the unissued capital of the Company for such purposes as the Directors consider would be in the interest of the Company. This approval will, unless revoked or varied by the Company at a General Meeting, expire at the next Annual General Meeting, and is in addition to the power given to the Directors to issue shares under Section 132D (6A) of the Companies Act, 1965.

FARLIM GROUP (MALAYSIA) BHD (82275-A) 3 STATEMENT ACCOMPANYING NOTICE OF THE TWENTY-FOURTH ANNUAL GENERAL MEETING

1.0 Directors seeking re-election/re-appointment at the Twenty-Fourth Annual General Meeting pursuant to:-

1.1 Article 104 of the Company’s Articles of Association:-

(i) Dato’ Haji Mohd. Iqbal Bin Kuppa Pitchai Rawther (ii) Encik Ahmad Kamarudin Bin Ismail

1.2 Section 129(6) of the Companies Act, 1965:-

(i) Dato’ Zainol Abidin Bin Dato’ Haji Salleh (ii) Mr. Lam Chin Loong

2.0 Details of attendance of Directors at Board Meetings held during the financial year ended 31 December 2005

Names of Directors No. of Meetings Held Attended

1. Dato’ Seri Lim Gait Tong 7 7 2. Dato’ Haji Mohd. Iqbal Bin Kuppa Pitchai Rawther 7 7 3. Mr. Ng Bock Tye 7 7 4. Mr. Wei Chee Keong 5 5 (ceased as Director with effect from 30 June 2005) 5. Datin Seri Chin Chew Lin 7 7 6. Mr. Lim Yat Koi @ Lim Yoke Kwai 7 6 7. Mr. Lam Chin Loong 6 5 (ceased as Director with effect from 1 January 2005 and re-appointed on 8 April 2005) 8. Dato’ Zainol Abidin Bin Dato’ Haji Salleh 7 7 9. Encik Ahmad Kamarudin Bin Ismail 7 7

3.0 The venue, date and time of the Twenty-Fourth Annual General Meeting

Holiday Villa, Classics 2, No. 9, Jalan SS12/1, Subang Jaya, 47500 Petaling Jaya, Selangor Darul Ehsan on Tuesday, 27 June 2006 at 10.00 a.m.

4.0 Further details of Directors who are standing for re-election: -

4.1 DATO’ HAJI MOHD. IQBAL BIN KUPPA PITCHAI RAWTHER – Aged 62, Malaysian Executive and Non-Independent

He obtained a Certificate in Education from the University of Birmingham in 1964. Subsequently, he obtained his Bachelor of Economics Degree (Honours) and a Masters Degree in Business Administration in 1971 and 1973 respectively, both from the University of Malaya. He then furthered his studies and obtained the International Management Teacher’s Programme certificate from the joint programme organised by the Harvard Graduate School of Business Administration and the Centre D’ Enseignment Superior Des Affairs, Paris, France in 1978. In 1993, he received a doctorate in management from La Salle University, United States of America.

Currently, he is a Fellow of the Chartered Institute of Bankers, London, and a member of both the Malaysian Institute of Management and the British Institute of Management.

He started his career with the Ministry of Education from 1965 to 1969. During this period, he also served as the National Education Officer of the National Union of Teaching Professionals. In 1971, he joined Malaysian International Merchant Bank Berhad as Corporate Finance Officer during which he pioneered leasing and produced a research volume on “Leasing in Malaysia” before leaving in 1974. In 1974 when the University of Malaya implemented the policy of using Bahasa

4 FARLIM GROUP (MALAYSIA) BHD (82275-A) STATEMENT ACCOMPANYING NOTICE OF THE TWENTY-FOURTH ANNUAL GENERAL MEETING (cont’d)

Malaysia for tertiary education, he responded to a call from the University and joined the Faculty of Economics and Administration as a lecturer. Among his many achievements include being awarded the Sir Frederick Gallahan Memorial Award by the Australian-Malaysian Association of Australia in 1976 in recognition of his entrepreneurial management in Malaysia. Also, a team led by him to promote entrepreneurial management in Malaysia won the Malaysian Young Managers Competition in 1997 and subsequently, the Asian Young Managers Competition in the same year. When Bank Negara Malaysia set up the Institute of Bankers in 1979, he took up the appointment as Executive Director. He relinquished the position in 1985 and has since been involved in the private sector, including his current commitments to Farlim Group (Malaysia) Bhd. He also served on the Council of the Malaysian Institute of Management (“MIM”) from 1984 to 1991 and concurrently held the positions of MIM’s Vice-Chairman and Chairman of its Management Committee from 1989 to 1991. He has also served as an Adviser to the Peace and Happiness through Prosperity Institute in Japan from 1984 to 1990 and Japan’s Foundation for Asian Management Development from 1989 to 1992.

He joined Farlim Group (Malaysia) Bhd. as a Director on 4 May 1982. Currently, he is an Executive Director of Farlim Group (Malaysia) Bhd. He does not hold any Directorship in other public companies. He holds 2,257,000 shares and has deemed interest in 60,571,234 shares through Farlim Holding Sdn. Bhd., the holding company, in Farlim Group (Malaysia) Bhd. He does not hold any shares in the subsidiaries of Farlim Group (Malaysia) Bhd. except the following :-

1. Baka Suci Sdn. Bhd. - 1 share 2. Victory Ace Sdn. Bhd. - 1 share 3. Farlim Marketing Sdn. Bhd. - 168,750 shares through a corporate shareholder

He does not have any family relationship with any Director and major/substantial shareholder of Farlim Group (Malaysia) Bhd. He does not have any conflict of interest with the Company other than that set out in the Disclosure Statements and/or the Financial Statements for the year ended 31 December 2005. He has no convictions for offences within the past ten years other than traffic offences, if any.

4.2 ENCIK AHMAD KAMARUDIN BIN ISMAIL, K.M.N., P.K.T. - Aged 65, Malaysian Non-Executive and Independent

He spent his entire working life in government service in the Malaysian Royal Customs & Excise Department. He held numerous positions in the government departments mainly as a Deputy Director of Customs in Johor, Director of Tariff & Classification, Director of Tax Collection, Director of Administration & Finance and Head of Intelligence all at national level at HQ in Kuala Lumpur before assuming the post of State Director of Customs Penang.

His extensive experience in customs matters entails the administration and supervision of personnel in the country and state of Penang, collection of revenue on goods imported and exported, sales tax, service tax, excise duties, etc; finance and budgeting, and the operations of free trade zones, bonded warehouses, manufacturing warehouses, ports, airports, post office, sales and service tax establishments, petroleum installations and excise factories, and the prevention of all forms of smuggling.

He had represented Malaysia at the World Customs Organisation meetings in Brussels, Belgium, meetings of the ASEAN Working Committee on Customs Matters and bilateral meetings between Malaysia, Singapore, Thailand, Philippines and Indonesia. He was also a member of the State Industrial Development Committee and various other state committees involving development, trade, tourism and sports. He was elected Chairman of the State Liaison Committee between Customs and the private sector that comprises Malay, Chinese and Indian Chambers of Commerce, Federation of Malaysian Manufacturers (FMM), Penang Freight Forwarders Association (PFFA), FREPENCA and other shipping and trade associations and their representatives in Penang.

In 1992, he was awarded The Medal Kesatria Mangku Negara (K.M.N.) by D.Y.M.M. Yang DiPertuan Agong and The Medal Pingat Kelakuan Terpuji (P.K.T.) by His Excellency The Yang DiPertua Negeri Pulau Pinang.

He was appointed to the Board of Directors of Farlim Group (Malaysia) Bhd. on 27 June 2002. He does not hold any Directorship in other public companies. He does not hold any shares in Farlim Group (Malaysia) Bhd. and its subsidiaries.

He does not have any family relationship with any Director and major/substantial shareholders of Farlim Group (Malaysia) Bhd. He does not have any conflict of interest with the Company. He has no convictions for offences within the past ten years other than traffic offences, if any.

FARLIM GROUP (MALAYSIA) BHD (82275-A) 5 STATEMENT ACCOMPANYING NOTICE OF THE TWENTY-FOURTH ANNUAL GENERAL MEETING (cont’d)

4.3 DATO’ ZAINOL ABIDIN BIN DATO’ HAJI SALLEH - Aged 72, Malaysian Non-Executive and Independent

He graduated with a Bachelor of Arts in History and Malay Studies from the University of Malaya. He has also obtained a Certificate in Advance Management Programme from University of Hawaii and a Postgraduate Diploma in Public Administration from University of Manchester, England.

He is a retired senior government administrative officer with 30 years of experience. He had held many senior posts in the Federal Government Ministries, State-Government Department and local government. Among the senior posts held were Director of Malaysian Students Department of New Zealand from 1972 to 1975, Federal Financial Officer cum Acting Federal Secretary of Sabah from 1975 to 1977 and Deputy Director Administration of General Hospital Kuala Lumpur from 1977 to 1980. From 1980 to 1983, he was Under Secretary Cabinet of Prime Minister’s Department. He was appointed as Director of Service Division, Public Services Department Kuala Lumpur from 1983 to 1986. He retired from civil service after serving as State Secretary Penang from 1986 to 1988. After retirement, he was President of Municipal Council Penang from 1988 to 1990. He was Chairman of Penang Port Commission from 1 January 1994 until 31 December 1995.

Currently, he holds directorships in a number of public limited and private limited companies including Farlim Group (Malaysia) Bhd. He holds other Directorships in Sungai Ara Estate Bhd. and Yayasan DPMM Pulau Pinang Bhd. He has a direct shareholding of 29,667 shares in Farlim Group (Malaysia) Bhd. and does not hold any shares in its subsidiaries.

4.4 MR. LAM CHIN LOONG - Aged 71, Malaysian Non-Executive and Independent

He obtained a Diploma in Education from Birmingham University accredited from attending two-year Teacher Training course at Brinsford Lodge, Wolverhamption, England in 1958. He obtained his Bachelor of Arts (Honours) in Mathematics from University of Malaya in 1969 and also completed the Senior Executive Business Programme at Columbia University, New York, USA in 1983.

He started his career as a high school teacher, then in 1970 as lecturer of Modern Mathematics and Statistics at Penang University (which was later renamed as University Sains Malaysia). In 1972 he ventured into the commercial world joining NCR Computer Company first as their software division officer and then the Company’s Administration Manager. In 1975, he joined Citibank N.A. in Kuala Lumpur as Assistant Vice President and Senior Country Personnel Officer. Thereafter, he was promoted to Vice President and Senior Operations Officer of Citibank till 1980 when he was further promoted to the position of Vice President/ Senior Executive Officer of Citibank for Northern Region of Malaysia. Subsequently in 1986, he was assigned to United States as Citibank’s Vice President in charge of High Networth investments from Asia Pacific to United States. He then advanced his banking career in 1993 with San Francisco Pacific Bank N.A. as their Head of International Private Banking Division as well as Advisor to the Chairman of the Bank. He retired from banking in late 1994 to become a freelance investment and financial consultant operating out of United States. The mission is to provide counseling over international investment portfolios or international projects; a position he has been practising ever since gradually scaling down to occasional engagement.

He was appointed to the Board of Directors of Farlim Group (Malaysia) Bhd. on 2 June 1995. He does not hold any Directorship in other public companies. He has a direct shareholding of 10,000 shares in Farlim Group (Malaysia) Bhd. but does not hold any shares in the subsidiaries of Farlim Group (Malaysia) Bhd.

6 FARLIM GROUP (MALAYSIA) BHD (82275-A) CORPORATE INFORMATION

BOARD OF DIRECTORS

Dato’ Seri Lim Gait Tong Dato’ Haji Mohd. Iqbal Bin Kuppa Pitchai Rawther Ng Bock Tye Datin Seri Chin Chew Lin Lim Yat Koi @ Lim Yoke Kwai Lam Chin Loong Dato’ Zainol Abidin Bin Dato’ Haji Salleh Ahmad Kamarudin Bin Ismail

SECRETARIES

Kwong Yook Faan Margaret Pelly Sin May Peng AUDITORS

Monteiro & Heng REGISTERED OFFICE Chartered Accountants

No. 2-8, Bangunan Farlim, Jalan PJS 10/32, PRINCIPAL BANKERS Bandar Sri Subang, 46000 Petaling Jaya, Affin Bank Berhad Selangor Darul Ehsan. AmBank Berhad Tel: (03) 5635 5533 AmMerchant Bank Berhad Fax: (03) 5635 0301 Aseambankers Malaysia Berhad Citibank Berhad EON Bank Berhad SHARE REGISTRARS Malayan Banking Berhad Public Bank Berhad Symphony Share Registrars Sdn Bhd RHB Bank Berhad Level 26, Menara Multi-Purpose, Standard Chartered Bank (Malaysia) Berhad Capital Square, Southern Bank Berhad No. 8, Jalan Munshi Abdullah, United Overseas Bank (Malaysia) Berhad 50100 Kuala Lumpur. Tel: (03) 2721 2222 Fax: (03) 2721 2530 / 2721 2531 STOCK EXCHANGE LISTING

Main Board of Bursa Malaysia Securities Berhad

FARLIM GROUP (MALAYSIA) BHD (82275-A) 7 CORPORATE STRUCTURE AS AT 8 MAY 2006

Kertih Paka Country & Golf Resorts Sdn Bhd 100%

Bandar Subang Cabaran Resorts Sdn Bhd Sdn Bhd 100% 100%

Angkatan Wawasan Saga Realty & Sdn Bhd Development Sdn Bhd 100% 100%

Kanchil Jaya L J Harta Sdn Bhd Sdn Bhd 100% 80%

Kaplands Farlim Jaya Sdn Bhd Sdn Bhd 100% 100%

Farlim (Johor) Sdn Bhd 51%

Farlim Realty Farlim Marketing Limited Sdn Bhd 100% 51% Quanzhou FARLIM GROUP Farlim Food Zhongqiao Star (MALAYSIA) BHD Industries Limited Light Stainless (82275-A) Farlim Group 100% Steel Co. Ltd (China) Ltd 60% 100% Max Surplus Limited Quanzhou Bao Jia 100% Garment Co. Ltd Quanzhou Farlim 70% Real Estate Co. Ltd 73% Q.F.G.C (Limited) Quanzhou Shenhong 51% Knitting Co. Ltd 60% Farlim Suiwah Sdn Bhd 70% Fujian Quanzhou Li Da Province Elevators Fuji-Sino Engineering Baka Suci Elevators Co. Ltd Sdn Bhd Co. Ltd 100% 80% 65.16%

Quanzhou Zhong Victory Ace Qiao Trading Co. Ltd Sdn Bhd 75% 82%

Ria Bahagia Sdn Bhd 100%

8 FARLIM GROUP (MALAYSIA) BHD (82275-A) FINANCIAL HIGHLIGHTS

REVENUE

2005 2004 2003 2002 2001 RM’000 RM’000 RM’000 RM’000 RM’000

Turnover 216,363 200,924 193,527 180,763 136,558

Profit/(Loss) Before Tax (26,649) (19,354) (17,512) (56,249) (41,028)

Profit/(Loss) After Tax (29,353) (20,622) (16,792) (56,773) (41,788)

Weighted Average Number of Shares In Issue (‘000 shares) 120,000 120,000 120,000 120,000 120,000 Gross Earnings/(Loss) Per Share (sen) (22) (16) (15) (47) (34)

Net Earnings/(Loss) Per Shares (sen) (16) (11) (10) (35) (23)

Gross Dividends (%) – – – – –

BALANCE SHEETS

2005 2004 2003 2002 2001 RM’000 RM’000 RM’000 RM’000 RM’000

Paid-up Capital 120,000 120,000 120,000 120,000 120,000

Shareholders’ Funds 91,166 109,853 122,252 141,085 183,226

Net Tangible Assets 72,164 89,410 100,338 117,701 149,121

Net Tangible Assets Per Share (RM) 0.60 0.75 0.84 0.98 1.24

Net Assets Per Share (RM) 0.76 0.92 1.02 1.18 1.53

FARLIM GROUP (MALAYSIA) BHD (82275-A) 9 BOARD OF DIRECTORS

Seated

Dato’ Haji Mohd. Iqbal Bin Kuppa Pitchai Rawther (left) Dato’ Seri Lim Gait Tong - Chairman Datin Seri Chin Chew Lin (right)

Standing left to right

Encik Ahmad Kamarudin Bin Ismail Dato’ Zainol Abidin Bin Dato’ Haji Salleh Mr. Ng Bock Tye Mr. Lam Chin Loong Mr. Lim Yat Koi @ Lim Yoke Kwai

10 FARLIM GROUP (MALAYSIA) BHD (82275-A) EXECUTIVE COMITTEE / AUDIT COMMITTEE / MANAGEMENT COMMITTEE

EXECUTIVE COMMITTEE from left to right

Mr. Ng Bock Tye Dato’ Seri Lim Gait Tong - Chairman Dato’ Haji Mohd. Iqbal Bin Kuppa Pitchai Rawther

AUDIT COMMITTEE from left to right

Encik Ahmad Kamarudin Bin Ismail Mr. Lam Chin Loong - Chairman Dato’ Zainol Abidin Bin Dato’ Haji Salleh

MANAGEMENT COMMITTEE from left to right

Mr. Lim Chuan Boon Mr. Lim Hock Eng Mr. Kwong Yook Faan Mr. Lim Cheng Kee Mr. Ng Hong Kiat - Chairman Mr. Tan Keng Hock Mdm. Ooi Poh Tin

FARLIM GROUP (MALAYSIA) BHD (82275-A) 11 PROFILE OF DIRECTORS

Thereafter, from 1969 to 1975, he completed the Taman Evergreen and Taman Goodwood projects in Old Klang Road, Kuala Lumpur. He was instrumental to the development of Taman Cheras Utama project in Cheras, Kuala Lumpur and Taman KKB Utama project in Kuala Kubu Bahru through an affiliated company, Perumahan Farlim Sdn Bhd. He initiated the development of Bandar Baru Ayer Itam, which is the biggest private sector development in Penang. In recognition of his achievement in the construction/property sectors and contribution to the society, he was conferred the Grand Fellowship Award by the British Graduates Association DATO’ SERI LIM GAIT TONG Malaysia. Currently, he is the Chairman, Chief Executive and Aged 63, Malaysian Managing Director of Farlim Group (Malaysia) Bhd. Executive and Non-Independent He joined Farlim Group (Malaysia) Bhd. as a first Director on 12 March 1982. He is the Chairman of the Executive Committee comprising Members of the Board. He also holds Directorship in Unico Holdings Bhd. He started his business career as a contractor with his father’s construction business at the age of 15 and subsequently He is the spouse of Datin Seri Chin Chew Lin, Director of commenced his own construction company, Lim Gait Tong Farlim Group (Malaysia) Bhd. and its holding company Farlim Construction, as a sole proprietorship in 1959. In 1962, he Holding Sdn. Bhd. He is also a brother of Mr. Lim Yat Koi @ was awarded the Society Anonyme Des Etains De Kinta Lim Yoke Kwai, Director of Farlim Group (Malaysia) Bhd. and (“SEK”) Mining Relocation Contract for 200 units of houses, Director/Shareholder of its holding company Farlim Holding the Kampar railway station and the Kampar market. In 1964, Sdn. Bhd. Save as above, he has no family relationship with following a massive landslide, he rebuilt a sizable portion of Directors and major/substantial shareholders of Farlim Group the Ringlet and Brinchang townships in Cameron Highlands. (Malaysia) Bhd. In the same year, he obtained his JKR Class C Status which permitted him to tender for jobs throughout the Federation. He does not have any conflict of interest with the Company other than that set out in the Disclosure Statements and/or From 1964 to 1968, he undertook various projects under Lim the Financial Statements for the year ended 31 December Gait Tong Construction and his family’s development company. 2005. He has no convictions for offences within the past ten He was involved extensively in meeting the construction years other than traffic offences, if any. He attended all of the requirements of Island and Peninsular Group of Companies in seven Board Meetings held during the financial year ended 31 Penang. He was the main contractor for the Island Park and December 2005. He is not among the Independent Directors Jesselton Heights housing projects, which were then among who make up one-third of the total number of Directors. the biggest private sector efforts in Penang.

12 FARLIM GROUP (MALAYSIA) BHD (82275-A) PROFILE OF DIRECTORS (cont’d)

Professionals. In 1971, he joined Malaysian International Merchant Bank Berhad as Corporate Finance Officer during which he pioneered leasing and produced a research volume on “Leasing in Malaysia” before leaving in 1974. In 1974 when the University of Malaya implemented the policy of using Bahasa Malaysia for tertiary education, he responded to a call from the University and joined the Faculty of Economics and Administration as a lecturer. Among his many achievements include being awarded the Sir Frederick Gallahan Memorial Award by the Australian-Malaysian Association of Australia in 1976 in recognition of his entrepreneurial management in Malaysia. Also, a team led by him to promote entrepreneurial management in Malaysia won the Malaysian Young Managers Competition in 1997 and subsequently, the Asian Young Managers Competition in the same year. When Bank Negara Malaysia set up the Institute of Bankers in 1979, he took up the appointment as Executive Director. He relinquished the position in 1985 and has since been involved in the private sector, including his current commitments to Farlim Group DATO’ HAJI MOHD. IQBAL BIN KUPPA (Malaysia) Bhd. He also served on the Council of the Malaysian PITCHAI RAWTHER Institute of Management (“MIM”) from 1984 to 1991 and Aged 62, Malaysian concurrently held the positions of MIM’s Vice-Chairman and Executive and Non-Independent Chairman of its Management Committee from 1989 to 1991. He has also served as an Adviser to the Peace and Happiness through Prosperity Institute in Japan from 1984 to 1990 and Japan’s Foundation for Asian Management Development from He obtained a Certificate in Education from the University of 1989 to 1992. Currently, he is an Executive Director of Farlim Birmingham in 1964. Subsequently, he obtained his Bachelor Group (Malaysia) Bhd. of Economics Degree (Honours) and a Masters Degree in Business Administration in 1971 and 1973 respectively, both He joined Farlim Group (Malaysia) Bhd. as a Director on 4 from the University of Malaya. He then furthered his studies May 1982. He sits on the Executive Committee comprising and obtained the International Management Teacher’s Members of the Board and on the Employees’ Share Option Programme certificate from the joint programme organised by Scheme Committee of the Company. He does not hold any the Harvard Graduate School of Business Administration and Directorship in other public companies. He does not have any the Centre D’ Enseignment Superior Des Affairs, Paris, France family relationship with any Director and major/substantial in 1978. In 1993, he received a doctorate in management from shareholder of Farlim Group (Malaysia) Bhd. La Salle University, United States of America. He does not have any conflict of interest with the Company Currently, he is a Fellow of the Chartered Institute of Bankers, other than that set out in the Disclosure Statements and/or London, and a member of both the Malaysian Institute of the Financial Statements for the year ended 31 December Management and the British Institute of Management. 2005. He has no convictions for offences within the past ten years other than traffic offences, if any. He attended all of the He started his career with the Ministry of Education from seven Board Meetings held during the financial year ended 31 1965 to 1969. During this period, he also served as the December 2005. He is not among the Independent Directors National Education Officer of the National Union of Teaching who make up one-third of the total number of Directors.

FARLIM GROUP (MALAYSIA) BHD (82275-A) 13 PROFILE OF DIRECTORS (cont’d)

A Chartered Town Planner by profession, he graduated in Town Planning from the University of Melbourne, Australia in 1971. He later completed post-graduate study in Regional Planning at the University of London in 1979. Currently, he is a member of the Royal Town Planning Institute, United Kingdom, the Royal Australian Planning Institute and a Fellow Member of the Malaysian Institute of Planners.

Prior to joining Farlim Group (Malaysia) Bhd., he had served in various senior positions in the Federal Department of Town and Country Planning. These include State Director of Town & Country Planning Department of Trengganu, Director of Regional Planning and Director of Rural Planning in the Federal Department of Town and Country Planning, MR. NG BOCK TYE Peninsular Malaysia. Later followed by a secondment to the Aged 66, Malaysian Regional Development Authority, Johor (“KEJORA”) as Director Executive and Non-Independent of Planning Division. In recognition of his contribution to the planning and implementation of a new township, Bandar Baru Ayer Itam in Penang, the Institute of Planners, Malaysia conferred him the Excellence in Planning Award 1992.

Currently, he is an Executive Director of Farlim Group (Malaysia) Bhd. and Committee Member of the Northern Region Branch of the Malaysian Institute of Planners (MIP).

He was appointed to the Board of Directors of Farlim Group (Malaysia) Bhd. on 19 August 1983. He sits on the Executive Committee comprising Members of the Board. He does not hold any Directorship in other public companies. He does not have any family relationship with any Director and major/ substantial shareholders of Farlim Group (Malaysia) Bhd.

He does not have any conflict of interest with the Company other than that set out in the Disclosure Statements and/or the Financial Statements for the year ended 31 December 2005. He has no convictions for offences within the past ten years other than traffic offences, if any. He attended all of the seven Board Meetings held during the financial year ended 31 December 2005. He is not among the Independent Directors who make up one-third of the total number of Directors.

14 FARLIM GROUP (MALAYSIA) BHD (82275-A) PROFILE OF DIRECTORS (cont’d)

She has more than 16 years of banking experience with The Chase Manhattan Bank NA, and was first head of the Personnel Department from 1976 to 1980. From 1981 to 1985, she headed the Audit Department and was also involved in the lending and private banking services. Datin Seri Chin is now the Group Personnel Director of Farlim Group (Malaysia) Bhd. and is currently entrusted with the Group’s overall human DATIN SERI CHIN CHEW LIN resources functions. Aged 60, Malaysian Executive and Non-Independent She was appointed to the Board of Directors of Farlim Group (Malaysia) Bhd. on 1 January 1995. She is the Chairman of the Employees’ Share Option Scheme Committee and a Member of Remuneration Committee of Directors of the Company. She does not hold any Directorship in other public companies.

She is the spouse of Dato’ Seri Lim Gait Tong, Chairman, Chief Executive and Managing Director of Farlim Group (Malaysia) Bhd. and Director/Shareholder of its holding company Farlim Holding Sdn. Bhd. She is also the sister-in-law of Mr. Lim Yat Koi @ Lim Yoke Kwai, Director of Farlim Group (Malaysia) Bhd. and Director/Shareholder of its holding company Farlim Holding Sdn. Bhd. Save as above, she has no family relationship with Directors and major/substantial shareholders of Farlim Group (Malaysia) Bhd.

She does not have any conflict of interest with the Company other than that set out in the Disclosure Statements and/or the Financial Statements for the year ended 31 December 2005. She has no convictions for offences within the past ten years other than traffic offences, if any. She attended all of the seven Board Meetings held during the financial year ended 31 December 2005. She is not among the Independent Directors who make up one-third of the total number of Directors.

FARLIM GROUP (MALAYSIA) BHD (82275-A) 15 PROFILE OF DIRECTORS (cont’d)

He had completed his secondary education. He started working at the age of 20 and now has more than 30 years of property development experience. In 1961, he secured his Class B licence as a contractor and contracted works between 1961 and 1974 with various governmental agencies, such as the Lembaga Letrik Negara, Jabatan Kerja Raya, Department of Irrigation and Drainage and Jabatan Telekom with projects in Perak, Penang, Selangor Darul Ehsan and Kuala Lumpur. He now heads Farlim Marketing Sdn Bhd and is involved in the marketing and trading of construction materials.

MR. LIM YAT KOI @ LIM YOKE KWAI He was appointed to the Board of Directors of Farlim Group Aged 67, Malaysian (Malaysia) Bhd. on 4 May 1982. He does not sit on any Board Executive and Non-Independent Committee of Farlim Group (Malaysia) Bhd. He does not hold any Directorship in other public companies.

He is a brother of Dato’ Seri Lim Gait Tong, Chairman, Chief Executive and Managing Director of Farlim Group (Malaysia) Bhd. and Director/Shareholder of its holding company Farlim Holding Sdn. Bhd. He is also a brother-in-law of Datin Seri Chin Chew Lin, Director of Farlim Group (Malaysia) Bhd. and its holding company Farlim Holding Sdn. Bhd. Save as above, he has no family relationship with Directors and major/ substantial shareholders of Farlim Group (Malaysia) Bhd.

He does not have any conflict of interest with the Company other than that set out in the Disclosure Statements and/or the Financial Statements for the year ended 31 December 2005. He has no convictions for offences within the past ten years other than traffic offences, if any. He attended six out of the seven Board Meetings held during the financial year ended 31 December 2005. He is not among the Independent Directors who make up one-third of the total number of Directors.

16 FARLIM GROUP (MALAYSIA) BHD (82275-A) PROFILE OF DIRECTORS (cont’d)

officer and then the Company’s Administration Manager. In 1975, he joined Citibank N.A. in Kuala Lumpur as Assistant Vice President and Senior Country Personnel Officer. Thereafter, he was promoted to Vice President and Senior Operations Officer of Citibank till 1980 when he was further promoted to the position of Vice President/ Senior Executive Officer of Citibank for Northern Region of Malaysia. Subsequently in 1986, he was assigned to United States as Citibank’s Vice President in charge of High Networth investments from Asia Pacific to United States. He then advanced his banking career in 1993 with San Francisco Pacific Bank N.A. as their Head of International Private Banking Division as well as Advisor to the Chairman of the Bank. He retired from banking in late 1994 to become a freelance investment and financial consultant operating out of United States. The mission is to provide counseling over international investment portfolios or international projects; MR. LAM CHIN LOONG a position he has been practising ever since gradually scaling Aged 71, Malaysian down to occasional engagement. Mr Lam has been invited Non-Executive and Independent periodically to deliver banking or investment talks in Beijing, China by Berkeley Henderson Management Consulting Company, an international consultancy firm operating in Beijing.

He was appointed to the Board of Directors of Farlim Group (Malaysia) Bhd. on 2 June 1995. He is the Chairman of the He obtained a Diploma in Education from Birmingham Audit Committee comprising Members of the Board and sits University accredited from attending two-year Teacher Training on Nomination Committee of Directors and Remuneration course at Brinsford Lodge, Wolverhamption, England in 1958. Committee of Directors of the Company. He does not hold any He obtained his Bachelor of Arts (Honours) in Mathematics Directorship in other public companies. from University of Malaya in 1969 and also completed the Senior Executive Business Programme at Columbia University, He does not have any family relationship with any Director and New York, USA in 1983. major/substantial shareholders of Farlim Group (Malaysia) Bhd. He does not have any conflict of interest with the Company. He started his career as a high school teacher, then in 1970 He has no convictions for offences within the past ten years as lecturer of Modern Mathematics and Statistics at Penang other than traffic offences, if any. He attended five out of the University (which was later renamed as University Sains six Board Meetings held during the financial year ended 31 Malaysia). In 1972 he ventured into the commercial world December 2005. He is among the Independent Directors who joining NCR Computer Company first as their software division make up one-third of the total number of Directors.

FARLIM GROUP (MALAYSIA) BHD (82275-A) 17 PROFILE OF DIRECTORS (cont’d)

to 1980. From 1980 to 1983, he was Under Secretary Cabinet of Prime Minister’s Department. He was appointed as Director of Service Division, Public Services Department Kuala Lumpur from 1983 to 1986. He retired from civil service after serving as State Secretary Penang from 1986 to 1988. After retirement, he was President of Municipal Council Penang from 1988 to DATO’ ZAINOL ABIDIN BIN DATO’ HAJI SALLEH 1990. He was Chairman of Penang Port Commission from 1 Aged 72, Malaysian January 1994 until 31 December 1995. Currently, he holds Non-Executive and Independent directorships in a number of public limited and private limited companies including Farlim Group (Malaysia) Bhd.

He was appointed to the Board of Directors of Farlim Group (Malaysia) Bhd. on 21 July 1999. He is the Chairman of Remuneration Committee of Directors. He sits on the He graduated with a Bachelor of Arts in History and Malay Nomination Committee of Directors, on the Audit Committee Studies from the University of Malaya. He has also obtained all comprising Members of the Board and on the Employees’ a Certificate in Advance Management Programme from Share Option Scheme Committee of the Company. He University of Hawaii and a Postgraduate Diploma in Public holds other Directorships in Sungai Ara Estate Bhd. and Administration from University of Manchester, England. Yayasan DPMM Pulau Pinang Bhd. He does not have any family relationship with any Director and major/substantial He is a retired senior government administrative officer with 30 shareholders of Farlim Group (Malaysia) Bhd. years of experience. He had held many senior posts in the Federal Government Ministries, State-Government Department and He does not have any conflict of interest with the Company. He local government. Among the senior posts held were Director has no convictions for offences within the past ten years other of Malaysian Students Department of New Zealand from than traffic offences, if any. He attended all of the seven Board 1972 to 1975, Federal Financial Officer cum Acting Federal Meetings held during the financial year ended 31 December Secretary of Sabah from 1975 to 1977 and Deputy Director 2005. He is among the Independent Directors who make up Administration of General Hospital Kuala Lumpur from 1977 one-third of the total number of Directors.

18 FARLIM GROUP (MALAYSIA) BHD (82275-A) PROFILE OF DIRECTORS (cont’d)

warehouses, manufacturing warehouses, ports, airports, post office, sales and service tax establishments, petroleum installations and excise factories, and the prevention of all forms of smuggling.

He was appointed to the Board of Directors of Farlim He spent his entire working life in government service in Group (Malaysia) Bhd. on 27 June 2002. He is the Chairman the Malaysian Royal Customs & Excise Department. He of Nomination Committee of Directors. He sits on the held numerous positions in the government departments Remuneration Committee of Directors and Audit Committee mainly as a Deputy Director of Customs in Johor, Director all comprising Members of the Board. He does not hold any of Tariff & Classification, Director of Tax Collection, Director Directorship in other public companies. He does not have any of Administration & Finance and Head of Intelligence all at family relationship with any Director and major/substantial national level at HQ in Kuala Lumpur before assuming the shareholders of Farlim Group (Malaysia) Bhd. post of State Director of Customs Penang. He does not have any conflict of interest with the Company. He His extensive experience in customs matters entails the has no convictions for offences within the past ten years other administration and supervision of personnel in the country than traffic offences, if any. He attended all of the seven Board and state of Penang, collection of revenue on goods imported Meetings held during the financial year ended 31 December and exported, sales tax, service tax, excise duties, etc; finance 2005. He is among the Independent Directors who make up and budgeting, and the operations of free trade zones, bonded one-third of the total number of Directors.

FARLIM GROUP (MALAYSIA) BHD (82275-A) 19 CHAIRMAN’S STATEMENT

I would like, on behalf of the Board of Directors, to present the Annual Report and Financial Statements of Farlim Group (Malaysia) Bhd. and its group of companies for the financial year ended 31 December 2005.

The launching of the Ninth Malaysia Plan in the year 2006 is a boost to the Malaysian economy. The higher contribution from the private sector to growth, in particular private investment and enhancement of competitiveness are among the priorities under the Ninth Malaysia Plan. The measures to contain inflation to ensure price stability will strengthen the economic fundamentals for a conducive environment for private investment which is crucial to ensure long-term sustainability and resilience of the economy.

A wide spectrum of sectors benefiting from the Ninth Malaysia Plan will bring about a balanced macroeconomic stability for growth. The housing sector is poised for significant growth.

FINANCIAL PERFORMANCE

The Group’s financial performance in the year under review with an increase in turnover from RM201 million in the previous year to RM216 million in the year 2005 is an improvement. However, the Group registered a loss before tax of RM27 million for the financial year ended 31 December 2005 compared to RM20 million in the year 2004 attributable mainly to the operations in the People’s Republic of China.

DIVIDEND

The Board of Directors has recommended that no dividend be declared for the financial year ended 31 December 2005.

OVERVIEW OF THE GROUP’S OPERATIONS

In the year under review, the Group had continued to develop medium cost residential units to cater for the needs of the middle income groups in line with its strategy for development of affordable and quality homes.

The Group had also embarked on sourcing of additional land bank and new projects in the year 2005 for enhancement of profitability of the Group’s operations.

20 FARLIM GROUP (MALAYSIA) BHD (82275-A) CHAIRMAN’S STATEMENT (cont’d)

PROSPECTS

The continual fiscal stimulus formulated by the government to ensure achievement of the desired performance of the Malaysian economy will be expected to yield fruitful results, in particular in the year 2006. While attempts are being made to contain inflation in the wake of fuel price escalation, the conducive environment, both micro and macro, will be a positive catalyst to bring about prospective outlook for the current year. The implementation of the Ninth Malaysia Plan will provide encouraging room for greater achievement of economic growth.

There is certainly strong rationale for our conviction that the prospect for the year under review will not fall short of positive expectations.

Farlim will, in keeping with its policy, continue to strive for greater productivity and achievements.

ACKNOWLEDGEMENTS

I would like, on behalf of the Board of Directors, to express our gratitude to the management and staff of Farlim Group (Malaysia) Bhd. and its group of companies for their contribution and hard work to the Group during the year under review.

I wish to also thank my fellow Directors for their untiring efforts made during the year towards achievement of our corporate objectives.

Finally, I would like, on behalf of the Group, to record our appreciation to the valued shareholders, customers and business associates of Farlim and the authorities for their support rendered to the Group in the year 2005.

DATO’ SERI LIM GAIT TONG CHAIRMAN

FARLIM GROUP (MALAYSIA) BHD (82275-A) 21 PENYATA PENGERUSI

Bagi pihak Lembaga Pengarah, saya selaku Pengerusi dengan PROSPEK-PROSPEK sukacitanya membentangkan Laporan Tahunan dan Penyata Kewangan Farlim Group (Malaysia) Bhd. dan kumpulan Rangsangan fiskal berterusan yang digubal oleh pihak syarikat-syarikatnya bagi tahun kewangan berakhir 31 kerajaan untuk memastikan pencapaian prestasi ekonomi Disember 2005. Malaysia yang baik dijangka akan menghasilkan keputusan yang menguntungkan, terutamanya pada tahun 2006. Pelancaran Pelan Malaysia Ke-9 pada tahun 2006 merupakan Percubaan-percubaan mengawal kadar inflasi walaupun pada satu penambahan kepada ekonomi Malaysia. Sumbangan masa harga petrol kian meningkat berserta suasana mikro yang lebih tinggi oleh sektor swasta terutamanya dalam dan makro yang optimum menjadi pemangkin yang positif ke pelaburan swasta dan peningkatan persaingan turut diberi arah kecemerlangan pada tahun semasa. Pelaksanaan Pelan keutamaan di bawah Pelan Malaysia Ke-9. Langkah-langkah Malaysia Ke-9 akan menggalakkan pencapaian pertumbuhan untuk mengawal inflasi dan seterusnya memastikan ekonomi yang lagi pesat. kestabilan harga akan memperkukuhkan asas-asas ekonomi demi mewujudkan suasana yang sesuai bagi pelaburan Sememangnya terdapat rasional yang bernas bagi keyakinan swasta. Ini amat penting untuk memastikan penerusan dan kami bahawa prospek bagi tahun yang ditinjau amat cerah. daya ketahanan jangka panjang ekonomi. Selaras dengan polisi kami, Farlim akan terus berusaha Banyak sektor yang mendapat manfaat daripada Pelan demi mempertingkatkan lagi produktiviti dan pencapaian Malaysia Ke-9, dan ini akan mewujudkan keseimbangan Kumpulan. makroekonomi yang stabil untuk pertumbuhan. Justeru, sektor perumahan dijangka akan mengalami perkembangan yang signifikan. PENGHARGAAN

Bagi pihak Lembaga Pengarah, saya mengucapkan terima PENCAPAIAN KEWANGAN kasih kepada pihak pengurusan dan semua kakitangan Farlim Group (Malaysia) Bhd. dan kumpulan syarikat-syarikatnya Prestasi kewangan Kumpulan bagi tahun yang ditinjau telah atas sumbangan dan daya usaha mereka kepada Kumpulan mencapai peningkatan dalam perolehan dari RM201 juta pada tahun yang ditinjau. pada tahun sebelumnya ke RM216 juta pada tahun 2005. Namun, Kumpulan telah mendaftarkan kerugian sebelum Saya turut ingin mengucapkan terima kasih kepada para cukai sebanyak RM27 juta bagi tahun kewangan berakhir 31 pengarah atas usaha-usaha mereka ke arah pencapaian Disember 2005 berbanding dengan RM20 juta pada tahun objektif-objektif koprat kami pada tahun tersebut. 2004. Operasi-operasi di Republik Rakyat China dianggap sebagai punca utama peningkatan dalam kerugian. Akhir sekali, bagi pihak Kumpulan, saya ingin merakamkan penghargaan kami kepada pemegang-pemegang saham, pelanggan-pelanggan, rakan-rakan perniagaan dan pihak- DIVIDEN pihak berkuasa yang disanjungi atas sokongan mereka terhadap Kumpulan pada tahun 2005. Lembaga Pengarah telah mengesyorkan bahawa tiada dividen yang akan diisytiharkan bagi tahun kewangan berakhir 31 Disember 2005.

TINJAUAN OPERASI-OPERASI KUMPULAN DATO’ SERI LIM GAIT TONG Bagi tahun yang ditinjau, Kumpulan telah terus memajukan PENGERUSI unit perumahan kos sederhana untuk memenuhi keperluan golongan berpendapatan sederhana. Ini sejajar dengan strategi Kumpulan untuk pembangunan perumahan yang berpatutan serta berkualiti.

Kumpulan juga giat memperolehi bank tanah tambahan serta projek-projek baru dalam tahun 2005 bagi mempertingkatkan keuntungan operasi-operasi Kumpulan.

22 FARLIM GROUP (MALAYSIA) BHD (82275-A) FARLIM GROUP (MALAYSIA) BHD (82275-A) 23 24 FARLIM GROUP (MALAYSIA) BHD (82275-A) AUDIT COMMITTEE REPORT

The Board established the Audit Committee in 1995, and the composition of the Committee and other information as at the date of this report are as follows: -

COMPOSITION OF THE COMMITTEE Designation and Directorship of the Members

1) Mr. Lam Chin Loong Chairman, Non-Executive and Independent Director

2) Dato’ Zainol Abidin Bin Dato’ Haji Salleh Member, Non-Executive and Independent Director

3) Encik Ahmad Kamarudin Bin Ismail Member, Non-Executive and Independent Director

Secretary to the Committee

Kwong Yook Faan – Company Secretary

The Committee appointed by the Board from amongst the Directors comprises no fewer than three Members, of whom all are Non-Executive and Independent Directors.

The Chairman of the Committee is elected from amongst the Non-Executive and Independent Directors.

No alternate Director is appointed as a Member of the Audit Committee.

TERMS OF REFERENCE

The functions of the Committee are to

A) review and report the following to the Board of Directors : -

1. with the external Auditors, the audit plan ; 2. with the external Auditors, their evaluation of the system of internal controls ; 3. with the external Auditors, their audit report ; 4. the assistance given by the employees of the Company to the external Auditors ; 5. the adequacy of the scope, functions and resources of the internal audit functions and that it has the necessary authority to carry out its work ; 6. the internal audit programme, processes, the results of the internal audit programme, processes or investigation undertaken and whether or not appropriate action is taken on the recommendations of the internal audit function ; 7. the quarterly results and year end financial statements, prior to the approval by the Board of Directors, focusing particularly on : - i) changes in or implementation of major accounting policy changes ; ii) significant and unusual events ; and iii) compliance with accounting standards and other legal requirements. 8. any related party transaction and conflict of interest situation that may arise within the Company or Group including any transaction, procedure or course of conduct that raises questions of management integrity ; 9. any letter of resignation from the external Auditors of the Company ; and 10. whether there is reason (supported by grounds) to believe that the Company’s external Auditors are not suitable for re- appointment ;

B) recommend the nomination of a person or persons as external Auditors ; and

C) such other functions as may be agreed by the Committee and the Board of Directors.

FARLIM GROUP (MALAYSIA) BHD (82275-A) 25 AUDIT COMMITTEE REPORT (cont’d)

MEETINGS

Meetings shall be held not less than twice a year, and at such other time as the Committee deems necessary.

Other Directors and employees shall attend any particular Audit Committee Meeting only at the invitation of the Audit Committee, specific to the relevant Meeting.

The number of Audit Committee Meetings held during the financial year ended 31 December 2005 and details of attendance of each Member are as follows: -

Names of Committee Members No. of Meetings Held* Attended

Mr. Lam Chin Loong (ceased as Director with effect from 1 January 2005 and re-appointed on 8 April 2005) 6 5 Mr. Wei Chee Keong (ceased as Director on 30 June 2005) 5 4 Dato’ Zainol Abidin Bin Dato’ Haji Salleh 7 7 Encik Ahmad Kamarudin Bin Ismail 7 7

* On 21 February 2005, 23 April 2005, 9 May 2005, 27 May 2005, 23 June 2005, 26 August 2005 and 16 November 2005.

ACTIVITIES DURING THE YEAR

The Audit Committee, in addition to review of quarterly financial results and year end financial statements, has during the year examined the weaknesses and recommendations by external Auditors on accounting and internal control systems following audit of the Group accounts and provided independent view as well as comments where relevant.

Other activities the Audit Committee carried out during the year included, inter alia, the following:-

1. Review of statement in relation to the allocation of options pursuant to a share option scheme for employees; 2. Review of related party transactions; and 3. Review of audit schedule for the year.

INTERNAL AUDIT FUNCTION

An Internal Audit Department has been set up by the Company prior to the year 2005, which discharges the function of internal audit.

26 FARLIM GROUP (MALAYSIA) BHD (82275-A) CORPORATE GOVERNANCE STATEMENTS

The Board of Directors which is entrusted with the principal responsibility for good corporate governance of the Company is endeavouring to secure fulfillment of its responsibility in this aspect.

In manifestation of its commitment for good corporate governance as enumerated in The Malaysian Code of Corporate Governance, appropriate measures have been or are being taken by the Company for compliance with the said Code.

STATEMENT ON HOW THE COMPANY HAS APPLIED THE PRINCIPLES OF CORPORATE GOVERNANCE

A Directors

i) The Board

The Board of Directors of the Company comprises eight Members, of whom five are Executive and/or Non-Independent Directors.

ii) Board Balance

The Board Members who are from varied background are equipped with relevant knowledge and/or experience for proper running of the management machinery towards achievement of objectives of the Company. The Board is headed by the Chairman who is also the Managing Director and Chief Executive for implementation of decisions of the Board. To alleviate the risk where the roles of Chairman, Managing Director and Chief Executive are combined, sufficient number of Independent Directors has been maintained to meet the requirements of Bursa Malaysia Securities Berhad in relation to one-third Independent Directors unless otherwise approved by Bursa Malaysia Securities Berhad.

iii) Supply of Information

Members of the Board are given easy access to quality information required by the Board in the discharge of its duties. Data and reports in both soft and hard copies are readily available to the Board Members. Board Meetings which are scheduled to be held at least five times yearly are also presented with relevant reports for decision-making of the issues concerned. The Executive Committee (EXCO) comprising three Board Members who meet on a monthly basis are provided with reports from the Management Committee comprising senior management personnel. Minutes of Board as well as EXCO Meetings are circulated to all Board Members including Non-Executive Directors after each meeting.

iv) Appointments to the Board

A Nomination Committee of Directors currently comprising three Non-Executive and Independent Directors has been set up in relation to, inter alia, appointments to the Board.

New appointments to the Board will be made only after consultation and deliberation among existing Board Members taking into account the candidate’s suitability based on, among others, his or her qualification, experience and calibre prior to formal resolution being passed to that effect.

v) Re-election

All Directors including the Managing Director are subject to retirement every three years on the basis that one-third in number of the Directors are to retire by rotation at each Annual General Meeting but are eligible for re-election.

FARLIM GROUP (MALAYSIA) BHD (82275-A) 27 CORPORATE GOVERNANCE STATEMENTS (cont’d)

B Directors’ Remuneration

i) The level and make-up of remuneration

The remuneration of Board Members are broadly categorised into those to be paid to Executive and Non-Executive Directors. The Executive Directors including the Managing Director or Executive Chairman are remunerated both in cash and in kind taking into consideration, inter alia, their experience, positions, responsibilities and performance. The Non-Executive Directors are paid fees for their services as Directors subject to shareholders’ approval at Annual General Meeting and allowances for attending meetings of the Board and its Committees.

ii) Procedure

Formal and transparent procedure will be set out for developing a policy on executive remuneration and for fixing the remuneration packages of individual Directors, whether Executive or Non-Executive, who will abstain from discussion and participation in decisions on their own remuneration packages.

iii) Disclosure

Details of remuneration of Directors are as set out in this Annual Report. Standards will be set which provide a rational and objective remuneration policy.

C Shareholders

i) Dialogue between companies and investors

The Company is ready for entering into dialogue with institutional shareholders based on mutual understanding of objectives.

ii) The Annual General Meeting

The Company is prepared for use of the Annual General Meeting for communication with shareholders and welcomes their participation.

D Accountability and Audit

i) Financial reporting

The Board presents in the Annual Report to shareholders a balanced and understandable assessment of the position and prospects of the Company.

ii) Internal control

The Board, in line with safeguarding shareholders’ investments and assets of the Company, has set up an Internal Control Department which covers not only financial control but also that of operational aspect.

iii) Relationship with Auditors

The Board has established formal and transparent arrangements for maintaining an appropriate relationship with the Auditors of the Company on the basis of the link between the Audit Committee and the Auditors.

The functions of the Audit Committee include, inter alia, review of external audit plan as well as external Auditors’ Report.

28 FARLIM GROUP (MALAYSIA) BHD (82275-A) CORPORATE GOVERNANCE STATEMENTS (cont’d)

STATEMENT ON THE EXTENT OF COMPLIANCE WITH THE BEST PRACTICES IN CORPORATE GOVERNANCE

AA Board of Directors

I) Principal responsibilities of the Board

The Board in discharge of its stewardship responsibilities has endeavoured to bring about strategic planning, overseeing the conduct of the operations, identifying principal risks and reviewing internal control systems and information systems, and will also look into succession planning and investor relation programmes or shareholder communication policy.

II) Chairman & Chief Executive Ofﬁcer

The posts of Chairman and Chief Executive are held by one and the same person from 22 July 1988 and may be reviewed in compliance with the requirements of The Malaysian Code on Corporate Governance to ensure a division of responsibilities and balance of power and authority.

III) Board Balance

Currently, the Board comprises eight members, of whom three being more than one-third are Non-Executive and Independent Directors who are persons of calibre, credibility and/or with requisite experience to render independent judgement on relevant issues.

Size of Non-executive Participation

IV) Directors representing minority shareholders

The Board may, in addition to the requirements of Bursa Malaysia Securities Berhad in relation to one-third Independent Directors, consider appointment of additional Directors which fairly reflects the investment in the Company by minority shareholders.

V) Largest shareholder other than the majority shareholder

The largest shareholder of the Company is also the majority shareholder which is the holding company.

VI) One-third Independent Directors

The Company is in compliance with the requirements of Bursa Malaysia Securities Berhad in relation to one-third Independent Directors.

VII) Senior Independent Non-Executive Director

A Senior Independent Non-Executive Director has been identified for conveying concerns over the combination of roles of Chairman and Chief Executive.

FARLIM GROUP (MALAYSIA) BHD (82275-A) 29 CORPORATE GOVERNANCE STATEMENTS (cont’d)

STATEMENT ON THE EXTENT OF COMPLIANCE WITH THE BEST PRACTICES IN CORPORATE GOVERNANCE (CONT’D)

AA Board of Directors (cont’d)

Size of Non-executive Participation (cont’d)

VIII) Appointments to the Board

A Nomination Committee comprising exclusively Non-Executive Directors namely Encik Ahmad Kamarudin Bin Ismail (Chairman), Mr. Lam Chin Loong and Dato’ Zainol Abidin Bin Dato’ Haji Salleh, all of whom are independent, has been appointed, with the responsibility of proposing new nominees for appointment as Board Members and for assessing Directors on an on-going basis.

The functions of the Nomination Committee are , inter alia, the following:-

a) Recommend to the Board candidates for all directorships to be filled by the shareholders or the Board;

b) Consider in making its recommendations candidates for directorships proposed by the Chief Executive and within the bounds of practicability by any other senior executive or any Director or shareholder; and

c) Recommend to the Board candidates who are Directors to fill the seats on Board committees.

IX) Review of quality mix of Board Members

Annual review will, as and when deemed fit, be made by the Board through the Nomination Committee of the required mix of skills, experience and other qualities including core competencies which Non-Executive Directors will bring to the Board.

X) Annual assessment of performance of the Board

The Board will consider implementation of a process to be carried out by the Nomination Committee on an annual basis for assessing the effectiveness of the Board as a whole and the committees of the Board, and for assessing the contribution of each individual Director.

XI) Services of Company Secretary

The requisite services of Company Secretary have been secured who will, inter alia, effect proper documentation of all appointments, endeavour procurement of required information for the records of the Company and for the purposes of meeting statutory obligations as well as obligations arising from listing rules of Stock Exchanges or other regulatory requirements.

XII) Size of Board

The size of the Board is eight in number in compliance with the requirements of Bursa Malaysia Securities Berhad in relation to one-third Independent Directors.

The Board will, from time to time, examine its size with a view to determining the impact of the number of members upon its effectiveness.

XIII) Directors’ Training

Orientation and education programmes will, if deemed fit, be arranged for new recruits to the Board as an integral element of the process of appointing new Directors.

30 FARLIM GROUP (MALAYSIA) BHD (82275-A) CORPORATE GOVERNANCE STATEMENTS (cont’d)

STATEMENT ON THE EXTENT OF COMPLIANCE WITH THE BEST PRACTICES IN CORPORATE GOVERNANCE (CONT’D)

AA Board of Directors (cont’d)

Board structures and procedures

XIV) Board Meetings

The Board meets with due notice and agenda on a regular basis which are properly minuted. During the year, seven Board Meetings had been held, details of attendance of which by each individual Director are as set out in this Annual Report.

XV) Formal schedule of matters

There are formal schedule of matters specifically reserved to the Board for decision-making to ensure that the direction and control of the Company are firmly in its hands.

Relationship of the Board to management

XVI) Position descriptions and corporate objectives

The Board together with the Chief Executive will develop position descriptions for the Board and for the Chief Executive setting out limits to management’s responsibilities.

The corporate objectives will be approved by the Board or developed with the Chief Executive who is responsible for meeting.

XVII) Quality of information

The Board has access to quality information which is not only historical or bottom line and financial-oriented but also that goes beyond assessing the quantitative performance of the Company such as customer satisfaction, product and service quality among others.

XVIII) Information organising

The Chairman of the Board undertakes primary responsibility for organising information required, such as that to be arranged for circulation by the Company Secretary, for Board Meetings and to Directors on a timely basis.

As the Chairman is also the Chief Executive in this particular case, the Board will have in place a procedure to ensure that its items for agenda of Board Meetings are included for Board Meetings and relevant information is provided accordingly.

XIX) Access to information

Directors have access to all information within the Company whether as a full Board or in their individual capacity in furtherance of their duties.

XX) Access to advice

There will be an agreed procedure for Directors whether as a full Board or in their individual capacity in furtherance of their duties to take independent professional advice at the expense, if any, of the Company.

XXI) Company Secretary

The Directors have access to the advice and services of the Company Secretary.

FARLIM GROUP (MALAYSIA) BHD (82275-A) 31 CORPORATE GOVERNANCE STATEMENTS (cont’d)

STATEMENT ON THE EXTENT OF COMPLIANCE WITH THE BEST PRACTICES IN CORPORATE GOVERNANCE (CONT’D)

AA Board of Directors (cont’d)

Relationship of the Board to management (cont’d)

XXII) Appointment of Company Secretary

The Company Secretary who meets the requirements is appointed by the Board for discharge of the duties and termination of his or her services is a matter of the Board as a whole.

The Board recognises that the Chairman is entitled to the strong and positive support of the Company Secretary in ensuring the effective functioning of the Board.

XXIII) Use of Board Committees

The authority or terms of reference of committees appointed by the Board are determined whether expressed or implied for a particular purpose. Authority to act on behalf of the Board is delegated if required.

XXIV) Remuneration Committee

A Remuneration Committee of Directors consisting mainly of Non-Executive Directors has been set up to recommend to the Board remuneration of Executive Directors in all its forms drawing from outside advice as necessary.

The Members of the said Committee are as follows : -

1. Dato’ Zainol Abidin Bin Dato’ Haji Salleh (Chairman); 2. Datin Seri Chin Chew Lin; 3. Mr. Lam Chin Loong; and 4. Encik Ahmad Kamarudin Bin Ismail.

Executive Directors will play no part in decisions on their own remuneration. Determination of remuneration packages of Non-Executive Directors is a matter of the Board as a whole. The individuals concerned will abstain from discussion of their own remuneration.

BB Accountability and Audit

The Audit Committee

I Composition

An Audit Committee has been established comprising three Non-Executive and Independent Directors with expressed terms of reference which deal with its authority and duties.

The Chairman of Audit Committee is a Non-Executive and Independent Director.

32 FARLIM GROUP (MALAYSIA) BHD (82275-A) CORPORATE GOVERNANCE STATEMENTS (cont’d)

STATEMENT ON THE EXTENT OF COMPLIANCE WITH THE BEST PRACTICES IN CORPORATE GOVERNANCE (CONT’D)

BB Accountability and Audit (cont’d)

The Audit Committee (cont’d)

II) Duties of Audit Committee are as set out hereunder:-

A) review and report the following to the Board of Directors : -

1) with the external Auditors, the audit plan ; 2) with the external Auditors, their evaluation of the system of internal controls ; 3) with the external Auditors, their audit report ; 4) the co-operation given by the employees of the Company to the external Auditors ; 5) the adequacy of the scope, functions and resources of the internal audit functions and that it has the necessary authority to carry out its work ; 6) the internal audit programme, processes, the results of the internal audit programme, processes or investigation undertaken and whether or not appropriate action is taken on the recommendations of the internal audit function ; 7) the quarterly results and year end financial statements, prior to the approval by the Board of Directors, focusing particularly on : - i) changes in or implementation of major accounting policy changes, if any ; ii) significant and unusual events ; and iii) compliance with accounting standards and other legal requirements. 8) any related party transaction and conflict of interest situation that may arise within the Company or Group including any transaction, procedure or course of conduct that raises questions of integrity ; 9) any change of external Auditors of the Company ; and 10) whether there is reason (supported by grounds) to believe that the Company’s external Auditors are not suitable for re-appointment.

B) recommend the nomination of external Auditors ; and

C) such other functions as may be agreed by the Committee and the Board of Directors.

III) External Auditors

The external Auditors or their representatives are among those who usually attended the Audit Committee Meetings.

The Audit Committee will endeavour to meet at least once a year with the external Auditors without the presence of the Board Members who are Executive Directors.

IV) Authority to investigate

The Audit Committee has explicit authority to investigate any matter within its terms of reference, the resources which it needs to do so and full access to information.

The Committee will be able to obtain external professional advice and to invite others with relevant experience to attend if the need arises.

V) Audit Committee Meetings

The Audit Committee meets regularly with due notice and agenda in compliance with the requirements of Bursa Malaysia Securities Berhad. Proceedings of the meetings are properly minuted.

FARLIM GROUP (MALAYSIA) BHD (82275-A) 33 CORPORATE GOVERNANCE STATEMENTS (cont’d)

STATEMENT ON THE EXTENT OF COMPLIANCE WITH THE BEST PRACTICES IN CORPORATE GOVERNANCE (CONT’D)

BB Accountability and Audit (cont’d)

VI) Disclosure of activities

Details of activities of the Audit Committee are disclosed by the Board in an informative way including the number of Audit Committee Meetings held during the year and attendance of each individual Director at the said Meetings.

CC Shareholders

The relationship between the Board and shareholders

The Board will maintain an effective communication policy for the Board and management to communicate effectively with its shareholders, stakeholders and the public generally.

This policy will effectively interpret the operations of the Company to the shareholders and must accommodate feedback from shareholders, which will be factored into the business decisions of the Company.

STATEMENT EXPLAINING THE BOARD OF DIRECTORS’ RESPONSIBILITY FOR PREPARING THE ANNUAL AUDITED FINANCIAL STATEMENTS

Board of Directors’ confirms its responsibility for preparation of the Annual Audited Financial Statements.

Date: 8 May 2006

34 FARLIM GROUP (MALAYSIA) BHD (82275-A) STATEMENT ON INTERNAL CONTROL

Introduction

The Board of Directors (‘Board’) as guided by the ‘ Statement on Internal Control: Guidance for Directors of Public Listed Companies’ is pleased to provide the following Statement of Internal Controls which outlines the formal risk management framework and key internal controls. The Board is responsible for Farlim Group (Malaysia) Bhd’s (the ‘Group’) system of internal controls and its effectiveness.

Board’s Responsibility

The Board is responsible for a sound system of internal controls which covers risk management, financial, organizational, operational and compliance controls. The Board acknowledges it’s overall responsibility for the Group’s system of internal control and for reviewing the effectiveness, adequacy and integrity of the system. The system is designed to only provide reasonable but not absolute assurance against the risk of material loss and misstatements. The Board is of the view that the system of internal controls in place for the year under review and up to the date of issuance of the annual report is sound and effective to safeguard interest of stakeholders, customers, regulators, employees and the Group’s assets.

Risk Management Framework

The Board recognizes the need for continuous improvement to its system of internal control and has taken steps to formalize and enhance the Group’s procedures and risk management framework. The risk management process is an on-going process with regular reviews by the Audit Committee assisted by the Internal Audit department.

The Group’s risk management framework allows the management to identify and assess risks, which covers operational, financial, and compliance controls of risk management. The functional management has defined accountability and authority level, which has been established through the standard operating procedures. To further promote the risk management culture, briefings and discussions were conducted with management staffs within the Group. This includes formal budgets and analysis reporting, identification of authorization limits with clear lines of accountability and responsibility. Steps have been taken to formalize Group’s policies, guidelines and enhance the management information systems

Key Elements of Control Structure

Key elements of the Group’s system of internal controls include: -

• Organization structure with defined lines of responsibilities, segregation of duties and workflow. • Clearly defined authority limits for all aspects of business. • Regular and comprehensive informations are provided to management. • Regular monitoring of results against budget covering financial performance and key business indicators with major variances being acted upon. • Written company’s policies, standard operating procedures, code of conduct and values. • An internal audit function that monitors the effective application of the policies, processes and activities that relates to internal control and risk management.

FARLIM GROUP (MALAYSIA) BHD (82275-A) 35 STATEMENT ON INTERNAL CONTROL (cont’d)

Monitoring and Review Process

The Board has made constant effort in identifying, evaluating and managing the significant risks faced by the Group during the financial year under review. The system of internal controls described in this statement is considered by the Board to be adequate and the risks are considered by the Board to be at an acceptable level within the context of the business environment throughout the Group’s businesses.

The systems of internal controls that exist throughout the financial year under review provide a level of confidence on which the Board relied for assurance. There are no major control deficiencies noted during the financial year under review, which has a material impact on the Group’s financial performance or operations.

The Board of Directors confirms the adequacy of internal control of the company as a Group.

This statement does not cover the subsidiary companies and associated companies operating in the People’s Republic of China in view of the proposed disposals of these companies by Farlim Group (Malaysia) Berhad.

36 FARLIM GROUP (MALAYSIA) BHD (82275-A) DISCLOSURE STATEMENTS as at 8 May 2006

1.0 Directors’ Remuneration for the ﬁnancial year ended 31 December 2005

1.1 Aggregate remuneration of Directors with categorisation into appropriate components : -

Salaries, Bonuses, Allowances & Provision for Fees Benefits in Kind Retirement Benefits RM RM RM

Executive – 1,371,039 220,000 Non-Executive 66,000 14,250 –

1.2 Number of Directors whose remuneration falls in the following bands : -

Number of Directors Remuneration Band Executive Non-Executive

Below RM50,000 1 3 RM250,001 to RM300,000 2 – RM300,001 to RM350,000 1 – RM400,001 to RM450,000 1 –

2.0 Board of Directors’ Meetings

A total of seven Board Meetings were held during the financial year ended 31 December 2005.

3.0 Sanctions and/or Penalties RM Tax penalty under Section 107C (10) of the Income Tax Act, 1967 in respect of Farlim Group (Malaysia ) Bhd 41,454.11

4.0 Material Contracts

There are no material contracts subsisting at the end of the financial year ended 31 December 2005 or entered into since the end of the previous financial year involving Directors and Major Shareholders’ interests save and except for the amount of RM61,487,048.00 owing by the holding company Farlim Holding Sdn. Bhd. (FHSB) as at 31 December 2005 comprising principal loan of RM41,384,737.00 and interest capitalised of RM20,102,311.00. Other details such as proposed repayment of the amount owing are as set out in Note 9 to the Financial Statements for the year ended 31 December 2005.

The relationship between FHSB and the Directors or Major Shareholders of Farlim Group (Malaysia) Bhd. [“FG(M)B”] is that the Directors namely Dato’ Seri Lim Gait Tong, Dato’ Haji Mohd. Iqbal Bin Kuppa Pitchai Rawther, Mr. Ng Bock Tye, Datin Seri Chin Chew Lin and Mr. Lim Yat Koi @ Lim Yoke Kwai are also Directors and/or Shareholders of FHSB and that FHSB is also a Major Shareholder of FG(M)B.

5.0 Revaluation Policy

The Group is to review the market value of its landed properties on an annual basis in accordance with the impairment policy.

Previously, the Group’s policy was to revalue its landed properties at least once in every 5 years.

FARLIM GROUP (MALAYSIA) BHD (82275-A) 37 DISCLOSURE STATEMENTS (cont’d) as at 8 May 2006

6.0 Employees’ Share Option Scheme

Statement by the Audit Committee in relation to the allocation of options pursuant to a share scheme for employees as required under Paragraph 8.21A of Listing Requirements of Bursa Malaysia Securities Berhad (BMSB):-

i) FG(M)B has disclosed to employees the criteria for allocation of options pursuant to a share scheme for employees; and

ii) FG(M)B has ensured that allocation of options pursuant to a scheme is verified by the Audit Committee as being in compliance with the criteria referred to above at the end of the financial year ended 31 December 2005.

Breakdown of the options offered to and exercised (if any) by Non-Executive Directors pursuant to a share scheme for employees in respect of the financial year ended 31 December 2005 pursuant to Appendix 9C Part A (26) of Listing Requirements of BMSB:-

Amount of Amount of Name of Director options offered options exercised

Lam Chin Loong - - Dato’ Zainol Abidin Bin Dato’ Haji Salleh - - Ahmad Kamarudin Bin Ismail - -

7.0 Continuing Education Programme (‘CEP’)

The Board of Directors at its Meeting held on November 16, 2005 resolved that the Board of Directors, having evaluated and determined the training needs of its Directors in accordance with Listing Requirements of BMSB, was of the view that its Directors had satisfied such training needs and would, as and when deemed appropriate, attend further training to be determined from time to time.

38 FARLIM GROUP (MALAYSIA) BHD (82275-A) Directors’ Report 40 - 46

Balance Sheets 47

Income Statements 48

Statements of Changes in Equity 49

Cash Flow Statements 50-51

Notes to the Financial Statements 52 - 96

Statement by Directors 97

Statutory Declaration 97

Report of the Auditors to the Members of Farlim Group (Malaysia) Bhd. 98

Report of the Auditors to the Controller of Housing pursuant to Section 9(3) of the Housing Development (Control And Licensing) Act, 1966 on the Financial Statements of Farlim Group (Malaysia) Bhd. 99

Report of the Auditors to the Controller of Housing Pursuant to Regulation 12 of the Housing Development (Housing Development Account) Regulations 1991 on the Financial Statements of Farlim Group (Malaysia) Bhd. 100

FL 1C prf5.indd 39 5/27/06 12:27:46 PM DIRECTORS’ REPORT

The directors hereby submit their report together with the audited financial statements of the Group and of the Company for the financial year ended 31st December 2005.

PRINCIPAL ACTIVITIES

There have been no significant changes in the nature of these principal activities during the financial year.

RESULTS

Group Company RM RM

Loss after taxation (29,353,005) (22,583,376) Minority interests 9,801,462 – Net loss attributable to shareholders (19,551,543) (22,583,376)

DIVIDEND

No dividend was paid or declared by the Company since the end of the previous financial year.

The directors do not recommend the payment of any dividend in respect of the financial year ended 31st December 2005.

RESERVES AND PROVISIONS

All material transfers to and from reserves and provisions during the financial year have been disclosed in the financial statements.

BAD AND DOUBTFUL DEBTS

Before the income statements and balance sheets of the Group and of the Company were made out, the directors took reasonable steps to ascertain that action had been taken in relation to the writing off of bad debts and the making of allowance for doubtful debts, and satisfied themselves that all known bad debts had been written off and that adequate allowance had been made for doubtful debts.

At the date of this report, the directors are not aware of any circumstances that would render the amount written off for bad debts, or the amount of the allowance for doubtful debts, in the financial statements of the Group and of the Company inadequate to any substantial extent.

CURRENT ASSETS

Before the income statements and balance sheets of the Group and of the Company were made out, the directors took reasonable steps to ensure that any current assets, other than debts, which were unlikely to realise in the ordinary course of business, their values as shown in the accounting records of the Group and of the Company had been written down to an amount that they might be expected to realise.

At the date of this report, the directors are not aware of any circumstances that would render the values attributed to the current assets in the financial statements of the Group and of the Company misleading.

40 FARLIM GROUP (MALAYSIA) BHD (82275-A) DIRECTORS’ REPORT (cont’d)

VALUATION METHODS

At the date of this report, the directors are not aware of any circumstances which have arisen which render adherence to the existing methods of valuation of assets or liabilities of the Group and of the Company misleading or inappropriate.

CONTINGENT AND OTHER LIABILITIES

At the date of this report, there does not exist:-

(i) any charge on the assets of the Group and of the Company that has arisen since the end of the financial year which secures the liabilities of any other person, or

(ii) any contingent liability in respect of the Group and of the Company that has arisen since the end of the financial year.

No contingent liability or other liability of the Group and of the Company has become enforceable, or is likely to become enforceable within the period of twelve months after the end of the financial year which, in the opinion of the directors, will or may substantially affect the ability of the Group and of the Company to meet their obligations as and when they fall due.

CHANGE OF CIRCUMSTANCES

At the date of this report, the directors are not aware of any circumstances, not otherwise dealt with in this report or the financial statements of the Group and of the Company, that would render any amount stated in the financial statements misleading.

ITEMS OF AN UNUSUAL NATURE

The results of the operations of the Group and of the Company for the financial year were not, in the opinion of the directors, substantially affected by any item, transaction or event of a material and unusual nature.

There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the directors, to affect substantially the results of the operations of the Group and of the Company for the financial year other than as disclosed in Notes 9 and 38 to the financial statements.

ISSUE OF SHARES AND DEBENTURES

During the financial year, the Company has not issued any shares or debentures.

EMPLOYEES’ SHARE OPTION SCHEME

The Farlim Group (Malaysia) Bhd’s. Employees’ Share Option Scheme (“ESOS”) was approved by the shareholders at the Extraordinary General Meeting held on 25th June 2003 and shall be in force for a period of ten (10) years from the date of implementation on 22nd September 2003.

The main features of the ESOS are as follows:-

(a) The total number of new shares to be offered under the ESOS shall not exceed ten percent (10%) of the issued and paid-up share capital of the Company at any point in time during the duration of the ESOS. The Company will, during the Option period, keep available sufficient authorised and unissued shares to satisfy all outstanding Options which may be exercisable throughout the duration of the ESOS.

FARLIM GROUP (MALAYSIA) BHD (82275-A) 41 DIRECTORS’ REPORT (cont’d)

EMPLOYEES’ SHARE OPTION SCHEME (CONT’D)

(b) An Eligible Employee is an employee of the Company or its subsidiaries (“the Group”) who at the date of allocation:-

(i) has attained the age of eighteen (18) years;

(ii) is a confirmed employee of the Group with at least one (1) year of continuous service; or

(iii) is an employee or Executive Director of a subsidiary company acquired during the duration of the scheme, being the employee or the Executive Director who must complete at least six (6) months of continuous services.

(i) The number of shares to be offered to any Eligible Employee shall not be less than 100 shares nor more than 525,000 shares.

(ii) The actual allocation to an Eligible Employee shall be essentially based on seniority of job position, length of service and performance with the Group.

At the discretion of the ESOS Committee, where an Eligible Employee is promoted, he/she may be eligible for consideration for new additional shares up to the Maximum Allowable Allotment for the category to which he/she has been promoted.

(d) The option price of each share shall be based on a discount of not more than 10% of the weighted average market price of the ordinary shares of the Company as shown in the Daily Official List for the five (5) market days immediately preceding the offer date, subject to the minimum price of RM1/- being the par value of the ordinary shares of the Company.

(e) The Option granted to a Grantee is exercisable only by that Grantee during his/her employment with the Group and within the Option period subject to Bye-Laws 18 of the Bye-Laws.

The Option can be exercised by the Grantee in accordance with the following schedule:-

Number of Options Granted Percentage of Options Exercisable Year Year Year Year Year 1 2 3 4 5

Below 25,000 100% – – – – 25,000 to less than 100,000 40%* 30% 30%** – – 100,000 and above 20% 20% 20% 20% 20%

* 40% or 25,000 Options, whichever is the higher ** 30% or the remaining number of Options unexercised.

The Option may be exercised in full or in part provided that such exercise of the Option shall not be less than and shall be multiples of 100 shares. Subject to the foregoing, a partial exercise of an Option shall not preclude the grantee from exercising his Option with respect to the balance of the new shares comprised in his Option.

(f) The new shares to be allotted upon the exercise of an Option shall upon issued and allotment, rank pari passu in all respects with the existing issued shares of the Company except that they will not be entitled to any dividend rights, allotments and/ or other distributions, the entitlement date of which is prior to the date of allotment of the new shares and will be subject to all provisions of the Articles of Association of the Company relating to transfer, transmission and otherwise be declared, made or paid, the record date of which is on or before the allotment date.

42 FARLIM GROUP (MALAYSIA) BHD (82275-A) DIRECTORS’ REPORT (cont’d)

EMPLOYEES’ SHARE OPTION SCHEME (CONT’D)

The movements in the options exercisable by the Eligible Employees during the financial year to take up unissued ordinary shares of RM1/- each at the option price of RM1/- per share were as follows:-

Options Exercisable Over Ordinary Shares of RM1/- each Exercisable Excercisable At At 1.1.2005 Entitlement Lapsed 31.12.2005

4,756,000 1,733,000 404,000 6,085,000

The Company had been granted an exemption by the Companies Commission of Malaysia from having to disclose the details of option holders who have been granted options in aggregate of less than 70,000 options. The options shall be in force for a period of ten (10) years. The details of the option holders in aggregate of 70,000 options and above are set out below:-

Options Exercisable (including directors) Over Ordinary Shares of RM1/- each Exercisable Additional Exercisable At 1.1.2005 Exercisable Exercised Lapsed At 31.12.2005

Dato’ Seri Lim Gait Tong 210,000 105,000 – – 315,000 Dato’ Haji Mohd. Iqbal Bin Kuppa Pitchai Rawther 210,000 105,000 – – 315,000 Ng Bock Tye 210,000 105,000 – – 315,000 Lim Yat Koi @ Lim Yoke Kwai 210,000 105,000 – – 315,000 Datin Seri Chin Chew Lin 182,000 91,000 – – 273,000 Ng Hong Kiat 150,000 75,000 – – 225,000 Ooi Poh Tin 150,000 75,000 – – 225,000 Tan Keng Hock 150,000 75,000 – – 225,000 Lim Hock Eng 108,000 54,000 – – 162,000 Lim Cheng Kee 92,000 46,000 – – 138,000 Kwong Yook Faan 78,000 39,000 – – 117,000 Lim Chuan Boon 66,000 33,000 – – 99,000 Chow Soey Mei 60,000 30,000 – – 90,000 Ruban James A/L Thangiah 60,000 30,000 – – 90,000 Hor Chee Keong 60,000 25,000 – – 85,000 Lim Cheow Lin 60,000 25,000 – – 85,000 Chwee Chee Lock 60,000 25,000 – – 85,000 Lee Liak Chin 60,000 25,000 – – 85,000 Teh Lee Eng 60,000 25,000 – – 85,000 Tey Teng Huat 52,000 26,000 – – 78,000 Chua Chai Hong 49,000 21,000 – – 70,000 Ng Chee Shin 49,000 21,000 – – 70,000

FARLIM GROUP (MALAYSIA) BHD (82275-A) 43 DIRECTORS’ REPORT (cont’d)

DIRECTORS

The directors in office since the date of the last report are:-

Dato’ Seri Lim Gait Tong Dato’ Haji Mohd. Iqbal Bin Kuppa Pitchai Rawther Ng Bock Tye Wei Chee Keong - resigned on 30.6.2005 Datin Seri Chin Chew Lin Lim Yat Koi @ Lim Yoke Kwai Lam Chin Loong Dato’ Zainol Abidin Bin Dato’ Haji Salleh Ahmad Kamarudin Bin Ismail

DIRECTORS’ INTERESTS

According to the Register of Directors’ Shareholdings, the interest of those directors who held office at the end of the financial year in shares in the Company, its holding company and subsidiary companies during the financial year are as follows:-

Number of ordinary shares of RM1/- each At At 1.1.2005 Bought Sold 31.12.2005

The Company Farlim Group (Malaysia) Bhd. Dato’ Seri Lim Gait Tong 10,000 – – 10,000 Dato’ Haji Mohd. Iqbal Bin Kuppa Pitchai Rawther 2,257,000 – – 2,257,000 Ng Bock Tye 10,000 – – 10,000 Datin Seri Chin Chew Lin 10,000 – – 10,000 Lim Yat Koi @ Lim Yoke Kwai 10,000 – – 10,000 Lam Chin Loong 10,000 – – 10,000 Dato’ Zainol Abidin Bin Dato’ Haji Salleh 29,667 – – 29,667

The holding company Farlim Holding Sdn. Bhd. Dato’ Seri Lim Gait Tong 45,773 – – 45,773 Dato’ Haji Mohd. Iqbal Bin Kuppa Pitchai Rawther 15,355 – – 15,355 Ng Bock Tye 2,303 – – 2,303 Lim Yat Koi @ Lim Yoke Kwai 3,071 – – 3,071

The subsidiaries Baka Suci Sdn. Bhd. Dato’ Seri Lim Gait Tong 1 – – 1 Dato’ Haji Mohd. Iqbal Bin Kuppa Pitchai Rawther 1 – – 1

Victory Ace Sdn. Bhd. Dato’ Seri Lim Gait Tong 1 – – 1 Dato’ Haji Mohd. Iqbal Bin Kuppa Pitchai Rawther 1 – – 1

Farlim Marketing Sdn. Bhd. Lim Yat Koi @ Lim Yoke Kwai 50,000 – – 50,000

44 FARLIM GROUP (MALAYSIA) BHD (82275-A) DIRECTORS’ REPORT (cont’d)

DIRECTORS’ INTERESTS (CONT’D)

The following directors who held office at the end of the financial year had interest in options exercisable during the year under the Company’s ESOS:-

Unissued shares of RM1/- each under Option, exercisable at RM1/- per share

Exercisable Exercisable At 1.1.2005 Entitlement Exercised At 31.12.2005

Dato’ Seri Lim Gait Tong 210,000 105,000 – 315,000 Dato’ Haji Mohd. Iqbal Bin Kuppa Pitchai Rawther 210,000 105,000 – 315,000 Ng Bock Tye 210,000 105,000 – 315,000 Datin Seri Chin Chew Lin 182,000 91,000 – 273,000 Lim Yat Koi @ Lim Yoke Kwai 210,000 105,000 – 315,000

Dato’ Haji Mohd. Iqbal Bin Kuppa Pitchai Rawther who held office at year end is, by virtue of his interest in a corporate shareholder, deemed interested in 168,750 shares in a subsidiary company, Farlim Marketing Sdn. Bhd., as at 1st January 2005 and 31st December 2005.

By virtue of their interests in shares in the holding company as substantial shareholders, Dato’ Seri Lim Gait Tong and Dato’ Haji Mohd. Iqbal Bin Kuppa Pitchai Rawther are also deemed interested in shares of the Company to the extent the holding company has an interest.

Other than as stated above, none of the directors in office at the end of the financial year had any interest in shares in the Company and its related corporations during the financial year.

In accordance with the Articles of Association of the Company, Dato’ Haji Mohd. Iqbal Bin Kuppa Pitchai Rawther, Ahmad Kamarudin Bin Ismail, Dato Zainol Abidin Bin Dato’ Haji Salleh, and Lam Chin Loong retire from the Board at the forthcoming Annual General Meeting and being eligible, offer themselves for re-election.

DIRECTORS’ BENEFITS

Since the end of the previous financial year, no director of the Company has received or become entitled to receive a benefit (other than as disclosed in the financial statements) by reason of a contract made by the Company or a related corporation with the director or with a firm of which the director is a member, or with a company in which the director has a substantial financial interest.

Neither during nor at the end of the financial year was the Company or any of its related corporations a party to any arrangement whose object was to enable the directors to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate apart from the Directors’ entitlements to subscribe for new ordinary shares in the Company under the ESOS of the Company.

SIGNIFICANT EVENTS

Significant events during and after the financial year are disclosed in Note 38 and 39 respectively in the financial statements.

FARLIM GROUP (MALAYSIA) BHD (82275-A) 45 DIRECTORS’ REPORT (cont’d)

ULTIMATE HOLDING COMPANY

The directors regard Farlim Holding Sdn. Bhd., a company incorporated and domiciled in Malaysia, as the ultimate holding company.

AUDITORS

The auditors, Messrs Monteiro & Heng, have expressed their willingness to continue in office.

On behalf of the Board,

DATO’ SERI LIM GAIT TONG Director

DATO’ HAJI MOHD. IQBAL BIN KUPPA PITCHAI RAWTHER Director

Kuala Lumpur Date: 19 April 2006

46 FARLIM GROUP (MALAYSIA) BHD (82275-A) BALANCE SHEETS AS AT 31 DECEMBER 2005

Group Company 2005 2004 2005 2004 Note RM RM RM RM

PROPERTY, PLANT AND EQUIPMENT 3 85,308,598 122,686,262 10,986,006 42,372,664 PROPERTY DEVELOPMENT EXPENDITURE - NON CURRENT PORTION 4 27,045,907 25,885,688 7,618,090 7,615,923 INVESTMENT IN SUBSIDIARIES 5 – – 35,304,998 36,504,998 INVESTMENT IN ASSOCIATES 6 12,778,528 20,360,156 – 630,000 OTHER INVESTMENTS 7 4,330,512 4,330,512 4,321,630 4,321,630 GOODWILL ON CONSOLIDATION 8 19,002,123 20,443,229 – – AMOUNT OWING BY HOLDING COMPANY 9 61,489,849 58,704,456 61,487,048 58,701,656 AMOUNT OWING BY SUBSIDIARIES 10 – – 65,451,642 83,525,850

CURRENT ASSETS

Inventories 11 38,610,869 53,094,403 160,878 160,878 Property development expenditure - current portion 4 30,549,614 48,848,367 26,428,691 43,887,183 Trade receivables 12 41,523,325 45,139,738 8,763,876 12,563,298 Other receivables 13 30,437,788 32,304,495 5,953,439 5,950,395 Tax recoverable 1,576,726 1,856,283 – – Amount owing by associates 14 4,042,148 900,050 – – Deposits 15 18,074,185 16,036,522 6,793,404 4,814,321 Cash and bank balances 16 16,455,362 14,945,487 8,502,376 3,977,682

181,270,017 213,125,345 56,602,664 71,353,757

LESS : CURRENT LIABILITIES

Trade payables 17 29,308,580 42,931,579 8,224,607 16,103,534 Other payables 18 31,351,206 47,512,263 982,810 19,668,372 Provisions 19 21,378,136 18,758,403 20,131,303 16,812,887 Amount owing to subsidiaries 20 158,228 153,489 7,542,375 9,060,689 Amount owing to directors 1,054,702 40,198 1,042,702 28,198 Hire purchase payables 21 106,473 175,086 11,288 37,864 Bank overdrafts and bankers’ acceptance 22 1,081,254 1,764,685 – – Long term borrowings due within one year 23 136,705,557 107,868,373 58,947,864 29,825,899 Tax payable 3,424,402 4,960,510 3,237,791 4,506,094

224,568,538 224,164,586 100,120,740 96,043,537

NET CURRENT LIABILITIES (43,298,521) (11,039,241) (43,518,076) (24,689,780)

166,656,996 241,371,062 141,651,338 208,982,941

Financed by:

SHARE CAPITAL 24 120,000,000 120,000,000 120,000,000 120,000,000 RESERVES 25 (28,833,825) (10,147,459) (22,903,155) (319,779)

SHAREHOLDERS’ FUNDS 91,166,175 109,852,541 97,096,845 119,680,221 MINORITY INTEREST 27,627,189 36,570,164 – – PROVISIONS 19 7,009,510 6,688,260 6,363,280 6,068,280 HIRE PURCHASE LIABILITIES 21 170,551 223,103 44,296 – LONG TERM BORROWINGS 23 40,649,678 87,978,505 38,146,917 83,234,440 DEFERRED TAXATION 26 33,893 58,489 – –

166,656,996 241,371,062 141,651,338 208,982,941

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

FARLIM GROUP (MALAYSIA) BHD (82275-A) 47 INCOME STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005

Group Company 2005 2004 2005 2004 Note RM RM RM RM

REVENUE 27 216,363,190 200,923,565 66,945,376 57,988,717 Cost of sales (198,722,109) (179,228,550) (55,227,185) (44,316,294)

GROSS PROFIT 17,641,081 21,695,015 11,718,191 13,672,423

Other operating income 15,251,695 11,963,261 3,310,688 1,248,536 Selling and distribution costs (3,806,427) (3,698,517) – – Administrative expenses (30,825,823) (25,707,525) (34,948,916) (9,453,618) Other operating expenses (6,532,835) (6,786,879) – –

OPERATING (LOSS)/PROFIT 28 (8,272,309) (2,534,645) (19,920,037) 5,467,341

Finance costs (net) 29 (9,515,239) (9,722,968) 554,885 234,040 Investing activities 30 (739,154) (969,181) (1,330,000) – Share of results of associates (6,419,659) (5,929,729) – – Impairment loss on property, plant and equipment (1,702,246) (197,671) – –

(LOSS)/PROFIT BEFORE TAXATION (26,648,607) (19,354,194) (20,695,152) 5,701,381

Taxation 31 - company and subsidiaries (2,626,078) (1,081,575) (1,888,224) (660,000) - associates (78,320) (185,906) – –

(2,704,398) (1,267,481) (1,888,224) (660,000)

(LOSS)/PROFIT AFTER TAXATION (29,353,005) (20,621,675) (22,583,376) 5,041,381

Minority interests 9,801,462 8,007,810 – –

NET (LOSS)/PROFIT FOR THE YEAR (19,551,543) (12,613,865) (22,583,376) 5,041,381

Earnings per share (sen) 32 Basic (16.29) (10.51)

Fully diluted – –

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

48 FARLIM GROUP (MALAYSIA) BHD (82275-A) STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2005

Exchange Share Share Revaluation Translation Accumulated Capital Premium Reserve Reserve Loss Total Group RM RM RM RM RM RM

Balance at 1 January 2004 120,000,000 29,578,426 5,778,159 20,491,777 (53,596,429) 122,251,933 Foreign currency translation differences – – – 214,473 – 214,473 Net loss for the year – – – – (12,613,865) (12,613,865) Balance at 31 December 2004 120,000,000 29,578,426 5,778,159 20,706,250 (66,210,294) 109,852,541 Foreign currency translation differences – – – 865,177 – 865,177 Recognition of revalution reserve – – (2,774,348) – 2,774,348 0 Net loss for the year – – – – (19,551,543) (19,551,543)

Balance at 31 December 2005 120,000,000 29,578,426 3,003,811 21,571,427 (82,987,489) 91,166,175

Company

Balance at 1 January 2004 120,000,000 29,578,426 5,778,159 – (40,717,745) 114,638,840 Net profit for the year – – – – 5,041,381 5,041,381 Balance at 31 December 2004 120,000,000 29,578,426 5,778,159 – (35,676,364) 119,680,221 Recognition of revaluation reserve – – (2,774,348) – 2,774,348 0 Net loss for the year – – – – (22,583,376) (22,583,376)

Balance at 31 December 2005 120,000,000 29,578,426 3,003,811 – (55,485,392) 97,096,845

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

FARLIM GROUP (MALAYSIA) BHD (82275-A) 49 CASH FLOW STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005

Group Company 2005 2004 2005 2004 RM RM RM RM CASH FLOWS FROM OPERATING ACTIVITIES:

(Loss)/profit before taxation (26,648,607) (19,354,194) (20,695,152) 5,701,381

Adjustments for: Amortisation of goodwill 1,446,442 1,470,482 – – Amortisation of long term assets 38,234 – – – Bad debts written off – 185,341 – – Currency realignment (19,235) (525) – – Depreciation 7,790,889 7,380,341 271,092 334,756 Dividend income (95) (64) – – Plant and equipment written off 3,767 4,043 2,738 4,043 Impairment loss on - plant and equipment 1,702,246 197,671 – – - quoted investments – 3,821 – – - unquoted investments – 4,349 1,200,000 – Interest expenses 13,844,535 13,322,720 4,599,411 4,314,602 Interest income (4,329,296) (3,599,752) (5,154,296) (4,548,642) Loss on disposal of investment 739,154 961,011 130,000 – (Gain)/loss on disposal of property, plant and equipment (3,392,559) (1,668,651) (639,476) 108 Allowance for bad and doubtful debts 183,767 96,035 24,555,808 – Provision for directors’ retirement benefits 321,250 321,250 295,000 295,000 Provision for liquidated ascertained damages 223,724 14,743 223,724 14,743 Allowance for obsolete inventories 1,450,988 397,910 – – Share of results of associates 6,419,659 5,929,729 – – Unrealised foreign exchange gain (183,982) – (183,982) – Waiver of amount owing by a subsidiary – – 592,870 –

(409,119) 5,666,260 5,197,737 6,115,991 Changes In Working Capital: Inventories 13,775,869 1,542,309 – (43,195) Receivables 7,885,107 (652,803) 3,787,144 (1,838,604) Payables (31,428,101) 29,098,104 (26,564,490) 24,831,466 Land and development expenditure 19,775,252 (6,083,273) 20,769,263 (5,952,915) Payments for liquidated acertained damages (220,246) (94,320) (218,246) (88,121)

9,378,762 29,476,277 2,971,408 23,024,622

Interest paid (4,991,541) (3,794,523) – – Interest received 2,406,597 1,870,540 1,881,287 1,491,789 Taxation paid (4,119,059) (3,154,128) (3,156,528) (2,890,675) Compensation received from building demolished 958,956 1,860,477 – – Dividend received 95 64 – –

Net Operating Cash Flow 3,633,810 26,258,707 1,696,167 21,625,736

50 FARLIM GROUP (MALAYSIA) BHD (82275-A) CASH FLOW STATEMENTS (cont’d) FOR THE YEAR ENDED 31 DECEMBER 2005

Group Company 2005 2004 2005 2004 RM RM RM RM CASH FLOWS FROM INVESTING ACTIVITIES:

Compensation received 205,978 – – – Interest received 299,973 253,512 – – Dividend received from associates 1,001,460 92,215 – – Proceeds from issuance of shares to minority shareholders of a subsidiary – 486,217 – – Amount owing by associates (3,114,313) (171,683) – – Investment in a subsidiary – – – – Amount owing by/to subsidiaries (34,496) (33,629) (4,479,806) 2,541,077 Purchase of unquoted investment – (12,916) – – Proceeds from disposal of investment 500,000 1,338,222 500,000 33,333 Net proceeds from disposal of property, plant and equipment 39,394,957 2,174,935 31,884,477 2,480 Purchase of property, plant and equipment** (7,622,705) (3,567,160) (71,173) (321,140)

Net Investing Cash Flow 30,630,854 559,713 27,833,498 2,255,750

CASH FLOWS FROM FINANCING ACTIVITIES:

Fixed deposits (held)/released as security value (396,249) (1,654,085) (108,403) 77,988 Amount owing to/by holding company 496,850 395,000 496,850 395,000 Drawdown of term loans 89,518,503 89,682,069 – 7,000,150 Directors’ accounts 1,014,504 2,572 1,014,504 2,572 Interest paid (1,889,969) (2,921,399) (11,222) (276,817) Repayment of term loans (119,047,799) (112,259,808) (24,482,740) (28,711,072) Payment to hire purchase payables (182,165) (249,585) (43,280) (98,603)

Net Financing Cash Flow (30,486,325) (27,005,236) (23,134,291) (21,610,782)

NET CHANGES IN CASH AND CASH EQUIVALENTS 3,778,339 (186,816) 6,395,374 2,270,704

CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR 16,850,784 17,037,600 7,627,682 5,356,978

CASH AND CASH EQUIVALENTS AT END OF THE YEAR 20,629,123 16,850,784 14,023,056 7,627,682

ANALYSIS OF CASH AND CASH EQUIVALENTS:

Cash and bank balances 16,455,362 14,945,487 8,502,376 3,977,682 Deposits 18,074,185 16,036,522 6,793,404 4,814,321 Bank overdrafts (177,254) (646,685) – – Bankers’ acceptance (904,000) (1,118,000) – –

33,448,293 29,217,324 15,295,780 8,792,003 Less: Deposits held as security value (12,532,916) (12,366,540) (1,272,724) (1,164,321)

Cash and cash equivalents as previously reported 20,915,377 16,850,784 14,023,056 7,627,682 Effect of exchange rate changes (286,254) – – –

Cash and cash equivalents as restated 20,629,123 16,850,784 14,023,056 7,627,682

**During the financial year, the Group and the Company acquired property, plant and equipment amounting to RM7,622,705/- (2004:RM3,567,100/-) and RM132,173/-(2004: RM321,140/-) respectively of which RM106,233/-(2004:RM Nil) were acquired under hire purchase instalment plans. Cash payments amounting to RM45,233/- were made towards the hire purchase.

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

FARLIM GROUP (MALAYSIA) BHD (82275-A) 51 NOTES TO THE FINANCIAL STATEMENTS

1. GENERAL INFORMATION

The principal activities of the Company are that of property development and investment holding. The principal activities of the subsidiaries and associates are set out in Note 37 to the financial statements. There have been no significant changes in the nature of these principal activities during the financial year.

The Company is a public limited liability company, incorporated and domiciled in Malaysia, and listed on the Main Board of Bursa Malaysia Securities Berhad.

The registered office of the Company is located at No. 2 - 8, Bangunan Farlim, Jalan PJS 10/32, Bandar Sri Subang, 46000 Petaling Jaya, Selangor Darul Ehsan.

The principal place of business of the Company is located at No. 1, Lintang Angsana, Bandar Baru Ayer Itam, 11500 Penang.

The number of directors of the Group and of the Company at the end of the financial year is 8 (2004 : 9) and 8 (2004 : 9) respectively.

The number of employees of the Group and of the Company at the end of the financial year is 2,698 (2004 : 2,888) and 64 (2004 : 67) respectively.

The financial statements are expressed in Ringgit Malaysia.

The financial statements were authorised for issue by the Board of Directors in accordance with a resolution of the directors on 15 April 2006.

2. SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Preparation

The financial statements of the Group and of the Company have been prepared under the historical cost convention unless otherwise indicated in the accounting policies set out below, and comply with the provisions of the Companies Act, 1965 and the applicable approved accounting standards in Malaysia.

(b) Basis of Consolidation

(i) Subsidiaries

The consolidated financial statements include the financial statements of the Company and its subsidiaries made up to the end of the financial year except for subsidiaries which are under liquidation.

The financial statements of the parent and its subsidiaries are all drawn up to the same reporting date.

Subsidiaries are those enterprises controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain benefits from their activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control effectively commences until the date that control effectively ceases.

Subsidiaries are consolidated using the acquisition method of accounting. Under the acquisition method of accounting, the results of subsidiaries acquired or disposed during the year are included in the Group financial statements from their respective effective dates of acquisitions or up to their respective date of disposal.

Intra group transactions, balances and resulting unrealised gains are eliminated on consolidation and the consolidated financial statements reflect external transactions only. Unrealised losses are eliminated on consolidation unless costs cannot be recovered.

52 FARLIM GROUP (MALAYSIA) BHD (82275-A) NOTES TO THE FINANCIAL STATEMENTS (cont’d)

2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

(b) Basis of Consolidation (cont’d)

(i) Subsidiaries (cont’d)

Minority interest represents the interest of outside members in the operating results and net assets of subsidiaries.

The gain or loss on disposal of a subsidiary is the difference between net disposal proceeds and the Group’s share of its assets together with any unamortised balance of goodwill or reserve on consolidation which was not previously recognised in the consolidated income statement.

(ii) Associates

Associates are enterprises in which the Group exercises significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the associates but not control over those policies.

Investment in associated companies are accounted for in the consolidated financial statements using the equity method of accounting. Equity accounting involves recognising in the income statement the Group’s share of the results of associated companies for the period. The Group’s investments in associates are carried in the balance sheet at an amount that reflects its share of the net assets of the associated companies and includes goodwill on acquisition. Equity accounting is discontinued when the carrying amount of the investment in an associated companies reaches zero, unless the Group has incurred obligations or guaranteed obligations in respect of the associate.

Unrealised gains on transactions between the Group and its associated companies are eliminated to the extent of the Group’s interest in the associated companies; unrealised losses are also eliminated unless the transaction provides evidence on impairment of the asset transferred. Where necessary, in applying the equity method, adjustments are made to the financial statements of associated companies to ensure consistency of accounting policies with the Group.

Goodwill represents the excess of the fair value of purchase consideration of subsidiary and associated companies acquired over the Group’s share of the fair values of their identifiable assets and liabilities at the date of acquisition.

Goodwill is amortised using the straight line method over a period of twenty five years. The carrying amount of goodwill is reviewed annually and is written down for impairment where it is considered necessary.

(d) Investments

Long term investment in subsidiaries, associates and other investments are stated at cost less impairment losses, if any. The policy for the recognition and measurement of impairment losses is in accordance with Note 2(s).

Short term quoted investment is stated at the lower of cost and market value and unquoted investment is stated at the lower of cost and net realisable value.

On disposal of an investment, the difference between net disposal proceeds and its carrying amount is charged or credited to the income statement.

FARLIM GROUP (MALAYSIA) BHD (82275-A) 53 NOTES TO THE FINANCIAL STATEMENTS (cont’d)

2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

(e) Property, Plant and Equipment and Depreciation

Property, plant and equipment are stated at cost or valuation less accumulated depreciation and impairment losses, if any. The policy for the recognition and measurement of impairment losses is in accordance with Note 2(s).

Property, plant and equipment are depreciated on a straight line basis over their estimated useful lives. The annual rates used for this purpose are as follows:-

Long leasehold land and buildings 2% – 4.5% Short leasehold land 2% Freehold buildings 2% Buildings improvements 10% – 15% Plant and machinery 9% – 20% Motor vehicles 18% – 20% Furniture, fittings and equipment 10% – 20%

No depreciation is provided on the freehold land as it has infinite useful life. Construction-in-progress will be depreciated when the properties are ready for their intended use.

Fully depreciated assets are retained in the accounts until the assets are no longer in used.

(f) Property Development Activities

(i) Land held for property development

Land held for property development consists of land on which no significant development work has been undertaken or where development activities are not expected to be completed within the normal operating cycle. Such land is classified as non-current asset and is stated at cost less any accumulated impairment losses. The policy for the recognition and measurement of impairment losses is accordance with Note 2(s)

Land held for property development is transferred to property development costs (under current assets) when development activities have commenced and is expected to be completed within the normal operating cycle.

(ii) Property Development Costs

Property development costs comprise all costs that are directly attributable to development activities or that can be allocated on a reasonable basis to such activities.

When the financial outcome of a development activity can be reliably estimated, property development revenue and expenses are recognised in the income statement by using the stage of completion method. The stage of completion is determined by the proportion that property development costs incurred for the work performed to date bear to the estimated total property development costs.

Where the financial outcome of a development activity cannot be reliably estimated, property development revenue is recognised only to the extent of property development costs incurred that is probable will be recoverable, and property development costs on properties sold are recognised as an expense in the period in which they are incurred.

Any expected loss on a development project, including costs to be incurred over the defects liability period, is recognised as an expense immediately.

Property development costs not recognised as an expense are recognised as an asset, which is measured at the lower of cost and net realisable value.

54 FARLIM GROUP (MALAYSIA) BHD (82275-A) NOTES TO THE FINANCIAL STATEMENTS (cont’d)

2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

(f) Property Development Activities (cont’d)

(ii) Property Development Costs (cont’d)

The excess of revenue recognised in the income statement over billings to purchasers is classified as accrued billings within trade receivables and the excess of billings to purchasers over revenue recognised in the income statement is classified as progress billings within trade payables.

(g) Revaluation of Assets

Surpluses arising on revaluation are credited to Revaluation Reserve Account. Any deficit arising from revaluation is charged against the Revaluation Reserve Account to the extent of a previous surplus held in the Revaluation Reserve Account for the same asset. In all other cases, a decrease in carrying amount is charged to income statement.

(h) Borrowing Costs

Borrowing costs incurred on property development projects are capitalised and included as part of development expenditure. The capitalisation of borrowing costs commences when expenditure for the property development projects and borrowing costs are being incurred and the activities that are necessary to prepare the property development projects for its intended sale are in progress. However, capitalisation of borrowing costs is suspended during extended periods in which active development is interrupted.

Capitalisation of borrowing costs should cease when substantially all the activities necessary to prepare the property development projects for its intended sale are complete.

Borrowing costs incurred in financing the construction-in-progress are capitalised as part of the cost of the assets. Capitalisation will cease when the relevant assets are ready for their intended use.

All other borrowing costs are charged to the income statement as an expense in the period in which they are incurred.

(i) Employee beneﬁts

(i) Short term employee beneﬁts

Wages, salaries, social security contribution, bonuses and non-monetary benefits are accrued in the period in which the associated services are rendered by the employees.

(ii) Post-employment beneﬁts

The Group contributes to the Employees’ Provident Fund (“EPF”), the national defined contribution plan. The contributions are charged to the income statement in the period to which they are related. Once the contributions have been paid, the Group has no further payment obligations.

(iii) Equity compensation beneﬁts

The Company’s ESOS allows the Group’s employees to acquire shares of the Company. No compensation cost or obligation is recognised when the options are exercised, equity is increased by the amount of the proceeds received.

FARLIM GROUP (MALAYSIA) BHD (82275-A) 55 NOTES TO THE FINANCIAL STATEMENTS (cont’d)

2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

(j) Inventories

Inventories are stated at the lower of cost and net realisable value, cost being determined on a weighted average basis and in the case of work-in-progress and finished goods, comprises materials, direct labour and appropriate proportion of factory overheads. Inventories of completed units of unsold developed properties include the relevant cost of land, development expenditure and interest costs capitalised. Net realisable value represents the estimated selling price less all estimated costs to completion.

(k) Receivables

Receivables are carried at anticipated realisable values. Bad debts are written off when identified. An estimate is made for doubtful debts based on a review of all outstanding amounts as at the balance sheet date.

(l) Payables

Payables are stated at cost which is the fair value of the consideration to be paid in the future, whether or not billed to the Group.

(m) Provisions for Liabilities

Provisions for liabilities are recognised when the Group 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.

(n) Leases/Hire Purchase

Assets financed by hire purchase arrangements which transfer substantially all the risks and rewards of ownership to the Group are capitalised as property, plant and equipment, and the corresponding obligations are treated as liabilities. The assets so capitalised are depreciated in accordance with the accounting policy on property, plant and equipment. Finance charges are charged to the income statements over the periods of the respective agreements.

Lease payments for assets under operating lease where substantially all the risks and benefits remain with the lessor, are recognised as an expense in the income statements on a straight line basis over the lease term.

(o) Taxation

The tax expenses in the income statement represent the aggregate amount of current tax and deferred tax. Current tax is the expected amount of income taxes payable in respect of the taxable profit for the year and is measured using the tax rates that have been enacted at the balance sheet date.

Deferred tax is provided for, using the liability method, on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts in the financial statements. In principle, deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised for all deductible temporary differences, unused tax losses and unused tax credits to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, unused tax losses and unused tax credits can be utilised. Deferred tax is not recognised if the temporary difference arises from goodwill or negative goodwill or from the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction, affects neither accounting profit nor taxable profit.

Deferred tax is measured at the tax rates that are expected to apply in the period when the asset is realised or the liability is settled, based on tax rates that have been enacted or substantively enacted at the balance sheet date. Deferred tax is recognised in the income statement, except when it arises from a transaction which is recognised directly in equity, in which case the deferred tax is also charged or credited directly in equity, or when it arises from a business combination that is an acquisition, in which case the deferred tax is included in the resulting goodwill or negative goodwill.

56 FARLIM GROUP (MALAYSIA) BHD (82275-A) NOTES TO THE FINANCIAL STATEMENTS (cont’d)

2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

(p) Foreign Currency Translation

The Group’s foreign entities are those operations that are not an integral part of the operations of the Group. Income statements of foreign entities are translated into Ringgit Malaysia at average exchange rates for the financial year and the balance sheets are translated at exchange rates ruling at the balance sheet date. Exchange differences arising from the retranslation of the net investment in foreign entities are taken up in Exchange Translation Reserve in shareholders’ equity. On disposal of the foreign entity, such translation differences are recognised in the income statement as part of the gain or loss on disposal.

Transactions in foreign currencies are converted into Ringgit Malaysia at the exchange rates ruling at the transaction dates. Monetary assets and liabilities in foreign currencies at the balance sheet date are converted into Ringgit Malaysia at the rate of exchange ruling on that date. 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.

The principal closing rates used in translation of foreign currency amounts are as follows:-

2005 2004 Foreign currency RM RM

1 US Dollar 3.806 3.825 100 Chinese Renminbi 46.00 46.00 100 Hong Kong Dollar 49.93 49.36

(q) Revenue Recognition

Revenue from sale of property development projects is recognised on the percentage of completion method. No profit is recognised where development is in its initial stage or has not reached a stage of completion where it is possible to determine the financial outcome of the development with reasonable accuracy. Provision for foreseeable losses is made when estimated future revenues realisable are lower than the carrying amount of the project.

Revenue from sale of goods is measured at the fair value of the consideration receivable and is recognised in the income statement when the significant risks and rewards of ownership have been transferred to the buyer.

Dividend income is recognised when the shareholder’s right to receive payment is established.

Interest income and rental income are recognised on accrual basis.

Inter-company sales are excluded from the revenue of the Group.

(r) Financial Instruments

Financial instruments are recognised in the balance sheet when the Group has become a party to the contractual provisions of the instruments. The particular recognition methods adopted are disclosed in the individual accounting policy statements associated with each item.

Financial instruments are classified as liabilities or equity in accordance with the substance of the contractual arrangement. Interest, dividends, gains and losses relating to a financial instrument classified as liability are reported as expense or income. Distributions to holders of financial instruments classified as equity are charged directly to equity. Financial instruments are offset when the Company has a legally enforceable right to set off the recognised amounts and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

FARLIM GROUP (MALAYSIA) BHD (82275-A) 57 NOTES TO THE FINANCIAL STATEMENTS (cont’d)

2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

(s) Impairment of Assets

At each balance sheet date, the carrying values of assets, other than inventories, deferred tax assets and financial assets, are reviewed for impairment to determine whether there is an indication that the assets might be impaired. Impairment is measured by comparing the carrying values of the assets with their recoverable amounts. The recoverable amount is the higher of an asset’s net selling price and its value in use, which is measured by reference to discounted future cash flows. Recoverable amounts are estimated for individual assets, or if it is not possible, for the cash-generating unit.

An impairment loss is charged to the income statement immediately, unless the asset is carried at revalued amount. Any impairment loss of a revalued asset is treated as a revaluation decrease to the extent of previously recognised revaluation surplus for the same asset.

Subsequent increase in the recoverable amount of an asset is treated as reversal of the previous impairment loss and is recognised to the extent of the carrying amount of the asset that would have been determined (net of amortisation and depreciation) had no impairment loss been recognised. The reversal is recognised in the income statement immediately.

(t) Segmental Information

Segment revenues and expenses are those directly attributable to the segments and include any joint revenue and expenses where a reasonable basis of allocation exists. Segments assets include all assets used by a segment and consist principally of cash, receivables, inventories, intangibles and property, plant and equipment, net of allowances and accumulated depreciation and amortisation. Most segment assets can be directly attributed to the segments on a reasonable basis. Segment assets and liabilities do not include income tax assets and liabilities respectively.

(u) Inter-segment Transfers

Segment revenues, expenses and results include transfers between segments. The prices charged on intersegment transactions are the same as those charged for similar goods to parties outside of the economic entity at an arm’s length transactions. These transfers are eliminated on consolidation.

(v) Cash and Cash Equivalents

Cash and cash equivalents for the purpose of cash flow statement comprise cash in hand, bank balances, demand deposits, bank overdrafts, bankers’ acceptance and other short term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Cash and cash equivalents are stated net of bank overdrafts and other short term borrowings which are repayable on demand.

58 FARLIM GROUP (MALAYSIA) BHD (82275-A) NOTES TO THE FINANCIAL STATEMENTS (cont’d)

3. PROPERTY, PLANT AND EQUIPMENT

Furniture, Buildings Plant and Motor Fittings and Properties Improvements Machinery Vehicles Equipment Total RM RM RM RM RM RM Group 2005

Cost/Valuation At 1 January 2005 132,139,049 827,606 72,564,730 9,592,318 7,850,697 222,974,400 Currency realignment 2,209,991 – 2,234,105 129,867 120,646 4,694,609 Additions 5,049,339 – 2,157,157 294,553 121,656 7,622,705 Reclassifications/transfers (4,723,756) – 3,769,689 – 178,929 (775,138) Reversal of impairment loss (6,562,679) – – – – (6,562,679) Disposals/write-off (34,565,683) – (2,531,255) (824,693) (187,155) (38,108,786)

At 31 December 2005 93,546,261 827,606 78,194,426 9,192,045 8,084,773 189,845,111

Cost/valuation is represented by: Cost 89,256,261 827,606 78,194,426 9,192,045 8,084,773 185,555,111 Valuation 4,290,000 – – – – 4,290,000 93,546,261 827,606 78,194,426 9,192,045 8,084,773 189,845,111

Accumulated Depreciation And Impairment Loss At 1 January 2005 - Accumulated depreciation 25,932,367 805,036 48,199,756 7,939,290 6,114,054 88,990,503 - Accumulated impairment loss 6,562,679 – 4,429,745 75,439 229,772 11,297,635 Currency realignment 780,964 – 1,740,790 95,382 91,186 2,708,322 Charge for the year 1,688,781 13,282 5,442,986 362,926 282,914 7,790,889 Reclassifications/transfers 466,516 – 2,939,392 – – 3,405,908 Reversal of impairment loss (6,562,679) – 1,702,246 – – (4,860,433) Disposals/write-off (43,550) – (3,786,028) (795,353) (171,380) (4,796,311)

At 31 December 2005 28,825,078 818,318 60,668,887 7,677,684 6,546,546 104,536,513

- Accumulated depreciation 28,825,078 818,318 54,536,896 7,602,245 6,316,774 98,099,311 - Accumulated impairment loss – – 6,131,991 75,439 229,772 6,437,202 28,825,078 818,318 60,668,887 7,677,684 6,546,546 104,536,513 Net Book Value at 31 December 2005 64,721,183 9,288 17,525,539 1,514,361 1,538,227 85,308,598

Cost/valuation is represented by: Cost 60,602,783 9,288 17,525,539 1,514,361 1,538,227 81,190,198 Valuation 4,118,400 – – – – 4,118,400 64,721,183 9,288 17,525,539 1,514,361 1,538,227 85,308,598

FARLIM GROUP (MALAYSIA) BHD (82275-A) 59 NOTES TO THE FINANCIAL STATEMENTS (cont’d)

3. PROPERTY, PLANT AND EQUIPMENT (CONT’D)

Properties consist of:-

Long Leasehold Short Freehold Construction- Land and Leasehold Land and In- Buildings Land Buildings Progress Total RM RM RM RM RM Group 2005

Cost/Valuation At 1 January 2005 106,703,598 9,721,692 12,169,519 3,544,240 132,139,049 Currency realignment 1,800,464 300,114 – 109,413 2,209,991 Additions 4,179,991 – – 869,348 5,049,339 Reclassifications/transfers (775,138) – – (3,948,618) (4,723,756) Reversal of impairment loss (6,562,679) – – – (6,562,679) Disposals/write-off (31,658,425) – (2,869,460) (37,798) (34,565,683)

At 31 December 2005 73,687,811 10,021,806 9,300,059 536,585 93,546,261

Cost/valuation is represented by: Cost 69,397,811 10,021,806 9,300,059 536,585 89,256,261 Valuation 4,290,000 – – – 4,290,000 73,687,811 10,021,806 9,300,059 536,585 93,546,261

Accumulated Depreciation and Impairment Loss At 1 January 2005 - Accumulated depreciation 24,248,217 1,608,041 76,109 – 25,932,367 - Accumulated impairment loss 6,562,679 – – – 6,562,679 Currency realignment 727,240 53,724 – – 780,964 Charge for the year 1,433,695 243,115 11,971 – 1,688,781 Reclassifications/transfers 466,516 – – – 466,516 Reversal of impairment loss (6,562,679) – – – (6,562,679) Disposals/write-off – – (43,550) – (43,550)

At 31 December 2005 26,875,668 1,904,880 44,530 – 28,825,078

Net Book Value at 31 December 2005 46,812,143 8,116,926 9,255,529 536,585 64,721,183

Cost/valuation is represented by: Cost 42,693,743 8,116,926 9,255,529 536,585 60,602,783 Valuation 4,118,400 – – – 4,118,400 46,812,143 8,116,926 9,255,529 536,585 64,721,183

60 FARLIM GROUP (MALAYSIA) BHD (82275-A) NOTES TO THE FINANCIAL STATEMENTS (cont’d)

3. PROPERTY, PLANT AND EQUIPMENT (CONT’D)

Furniture, Buildings Plant and Motor Fittings and Properties Improvements Machinery Vehicles Equipment Total RM RM RM RM RM RM Group 2004

Cost/Valuation At 1 January 2004 130,081,582 827,606 66,337,460 9,337,588 7,832,642 214,416,878 Currency realignment 374,172 – 355,752 20,827 20,976 771,727 Additions 2,412,068 – 649,880 173,056 332,156 3,567,160 Reclassifications (1,252,956) – 769,060 475,896 8,000 – Transfer from other investment 1,204,472 – 6,772,324 – – 7,976,796 Disposals/write-off (680,289) – (2,319,746) (415,049) (343,077) (3,758,161) At 31 December 2004 132,139,049 827,606 72,564,730 9,592,318 7,850,697 222,974,400

Cost/valuation is represented by: Cost 91,011,232 827,606 72,564,730 9,592,318 7,850,697 181,846,583 Valuation 41,127,817 – – – – 41,127,817 132,139,049 827,606 72,564,730 9,592,318 7,850,697 222,974,400

Accumulated Depreciation and Impairment Loss At 1 January 2004 - Accumulated depreciation 23,923,387 789,183 39,886,278 7,779,996 6,046,282 78,425,126 - Accumulated impairment loss 6,562,679 – 4,243,801 74,699 218,785 11,099,964 Currency realignment 122,141 – 244,592 16,985 15,916 399,634 Charge for the year 538,772 15,853 5,931,917 511,669 382,130 7,380,341 Reclassifications 1,525,498 – 3,423,465 – – 4,948,963 Impairment loss – – 185,944 740 10,987 197,671 Disposals/write-off (177,431) – (1,286,496) (369,360) (330,274) (2,163,561) At 31 December 2004 32,495,046 805,036 52,629,501 8,014,729 6,343,826 100,288,138

- Accumulated depreciation 25,932,367 805,036 48,199,756 7,939,290 6,114,054 88,990,503 - Accumulated impairment loss 6,562,679 – 4,429,745 75,439 229,772 11,297,635 32,495,046 805,036 52,629,501 8,014,729 6,343,826 100,288,138

Net Book Value at 31 December 2004 99,644,003 22,570 19,935,229 1,577,589 1,506,871 122,686,262

Cost/valuation is represented by: Cost 65,939,803 22,570 19,935,229 1,577,589 1,506,871 88,982,062 Valuation 33,704,200 – – – – 33,704,200 99,644,003 22,570 19,935,229 1,577,589 1,506,871 122,686,262

FARLIM GROUP (MALAYSIA) BHD (82275-A) 61 NOTES TO THE FINANCIAL STATEMENTS (cont’d)

3. PROPERTY, PLANT AND EQUIPMENT (CONT’D)

Properties consist of:-

Long Leasehold Short Freehold Construction- Land and Leasehold Land and In- Buildings Land Buildings Progress Total RM RM RM RM RM Group 2004

Cost/Valuation At 1 January 2004 99,824,671 9,669,684 17,563,453 3,023,774 130,081,582 Currency realignment 305,902 52,008 – 16,262 374,172 Additions 456,149 – 26,769 1,929,150 2,412,068 Reclassifications 5,332,590 – (5,160,600) (1,424,946) (1,252,956) Transfer from other investment 1,204,472 – – – 1,204,472 Disposals/write-off (420,186) – (260,103) – (680,289) At 31 December 2004 106,703,598 9,721,692 12,169,519 3,544,240 132,139,049

Cost/valuation is represented by: Cost 65,575,781 9,721,692 12,169,519 3,544,240 91,011,232 Valuation 41,127,817 – – – 41,127,817 106,703,598 9,721,692 12,169,519 3,544,240 132,139,049

Accumulated Depreciation and Impairment Loss At 1 January 2004 - Accumulated depreciation 22,493,569 1,357,113 72,705 – 23,923,387 - Accumulated impairment loss 6,562,679 – – – 6,562,679 Currency realignment 114,531 7,610 – – 122,141 Charge for the year 277,112 243,318 18,342 – 538,772 Reclassifications 1,525,498 – – – 1,525,498 Disposals/write-off (162,493) – (14,938) – (177,431) At 31 December 2004 30,810,896 1,608,041 76,109 – 32,495,046

- Accumulated depreciation 24,248,217 1,608,041 76,109 – 25,932,367 - Accumulated impairment loss 6,562,679 – – – 6,562,679 30,810,896 1,608,041 76,109 – 32,495,046

Net Book Value at 31 December 2004 75,892,702 8,113,651 12,093,410 3,544,240 99,644,003

Cost/valuation is represented by: Cost 42,188,502 8,113,651 12,093,410 3,544,240 65,939,803 Valuation 33,704,200 – – – 33,704,200 75,892,702 8,113,651 12,093,410 3,544,240 99,644,003

62 FARLIM GROUP (MALAYSIA) BHD (82275-A) NOTES TO THE FINANCIAL STATEMENTS (cont’d)

3. PROPERTY, PLANT AND EQUIPMENT (CONT’D)

Furniture, Buildings Motor Fittings and Properties Improvements Vehicles Equipment Total RM RM RM RM RM Company 2005

Cost/Valuation At 1 January 2005 49,898,852 664,839 2,666,071 2,182,260 55,412,022 Additions – – 106,233 25,940 132,173 Reclassifications/transfers (775,138) – – – (775,138) Reversal of impairment loss (6,562,679) – – – (6,562,679) Disposals/write-off (31,245,000) – (170,000) (47,830) (31,462,830)

At 31 December 2005 11,316,035 664,839 2,602,304 2,160,370 16,743,548

Cost/valuation is represented by: Cost 7,026,035 664,839 2,602,304 2,160,370 12,453,548 Valuation 4,290,000 – – – 4,290,000 11,316,035 664,839 2,602,304 2,160,370 16,743,548

Accumulated Depreciation and Impairment Loss At 1 January 2005 - Accumulated depreciation 1,197,451 653,570 2,666,057 1,959,601 6,476,679 - Accumulated impairment loss 6,562,679 – – – 6,562,679 Charge for the year 161,776 10,075 21,247 77,994 271,092 Reclassifications/transfers (775,138) – – – (775,138) Reversal of impairment loss (6,562,679) – – – (6,562,679) Disposals/write-off – – (169,999) (45,092) (215,091)

At 31 December 2005 584,089 663,645 2,517,305 1,992,503 5,757,542

Net Book Value at 31 December 2005 10,731,946 1,194 84,999 167,867 10,986,006

Cost/valuation is represented by: Cost 6,613,546 1,194 84,999 167,867 6,867,606 Valuation 4,118,400 – – – 4,118,400 10,731,946 1,194 84,999 167,867 10,986,006

FARLIM GROUP (MALAYSIA) BHD (82275-A) 63 NOTES TO THE FINANCIAL STATEMENTS (cont’d)

3. PROPERTY, PLANT AND EQUIPMENT (CONT’D)

Properties consist of:-

Long Leasehold Land and Freehold Buildings Land Total RM RM RM Company 2005

Cost/Valuation At 1 January 2005 47,746,826 2,152,026 49,898,852 Additions – – – Reclassifications/transfers (775,138) – (775,138) Reversal of impairment loss (6,562,679) – (6,562,679) Disposals/write-off (29,500,000) (1,745,000) (31,245,000)

At 31 December 2005 10,909,009 407,026 11,316,035

Cost/valuation is represented by: Cost 6,619,009 407,026 7,026,035 Valuation 4,290,000 – 4,290,000 10,909,009 407,026 11,316,035

Accumulated Depreciation and Impairment Loss At 1 January 2005 - Accumulated depreciation 1,197,451 – 1,197,451 - Accumulated impairment loss 6,562,679 – 6,562,679 Charge for the year 161,776 – 161,776 Reclassifications/transfers (775,138) – (775,138) Reversal of impairment loss (6,562,679) – (6,562,679) Disposals/write-off – – –

At 31 December 2005 584,089 – 584,089

Net Book Value at 31 December 2005 10,324,920 407,026 10,731,946

Cost/valuation is represented by: Cost 6,206,520 407,026 6,613,546 Valuation 4,118,400 – 4,118,400 10,324,920 407,026 10,731,946

64 FARLIM GROUP (MALAYSIA) BHD (82275-A) NOTES TO THE FINANCIAL STATEMENTS (cont’d)

3. PROPERTY, PLANT AND EQUIPMENT (CONT’D)

Furniture, Buildings Motor Fittings and Properties Improvements Vehicles Equipment Total RM RM RM RM RM Company 2004

Cost/Valuation At 1 January 2004 49,628,852 664,839 2,666,071 2,200,240 55,160,002 Additions 270,000 – – 51,140 321,140 Disposals/write-off – – – (69,120) (69,120) At 31 December 2004 49,898,852 664,839 2,666,071 2,182,260 55,412,022

Cost/valuation is represented by: Cost 8,771,035 664,839 2,666,071 2,182,260 14,284,205 Valuation 41,127,817 – – – 41,127,817 49,898,852 664,839 2,666,071 2,182,260 55,412,022

Accumulated Depreciation and Impairment Loss At 1 January 2004 - Accumulated depreciation 1,082,482 643,485 2,544,389 1,934,055 6,204,411 - Accumulated impairment loss 6,562,679 – – – 6,562,679 Charge for the year 114,969 10,085 121,668 88,034 334,756 Disposals/write-off – – – (62,488) (62,488) At 31 December 2004 7,760,130 653,570 2,666,057 1,959,601 13,039,358

- Accumulated depreciation 1,197,451 653,570 2,666,057 1,959,601 6,476,679 - Accumulated impairment loss 6,562,679 – – – 6,562,679 7,760,130 653,570 2,666,057 1,959,601 13,039,358

Net Book Value at 31 December 2004 42,138,722 11,269 14 222,659 42,372,664

Cost/valuation is represented by: Cost 8,434,522 11,269 14 222,659 8,668,464 Valuation 33,704,200 – – – 33,704,200 42,138,722 11,269 14 222,659 42,372,664

FARLIM GROUP (MALAYSIA) BHD (82275-A) 65 NOTES TO THE FINANCIAL STATEMENTS (cont’d)

3. PROPERTY, PLANT AND EQUIPMENT (CONT’D)

Properties consist of:-

Long Leasehold Land and Freehold Buildings Land Total RM RM RM Company 2004

Cost/Valuation At 1 January 2004 42,316,226 7,312,626 49,628,852 Additions 270,000 – 270,000 Reclassifications 5,160,600 (5,160,600) – Disposals/write-off – – – At 31 December 2004 47,746,826 2,152,026 49,898,852

Cost/valuation is represented by: Cost 6,619,009 2,152,026 8,771,035 Valuation 41,127,817 – 41,127,817 47,746,826 2,152,026 49,898,852

Accumulated Depreciation and Impairment Loss At 1 January 2004 - Accumulated depreciation 1,082,482 – 1,082,482 - Accumulated impairment loss 6,562,679 – 6,562,679 Charge for the year 114,969 – 114,969 Disposals/write-off – – – At 31 December 2004 7,760,130 – 7,760,130

- Accumulated depreciation 1,197,451 – 1,197,451 - Accumulated impairment loss 6,562,679 – 6,562,679 7,760,130 – 7,760,130

Net Book Value at 31 December 2004 39,986,696 2,152,026 42,138,722

Cost/valuation is represented by: Cost 6,282,496 2,152,026 8,434,522 Valuation 33,704,200 – 33,704,200 39,986,696 2,152,026 42,138,722

66 FARLIM GROUP (MALAYSIA) BHD (82275-A) NOTES TO THE FINANCIAL STATEMENTS (cont’d)

3. PROPERTY, PLANT AND EQUIPMENT (CONT’D)

Included in freehold land and buildings and construction-in-progress of the Group in 2004 were amounts totalling RM12,859/- and RM338,145/- respectively which represents interest expense incurred during the year.

Property, plant and equipment of the Group and of the Company with net book values of totalling RM30,026,771/- (2004 : RM66,384,518/-) and RM7,014,592/- (2004 : RM36,601,000/-) respectively have been pledged to financial institutions to secure banking facilities granted to the Company and certain subsidiaries as stated in Note 23 to the financial statements.

Included in property, plant and equipment of the Group and of the Company are assets acquired under hire purchase instalment plans with total net book values as follows:-

Group Company 2005 2004 2005 2004 RM RM RM RM

Motor vehicles 276,999 353,752 84,998 13

As at the balance sheet date, the certificates of title to the following freehold land and buildings and leasehold land of the Group and of the Company which have yet to be registered in the name of the Company and its subsidiaries are as follows:-

Group Company 2005 2004 2005 2004 RM RM RM RM Net Book Values Freehold land and buildings 7,715,975 8,330,550 142,087 142,087 Leasehold land 5,113,792 5,160,600 5,113,792 5,160,600

12,829,767 13,491,150 5,255,879 5,302,687

The long leasehold land and buildings are stated at directors’ valuation based on valuation conducted by an independent firm of professional valuers.

Had the revalued long leasehold land and buildings been carried at historical cost less accumulated depreciation and impairment loss, the net book values of the said long leasehold land and buildings that would be included in the financial statements of the Group and the Company is RM1,178,539/- (2004 : RM30,764,339/-).

FARLIM GROUP (MALAYSIA) BHD (82275-A) 67 NOTES TO THE FINANCIAL STATEMENTS (cont’d)

4. PROPERTY DEVELOPMENT EXPENDITURE

(a) Land held for property development Group Company 2005 2004 2005 2004 RM RM RM RM At beginning of the financial year - freehold land – 307,431 – – - leasehold land 15,733,859 19,332,746 4,731,100 8,269,584 - development costs 10,151,829 10,167,907 2,884,823 3,143,874

25,885,688 29,808,084 7,615,923 11,413,458 Add: Costs incurred during the financial year - land cost 300 – – – - development costs 1,186,555 246,821 2,167 – - transfer to income statement – (60,403) – –

1,186,855 186,418 2,167 – Less: Transfer to property development costs (26,636) (4,108,814) – (3,797,535)

27,045,907 25,885,688 7,618,090 7,615,923 At end of the financial year - land 15,734,159 15,733,859 4,731,100 4,731,100 - development costs 11,311,748 10,151,829 2,886,990 2,884,823

27,045,907 25,885,688 7,618,090 7,615,923

(b) Property development costs

Group Company 2005 2004 2005 2004 RM RM RM RM At beginning of the financial year - land 17,776,597 13,940,421 17,371,592 13,842,847 - development costs 126,170,048 59,095,713 94,126,429 41,437,567 - accumulated costs charged to income statement (95,098,278) (32,042,370) (67,610,838) (18,800,624)

48,848,367 40,993,764 43,887,183 36,479,790 Add: Costs incurred during the financial year - development costs 40,023,951 62,375,911 37,544,968 47,994,286 - transfer from land held under property development 26,636 4,108,814 – 3,797,535

40,050,587 66,484,725 37,544,968 51,791,821 Less: Costs recognised in income statement during the financial year (58,168,021) (58,534,712) (55,003,460) (44,289,018) Less: Transfer to inventories (181,319) (95,410) – (95,410)

30,549,614 48,848,367 26,428,691 43,887,183

At end of the financial year - land 9,680,369 17,776,597 9,372,938 17,371,592 - development costs 111,401,719 126,170,048 77,933,481 94,126,429 - accumulated costs charged to income statement (90,532,474) (95,098,278) (60,877,728) (67,610,838)

30,549,614 48,848,367 26,428,691 43,887,183

68 FARLIM GROUP (MALAYSIA) BHD (82275-A) NOTES TO THE FINANCIAL STATEMENTS (cont’d)

4. PROPERTY DEVELOPMENT EXPENDITURE (CONT’D)

The long leasehold land at valuation is stated at directors’ valuation based on a valuation conducted by professional valuers in December 1998 using the open market value basis.

The long leasehold and freehold land of the Group and of the Company with carrying values of RM6,270,534/- (2004 : RM11,538,349/-) and RM3,090,618/- (2004 : RM8,358,433/-) respectively, have been charged to financial institutions to secure banking facilities granted to the Company and certain subsidiaries as stated in Note 23 to the financial statements.

As at balance sheet date, the certificate of title to the leasehold land of the Group with carrying value of RM7,497,313/- (2004 : RM7,497,313/-) has yet to be registered in the name of a subsidiary.

Included in additions to the development expenditure of the Group and of the Company for the 2004 were interest expenses of RM158,289/- and RM94,039/- respectively.

The related property development costs closed out from phases completed during the year amounted to:-

Group Company 2005 2004 2005 2004 RM RM RM RM

Inventories of completed units of properties (181,319) (95,410) – (95,410) Leasehold land 8,096,226 9,739 7,998,652 9,739 Development expenditure 54,818,918 (4,435,524) 53,737,918 (4,435,524)

5. INVESTMENT IN SUBSIDIARIES

Group Company 2005 2004 2005 2004 RM RM RM RM

Unquoted shares at cost 1,442,015 1,398,832 54,311,573 54,311,573 Less: Accumulated impairment loss (1,442,015) (1,398,832) (19,006,575) (17,806,575)

– – 35,304,998 36,504,998

The investment in a subsidiary for the Group pertained to the unconsolidated subsidiary namely, Quanzhou Shenhong Knitting Co. Ltd., a company incorporated and domiciled in People’s Republic of China which is under liquidation.

The Group’s equity interest in the subsidiaries, country of incorporation and their respective principal activities are disclosed in Note 37 to the financial statements.

FARLIM GROUP (MALAYSIA) BHD (82275-A) 69 NOTES TO THE FINANCIAL STATEMENTS (cont’d)

6. INVESTMENT IN ASSOCIATES

Group Company 2005 2004 2005 2004 RM RM RM RM

Unquoted shares at cost 41,779,865 40,558,719 – 30,000 Add: Acquired during the year 359,608 348,839 – – Less: Accumulated impairment loss (10,025,532) (9,725,306) – –

32,113,941 31,182,252 – 30,000

Preference shares at cost – 600,000 – 600,000

32,113,941 31,782,252 – 630,000

Group’s share of post- acquisition results (19,335,413) (11,422,096) – –

12,778,528 20,360,156 – 630,000

Group 2005 2004 RM RM Analysis of associates are as follows:- Group’s share of net assets 12,778,528 20,360,156 Premium on acquisition – –

12,778,528 20,360,156

The Group’s equity interest in the associates, country of incorporation and their respective principal activities are disclosed in Note 37 to the financial statements.

7. OTHER INVESTMENTS

Group Company 2005 2004 2005 2004 RM RM RM RM

Quoted shares in Malaysia at cost 99,049 99,049 – – Less: Accumulated impairment loss (90,168) (90,168) – –

8,881 8,881 – –

Unquoted shares at cost 115,851 115,851 66,667 66,667 Less: Accumulated impairment loss (49,183) (49,183) – –

66,668 66,668 66,667 66,667 Preference shares at cost 4,254,963 4,254,963 4,254,963 4,254,963

4,330,512 4,330,512 4,321,630 4,321,630

The market value of the quoted shares as at 31 December 2005 is RM8,881/- (2004 : RM9,031/-).

70 FARLIM GROUP (MALAYSIA) BHD (82275-A) NOTES TO THE FINANCIAL STATEMENTS (cont’d)

8. GOODWILL ON CONSOLIDATION Group 2005 2004 RM RM

Balance as at 1 January 20,443,229 21,913,711 Accumulated amortisation (1,441,106) (1,470,482)

Balance as at 31 December 19,002,123 20,443,229

9. AMOUNT OWING BY HOLDING COMPANY Group Company 2005 2004 2005 2004 RM RM RM RM

Amount owing by holding company 61,489,849 58,704,456 61,487,048 58,701,656 Portion due within one year – – – –

Portion due after one year 61,489,849 58,704,456 61,487,048 58,701,656

The directors regard Farlim Holding Sdn. Bhd., a company incorporated and domiciled in Malaysia, as the holding company.

The amount owing by the holding company comprises advances together with interest accrued. The advance is unsecured, has no fixed term of repayment and bears interest at rates ranging from 6.85% to 9.50% (2004 : 6.40% to 9.00%) per annum based on the borrowing costs of the Company.

Based on the latest revised repayment proposal submitted by the holding company, the amount owing will be settled by 31st December 2007. The payment will be in the form of either cash payment or via sale of assets based on terms and conditions to be agreed upon and subject to the relevant approvals. The holding company has so far complied with the terms of the abovesaid repayment proposal. The revised repayment proposal is currently being evaluated by an independent financial adviser appointed by the Company.

In view of the above, the directors of the Company are of the opinion that the amount owing by the holding company will be recovered in due course and no allowance is required to be incorporated into the current year’s income statement.

10. AMOUNT OWING BY SUBSIDIARIES Company 2005 2004 RM RM

Amount owing by subsidiaries 173,791,208 167,309,608 Less: Allowance for doubtful debts (108,339,566) (83,783,758)

65,451,642 83,525,850

Portion due within one year – – Portion due after one year 65,451,642 83,525,850

65,451,642 83,525,850 Company

The amount owing by subsidiaries are unsecured, have no fixed terms of repayment and are interest free except for an amount of RM24,173,365/- (2004 : RM21,891,418/-) owing by a subsidiary company which bears interest at rates ranging from 6.85% to 9.50% (2004 : 4.18% to 10.30%) per annum.

FARLIM GROUP (MALAYSIA) BHD (82275-A) 71 NOTES TO THE FINANCIAL STATEMENTS (cont’d)

11. INVENTORIES

Group Company 2005 2004 2005 2004 RM RM RM RM At Cost Completed units of commercial podium, shoplots and houses 14,725,532 28,226,476 160,878 160,878 Raw materials 5,058,749 7,871,066 – – Work-in-progress 2,217,011 1,630,150 – – Finished goods 7,068,352 13,739,166 – – At Net Realisable Value Raw materials 3,593,206 801,540 – – Work-in-progress 1,713,894 324,653 – – Finished goods 4,234,125 501,352 – –

38,610,869 53,094,403 160,878 160,878

The completed units of commercial podium, shoplots and houses of the Group costing RM13,675,274/- (2004 : RM25,942,019/-) have been pledged to licensed banks to secure banking facilities granted to certain subsidiaries as stated in Note 23 to the financial statements.

12. TRADE RECEIVABLES

Group Company 2005 2004 2005 2004 RM RM RM RM

Trade receivables 52,587,151 55,740,446 8,763,876 12,563,298 Less: Allowance for doubtful debts (11,063,826) (10,600,708) – –

41,523,325 45,139,738 8,763,876 12,563,298

The Group’s normal trade credit terms range from 15 to 90 days.

13. OTHER RECEIVABLES

Group Company 2005 2004 2005 2004 RM RM RM RM

Other receivables 36,830,046 40,149,124 406,901 405,960 Less : Allowance for doubtful debts (22,534,584) (22,089,772) – –

14,295,462 18,059,352 406,901 405,960 Other deposits 13,492,940 8,350,137 5,478,500 5,474,735 Prepayments 2,649,386 5,895,006 68,038 69,700

30,437,788 32,304,495 5,953,439 5,950,395

72 FARLIM GROUP (MALAYSIA) BHD (82275-A) NOTES TO THE FINANCIAL STATEMENTS (cont’d)

13. OTHER RECEIVABLES (CONT’D)

Group

Included in this account are the following:-

(i) An amount receivable of RM9,003,311/- (2004 : RM9,663,644/-) which represents the balance of compensation receivable from the government of the People’s Republic of China by a foreign subsidiary for the buildings demolished under government’s city zone rebuilding project.

(ii) Deposit totalling RM7,330,000/- (2004 : RM2,230,000/-) in connection to the proposed acquisition of several parcels of land by a wholly-owned subsidiary.

(iii) Prepayment amounting to RM1,815,623/- in 2004 which represents expenditure incurred on a proposed commercial development project which were at preliminary stage. The said development project was written off during the current financial year following the disposal of the land.

Company

Included in deposits is an amount of RM5,000,000/- (2004 : RM5,000,000/-) which represents deposit paid towards the acquisition of 100% equity interest in a company for a total consideration of RM47,000,000/-. The above acquisition has been terminated and the Company has commenced legal action to recover the deposit paid together with compensation as mentioned in Note 38(d). The directors are of the opinion that this amount is recoverable.

14. AMOUNT OWING BY ASSOCIATES

The amounts owing by associates are unsecured, interest free and have no fixed terms of repayment.

15. DEPOSITS

Group Company 2005 2004 2005 2004 RM RM RM RM

Fixed deposits placed with - licenced banks 18,053,596 16,016,540 6,793,404 4,814,321 - licenced financial institutions 20,589 19,982 – –

18,074,185 16,036,522 6,793,404 4,814,321

Fixed deposits placed with licensed banks of the Group and of the Company amounting to RM12,532,916/- (2004 : RM12,366,540/-) and RM1,272,724/- (2004 : RM1,164,321/-) respectively are pledged to the banks to secure banking facilities granted to the Company and certain subsidiaries as stated in Notes 23 and 33 to the financial statements.

FARLIM GROUP (MALAYSIA) BHD (82275-A) 73 NOTES TO THE FINANCIAL STATEMENTS (cont’d)

16. CASH AND BANK BALANCES

Group Company 2005 2004 2005 2004 RM RM RM RM

Cash and bank balances 10,585,323 12,510,807 2,818,940 2,090,190 Cash held under Housing Development Account 5,870,039 2,434,680 5,683,436 1,887,492

16,455,362 14,945,487 8,502,376 3,977,682

Included in cash and bank balances is an amount of RM6,808,746/- (2004 : RM9,437,649/-) held by a foreign subsidiary of which the remittance to the Company is subject to the foreign exchange control requirement of the foreign subsidiary.

Cash held under Housing Development Account represents receipts from purchasers of residential properties less payments or withdrawals pursuant to Section 7A of the Housing Development (Control and Licensing) Act, 1966 and therefore restricted from use in other operations.

The interest earned from the Housing Development Account of the Group and of the Company ranges from 1.50% to 2.00% (2004 : 1.50% to 2.00%) per annum.

17. TRADE PAYABLES

Group

Included in trade payables is an amount of RM2,502,420/- (2004 : RM2,502,420/-) owing to a former contractor of a subsidiary which is under dispute. The dispute has been referred to arbitration. As at the date of this report, the outcome of the arbitration is still pending.

The normal trade credit term granted to the Group ranges from 30 to 90 days.

Company

Included in trade payables is an amount of RM5,689,593/- (2004 : RM5,924,876/-) represents retention sum payable.

18. OTHER PAYABLES

Group Company 2005 2004 2005 2004 RM RM RM RM

Other payables 22,479,401 19,401,675 340,552 343,886 Other deposits 1,459,603 19,333,539 256,160 17,921,025 Accruals 7,412,202 8,777,049 386,098 1,403,461

31,351,206 47,512,263 982,810 19,668,372

Group and Company

Other deposits in 2004 were included the following amounts:-

(i) RM1,559,415/- which represented deposits received for the sub-lease of the leasehold land of the Company for a total consideration of RM3,500,000/- for the purpose of constructing and operating a petrol and service station.

74 FARLIM GROUP (MALAYSIA) BHD (82275-A) NOTES TO THE FINANCIAL STATEMENTS (cont’d)

18. OTHER PAYABLES (CONT’D)

Group and Company (cont’d)

(ii) RM15,950,000/- which represented deposit received in respect of the disposal of a long leasehold land for a total cash consideration of RM29,500,000/-.

Group

Included in accruals of the Group is an amount of RM4,651,193/-, equivalent to Rmb10,000,000/- (2004 : RM4,651,193/-, equivalent to Rmb10,000,000/-) which represents estimated cost on retrenchment of staff and labour by a foreign subsidiary.

19. PROVISIONS Property Liquidated Directors’ Development Ascertained Retirement Expenditure Damages Beneﬁts Total Group RM RM RM RM

At 1 January 2004 21,648,357 177,419 6,367,010 28,192,786 Additions/(utilised) during the financial year (2,987,795) (79,578) 321,250 (2,746,123) At 31 December 2004 18,660,562 97,841 6,688,260 25,446,663 Additions/(utilised) during the financial year 2,616,255 3,478 321,250 2,940,983

At 31 December 2005 21,276,817 101,319 7,009,510 28,387,646

2005 Current 21,276,817 101,319 – 21,378,136 Non-current – – 7,009,510 7,009,510 21,276,817 101,319 7,009,510 28,387,646 2004 Current 18,660,562 97,841 – 18,758,403 Non-current – – 6,688,260 6,688,260 18,660,562 97,841 6,688,260 25,446,663 Company

At 1 January 2004 19,329,495 74,997 5,773,280 25,177,772 Additions/(utilised) during the financial year (2,518,227) (73,378) 295,000 (2,296,605) At 31 December 2004 16,811,268 1,619 6,068,280 22,881,167 Additions/(utilised) during the financial year 3,312,938 5,478 295,000 3,613,416

At 31 December 2005 20,124,206 7,097 6,363,280 26,494,583

2005 Current 20,124,206 7,097 – 20,131,303 Non-current – – 6,363,280 6,363,280 20,124,206 7,097 6,363,280 26,494,583 2004 Current 16,811,268 1,619 – 16,812,887 Non-current – – 6,068,280 6,068,280 16,811,268 1,619 6,068,280 22,881,167

FARLIM GROUP (MALAYSIA) BHD (82275-A) 75 NOTES TO THE FINANCIAL STATEMENTS (cont’d)

19. PROVISIONS (CONT’D)

(i) Property Development Expenditure

Provision for property development expenditure is made in respect of probable outflow of resources related to land and development activities of the Group and of the Company.

(ii) Liquidated Ascertained Damages

Provision for liquidated ascertained damages (“LAD”) is in respect of projects undertaken by the Group and the Company. LAD is recognised for expected LAD claims based on the contract agreements.

(iii) Directors’ Retirement Beneﬁts

Provision for directors’ retirement benefits is based on existing contractual obligations with the directors which is equivalent to two months salary of the respective directors for every year of service. The entitlement is based on the last drawn salary prior to retirement.

20. AMOUNT OWING TO SUBSIDIARIES

Group

The amount owing to a subsidiary for the Group pertained to the unconsolidated subsidiary company namely, Quanzhou Shenhong Knitting Co. Ltd., a company incorporated in People’s Republic of China which is under liquidation.

Company

The amounts owing to subsidiaries are unsecured, interest free and have no fixed terms of repayment.

21. HIRE PURCHASE PAYABLES Group Company 2005 2004 2005 2004 RM RM RM RM Minimum hire-purchase payments - not later than one year 130,352 216,514 13,752 47,626 - later than one year and not later than five years 191,826 251,875 48,119 – - later than five years – 10,344 – –

322,178 478,733 61,871 47,626 Less: Future interest charges (45,154) (80,544) (6,287) (9,762)

Present value of hire-purchase payables 277,024 398,189 55,584 37,864

Current - not later than one year 106,473 175,086 11,288 37,864 Non-current - later than one year and not later than five years 170,551 212,949 44,296 – - later than five years – 10,154 – – 170,551 223,103 44,296 –

277,024 398,189 55,584 37,864

76 FARLIM GROUP (MALAYSIA) BHD (82275-A) NOTES TO THE FINANCIAL STATEMENTS (cont’d)

22. BANK OVERDRAFTS AND BANKERS’ ACCEPTANCE

Group 2005 2004 RM RM

Bank overdrafts 177,254 646,685 Bankers’ acceptance 904,000 1,118,000

1,081,254 1,764,685

Group

The bank overdrafts and bankers’ acceptance are secured by corporate guarantees of the Company. These borrowings bear interest at rates ranging from 2.93% to 7.80% (2004 : 3.05% to 8.50%) per annum.

23. LONG TERM BORROWINGS

Group Company 2005 2004 2005 2004 RM RM RM RM Secured Syndicated loan 44,653,302 59,628,438 44,653,302 59,628,438 Bilateral loans 52,441,479 53,431,901 52,441,479 53,431,901 Chinese Renminbi loans 74,486,875 71,205,111 – – Long term loans 139,845 4,195,694 – – Revolving credits 5,633,734 7,385,734 – –

177,355,235 195,846,878 97,094,781 113,060,339 Portion due after one year (40,649,678) (87,978,505) (38,146,917) (83,234,440)

Portion due within one year 136,705,557 107,868,373 58,947,864 29,825,899

Group and Company

The syndicated loan is US Dollars denominated loan granted by a consortium of bankers. The balance comprises outstanding loan principal of USD2,106,781/- or equivalent to RM8,247,233/- (2004 : USD7,092,582/- or equivalent to RM27,151,361/- ) and interest accrued of RM36,406,069/- (2004 : RM32,477,077/-). The loan is secured by certain pieces of development land of the Company and a subsidiary and assignment of cash surplus from project “Area 9D” and Lot 7746 of the Company. Pursuant to the Company’s Proposed Debts Settlement Scheme, the said balance will be settled by the issuance of Redeemable Convertible Secured Bonds (“RCSB”) and Irredeemable Convertible Unsecured Loan Stocks (“ICULS”) by the Company.

The bilateral loans are secured over the freehold land, long leasehold land and building of the Company, certain pieces of development land of a subsidiary, assignment of sales and rental proceeds of the commercial podium of a subsidiary and assignment of surplus cash from certain development projects of the Company and divestment of pool assets of the Group and of the Company. Pursuant to the Proposed Debts Settlement Scheme of the Company, the above debts will be restructured into 3 years term loans or conversion into Redeemable Convertible Secured Loan Stock (“RCSLS”) and ICULS.

Subsequent to the balance sheet date, the Proposed Debts Settlement Scheme was approved by the Securities Commission on 28th February 2006 as mentioned in Note 39 to the financial statements.

FARLIM GROUP (MALAYSIA) BHD (82275-A) 77 NOTES TO THE FINANCIAL STATEMENTS (cont’d)

23. LONG TERM BORROWINGS (CONT’D)

Group

Chinese Renminbi Loans of Rmb155,350,000/- (2004 : Rmb153,090,000/-) granted to a foreign subsidiary, is secured over certain buildings and the adjoining land and bank deposits of the foreign subsidiary.

The long term loans and revolving credits of the subsidiaries are secured over the land under development, landed properties, a debenture over all the assets of the development projects, leasehold land of a third party, guaranteed by certain third parties and also a corporate guarantee of the Company.

The bridging loan of the subsidiary is secured over a leasehold land of a third party, a debenture over all the assets of the development project.

The long term loans and revolving credits of the subsidiaries are repayable by fixed monthly and quarterly instalments, by way of redemption of titles if earlier, or one lump sum payment at the end of the term of the facilities.

The repayment terms of the long term borrowings are as follows:-

Group Company 2005 2004 2005 2004 RM RM

Within the next twelve months 136,705,557 107,868,373 58,947,864 29,825,899

After the next twelve months - not later than two years 40,591,061 85,161,913 38,146,917 83,234,440 - later than two years but not later than five years 58,617 2,565,679 – – - later than five years – 250,913 – –

40,649,678 87,978,505 38,146,917 83,234,440

177,355,235 195,846,878 97,094,781 113,060,339

24. SHARE CAPITAL

Group and Company Number of Shares Share Capital 2005 2004 2005 2004 RM RM Ordinary shares of RM1/- each

Authorised At 1 January/31 December 300,000,000 300,000,000 300,000,000 300,000,000

Issued and fully paid At 1 January/31 December 120,000,000 120,000,000 120,000,000 120,000,000

78 FARLIM GROUP (MALAYSIA) BHD (82275-A) NOTES TO THE FINANCIAL STATEMENTS (cont’d)

25. RESERVES

Group Company 2005 2004 2005 2004 RM RM RM RM Non-distributable Share premium 29,578,426 29,578,426 29,578,426 29,578,426 Revaluation reserve 3,003,811 5,778,159 3,003,811 5,778,159 Exchange translation reserve 21,571,427 20,706,250 – – Distributable Accumulated loss (82,987,489) (66,210,294) (55,485,392) (35,676,364)

Total (28,833,825) (10,147,459) (22,903,155) (319,779)

Group and Company

Revaluation reserve represents surplus arising from revaluation of the long leasehold development land and the long leasehold land and buildings of the Company.

Group

Exchange translation reserve comprises all foreign exchange differences arising from the translation of financial statements of foreign subsidiaries.

26. DEFERRED TAXATION

Group Company 2005 2004 2005 2004 RM RM RM RM

At 1 January 58,489 66,400 – – Net transfer to income statement (Note 31) (24,596) (7,911) – –

At 31 December 33,893 58,489 – –

Temporary differences between net book values and the corresponding tax written down values 33,893 58,489 – –

Deferred taxation not provided for in the financial statements arising from:- Revaluation of certain development properties held for future development purposes 787,906 787,906 787,906 787,906 Revaluation of certain properties held for investment purposes 146,993 146,993 146,993 146,993

934,899 934,899 934,899 934,899

FARLIM GROUP (MALAYSIA) BHD (82275-A) 79 NOTES TO THE FINANCIAL STATEMENTS (cont’d)

26. DEFERRED TAXATION (CONT’D)

Further, the deferred tax assets have not been recognised for the following items:-

Group Company 2005 2004 2005 2004 RM RM RM RM

Deductible temporary differences 2,833,501 4,168,500 2,342,455 1,855,513 Unutilised tax losses 27,674,883 37,595,405 – –

30,508,384 41,763,905 2,342,455 1,855,513

Potential unrecognised deferred tax assets at 28% 8,542,348 11,693,893 655,887 519,544

The unutilised tax losses and deductible temporary differences do not expire under current tax legislation. Deferred tax assets have not been recognised in respect of these items because it is not probable that future taxable profit will be available against which the Group or the Company can utilise the benefits.

27. REVENUE

Group Company 2005 2004 2005 2004 RM RM RM RM

Sales of development properties 70,484,598 71,841,030 66,435,376 57,747,562 Sales of development land – 96,240 – – Sales of completed units of properties 14,240,027 3,149,047 510,000 241,155 Sales of goods net of discount 129,710,143 124,395,058 – – Upgrading works 543,000 – – – Services rendered 1,385,422 1,442,190 – –

216,363,190 200,923,565 66,945,376 57,988,717

80 FARLIM GROUP (MALAYSIA) BHD (82275-A) NOTES TO THE FINANCIAL STATEMENTS (cont’d)

28. OPERATING (LOSS)/PROFIT

Operating (loss)/profit has been arrived at:-

Group Company 2005 2004 2005 2004 RM RM RM RM

After charging:-

Amortisation of goodwill 1,446,442 1,470,482 – – Amortisation of long term assets 38,234 – – – Auditors’ remuneration • Statutory - current year 285,766 278,065 56,000 56,000 - underaccrual in prior year 9,800 12,300 12,800 12,800 • Others – – – – Bad debts written off – 185,341 – – Depreciation 7,790,889 7,380,341 271,092 334,756 Directors’ remuneration - fees 66,000 72,000 66,000 72,000 - meeting allowance 14,250 – 14,250 – - other emoluments 2,455,881 2,673,081 1,765,612 1,984,012 Loss on disposal of property, plant and equipment 897,774 9,436 – 108 Plant and equipment written off 3,767 4,043 2,738 4,043 Allowance for doubtful debts 183,767 96,035 24,555,808 – Provision for directors’ retirement benefits 321,250 321,250 295,000 295,000 Provision for liquidated ascertained damages 223,724 14,743 223,724 14,743 Allowance for obsolete inventories 1,450,988 397,910 – – Rental of premises 4,416 8,416 – 4,000 Staff costs - Employees’ Provident Fund 438,207 426,704 282,125 273,929 - SOCSO 36,837 34,659 23,589 21,220 - salaries, wages, bonuses and allowances 18,303,574 18,291,237 2,453,012 2,437,705 - other staff related expenses 77,433 75,608 57,276 57,647 Waiver of amount owing by a subsidiary – – 592,870 –

And crediting:-

Dividend income 95 64 – – Gain on disposal of property, plant and equipment 4,290,333 1,678,087 639,476 – Income from lease of petrol station 1,955,041 – 1,955,041 – Income from long term investment – 450,590 – – Rental income 4,738,610 5,739,521 190,600 962,813 Unrealised foreign exchange gain 183,982 – 183,982 – Waiver of amount owing to a corporate shareholder of a subdiary 298,770 – – –

Directors’ remuneration of the Group and of the Company excludes estimated monetary value of benefits in kind of RM59,800/- (2004 : RM77,250/-) and RM39,975/- (2004: RM57,425/-) respectively.

FARLIM GROUP (MALAYSIA) BHD (82275-A) 81 NOTES TO THE FINANCIAL STATEMENTS (cont’d)

29. FINANCE COSTS (NET)

Group Company 2005 2004 2005 2004 RM RM RM RM Interest income - licensed banks 577,103 291,460 566,107 263,453 - holding company 3,273,009 3,056,854 3,273,009 3,056,854 - subsidiaries – – 1,315,180 1,228,335 - others 479,184 251,438 – –

4,329,296 3,599,752 5,154,296 4,548,642 Interest expenses - bank borrowings (13,441,230) (13,207,177) (4,588,189) (4,285,189) - hire purchase (43,137) (68,378) (11,222) (29,413) - others (360,168) (47,165) – –

(13,844,535) (13,322,720) (4,599,411) (4,314,602)

(9,515,239) (9,722,968) 554,885 234,040

30. INVESTING ACTIVITIES

Group Company 2005 2004 2005 2004 RM RM RM RM

Impairment loss for - quoted investments – (3,821) – – - unquoted investments – (4,349) (1,200,000) – Loss on disposal of an associate (922,372) – (130,000) – Gain/(Loss) on disposal of investment 183,218 (961,011) – –

(739,154) (969,181) (1,330,000) –

31. TAXATION

Group Company 2005 2004 2005 2004 RM RM RM RM The taxation charge for the year arises: In Malaysia Income tax - current year (1,891,000) (801,700) (1,780,000) (660,000) - prior years (386,299) (120,842) – – Deferred taxation (Note 26) - current year 24,596 7,911 – – - prior years 67,798 – 67,798 – Real Property Gains Tax (176,022) – (176,022) – Associates – (87,425) – –

(2,360,927) (1,002,056) (1,888,224) (660,000)

82 FARLIM GROUP (MALAYSIA) BHD (82275-A) NOTES TO THE FINANCIAL STATEMENTS (cont’d)

31. TAXATION (CONT’D)

Group Company 2005 2004 2005 2004 RM RM RM RM Outside Malaysia Income tax - current year (265,151) (166,944) – – Associates (78,320) (98,481) – –

(343,471) (265,425) – –

(2,704,398) (1,267,481) (1,888,224) (660,000)

The taxation charge on the Group results is based on the chargeable income of the Company and certain subsidiary companies which have taxable profits. Due to the absence of Group tax relief, losses incurred by the other subsidiary companies in the Group cannot be utilised for tax purposes by these companies.

The reconciliation of income tax expense applicable to (loss)/profit before taxation at the statutory income tax rate to income tax expense at the effective income tax rate of the Group and the Company is as follows:-

Group Company 2005 2004 2005 2004 RM RM RM RM

(Loss)/profit before taxation (26,648,607) (19,354,194) (20,095,152) 5,701,381

Taxation at applicable statutory tax rate of 28% 7,461,611 5,419,174 5,626,643 (1,596,387) Tax effects arising from - SME tax saving from subsidiaries 43,647 37,602 – – - different tax rates in other country (113,880) 40,068 – – - different tax rate for capital gain subject to Real Property Gain Tax 9,568 – 9,568 – - non-taxable income 589,863 96,329 208,508 – - non-deductible expenses (6,733,955) (5,735,989) (7,612,323) (400,256) - Real Property Gains Tax (176,022) – (176,022) – - (origination)/reversal of deferred tax assets not recognised • current years (3,380,783) (1,454,129) (12,396) 877,096 • prior years (3,824) 450,306 – 459,547 - prior years (400,623) (120,842) 67,798 –

Tax expense for the year (2,704,398) (1,267,481) (1,888,224) (660,000)

32. EARNINGS PER SHARE

Basic Earnings Per Share

The earnings per share for the year has been calculated based on the Group’s loss after taxation and minority interests of RM19,551,543/- (2004 : RM12,613,865/-) and on the number of 120,000,000 (2004 : 120,000,000) ordinary shares in issue during the year.

Diluted Earnings Per Share

The diluted earnings per share is not shown as it is not applicable to the Group.

FARLIM GROUP (MALAYSIA) BHD (82275-A) 83 NOTES TO THE FINANCIAL STATEMENTS (cont’d)

33. CONTINGENT LIABILITIES

As at 31 December 2005, the Group and the Company are contingently liable for the following:-

Group Company 2005 2004 2005 2004 RM RM RM RM Secured Bank guarantees and performance bonds issued in favour of various third parties 2,064,367 1,712,816 1,753,027 1,576,176

Unsecured Corporate guarantees given to financial institutions for credit facilities granted to subsidiaries to the extent of RM7,914,781/- (2004: RM13,394,965/- ) – – 6,746,035 12,849,650 Corporate guarantees given to corporations for credit facilities utilised by subsidiary to the extent of RM11,488,283/- (2004 : RM11,488,283/-) – – 587,023 1,085,523

2,064,367 1,712,816 9,086,085 15,511,349

The bank guarantees and performance bonds of the Group and of the Company are secured over fixed deposits of the Company and the margin deposits of a subsidiary.

34. COMMITMENTS

Group 2005 2004 RM RM Lease commitments - due not later than one year 5,752,865 4,005,488 - due later than one year and not later than five years 5,364,806 4,636,375

11,117,671 8,641,863

84 FARLIM GROUP (MALAYSIA) BHD (82275-A) NOTES TO THE FINANCIAL STATEMENTS (cont’d)

35. SIGNIFICANT RELATED PARTY TRANSACTIONS Group Company 2005 2004 2005 2004 RM RM RM RM Interest income received/ receivable from • Holding company - Farlim Holding Sdn. Bhd. 3,273,009 3,056,854 3,273,009 3,056,854 • Subsidiary - Bandar Subang Sdn. Bhd. – – 1,315,180 1,228,335 Rental of premises received/ receivable from:- • Subsidiaries - Farlim Jaya Sdn. Bhd. – – 3,600 3,600 - Farlim Marketing Sdn. Bhd. – – 12,000 12,000 • Associate - Crimson Omega Sdn. Bhd. – 651,000 – 651,000 Accounting fees received/receivable from a subsidiary, Farlim Jaya Sdn. Bhd. – – 2,100 8,400 Management fee paid/payable to a subsidiary, Bandar Subang Sdn. Bhd. – – 360,000 1,080,000 Upgrading works received/receivable from a subsidiary, Farlim Jaya Sdn. Bhd. – – 543,000 10,820 Sales to associated companies* – 2,236,094 – – Directors’ fees** 66,000 72,000 66,000 72,000 Directors’ salaries, bonuses and allowances *** 2,455,881 2,673,081 1,765,612 1,984,012 Provision for directors’ retirement benefits # 321,250 321,250 295,000 295,000 Rental of premises paid to person connected to directors # # – 4,000 – 4,000

* The associaties are Fujian Province Quanzhou Tai Ke Telecommunication Equipment Co. Ltd., Quanzhou Qingyuan Beer Co. Ltd (formerly known as Quanzhou C.S.I. Beer Co. Ltd.) and Fu Da Seasoning Company (2004 : Fujian Province Quanzhou Tai Ke Telecommunication Equipment Co. Ltd., Quanzhou C.S.I. Beer Co. Ltd. and Fu Da Seasoning Company). ** Paid to Dato’ Zainol Abidin Bin Dato’ Haji Salleh, Lam Chin Loong and Ahmad Kamarudin Bin Ismail (2004 : Dato’ Zainol Abidin Bin Dato’ Haji Salleh, Lam Chin Loong and Ahmad Kamaruddin Bin Ismail). *** Paid/payable to Dato’ Seri Lim Gait Tong, Dato’ Haji Mohd. Iqbal Bin Kuppa Pitchai Rawther, Datin Seri Chin Chew Lin, Ng Bock Tye, Lim Yat Koi @ Lim Yoke Kwai and Wei Chee Keong (2004 : Dato’ Seri Lim Gait Tong, Dato’ Haji Mohd. Iqbal Bin Kuppa Pitchai Rawther, Datin Seri Chin Chew Lin, Ng Bock Tye, Lim Yat Koi @ Lim Yoke Kwai and Wei Chee Keong). # Dato’ Seri Lim Gait Tong, Dato’ Haji Mohd. Iqbal Bin Kuppa Pitchai Rawther, Datin Seri Chin Chew Lin, Ng Bock Tye, and Lim Yat Koi @ Lim Yoke Kwai. # # Dato’ Seri Lim Gait Tong, Datin Seri Chin Chew Lin and Lim Yat Koi @ Lim Yoke Kwai.

The directors of the Company are of the opinion that the above transactions have been entered into in the normal course of business and the terms are no less favourable than those arranged with third parties.

36. SEGMENTAL ANALYSIS

The Group’s operating businesses are classified according to the nature of activities as follows:-

Property : Comprise mainly property related activities. Plantation : Comprise mainly cultivation of oil palm. Trading : Comprise mainly trading of building materials. Investment : Comprise mainly investment holding. Manufacturing : Comprise mainly production of garments, cloth, elevators, optical equipment, beer, microwave transmission equipment, seasoning and piscicultural accessories.

FARLIM GROUP (MALAYSIA) BHD (82275-A) 85 NOTES TO THE FINANCIAL STATEMENTS (cont’d) – RM 2004 (969,181) (197,671) 8,007,810 (9,722,968) (5,929,729) (1,267,481) 11,963,257 (14,497,902) (13,424,465) (19,354,194) (20,621,675) (12,613,865) 200,923,565 TOTAL – RM 2005 (739,154) 9,801,462 (9,515,239) (1,702,246) (6,419,659) (2,704,398) 15,251,695 (23,524,004) (20,228,948) (26,648,607) (29,353,005) (19,551,543) 216,363,190 – – RM 2004 (197,671) (265,425) 9,437,783 8,126,683 (7,578,510) (6,585,993) (16,187,673) (14,526,071) (21,112,064) (21,377,489) (13,250,806) 111,304,107 – – RM 2005 MANUFACTURING (343,470) 9,542,143 (8,085,787) (1,702,246) (6,419,659) 10,024,791 (17,831,172) (18,077,062) (24,496,721) (24,840,191) (14,815,400) 122,752,855 – – – – – – – – RM 2004 (8,059) (969,181) (977,240) (977,240) (977,240) (977,240) – – – – – – – – RM INVESTMENT 2005 (7,467) (739,154) (746,621) (746,621) (746,621) (746,621) – – – RM 2004 282,871 116,100 283,809 656,264 940,073 781,774 674,294 (115,162) (158,299) (107,480) 13,369,613 – – – – TRADING RM 2005 (70,191) 206,938 287,092 392,675 392,675 322,484 161,326 (101,355) (161,158) 7,448,000 – – – – – RM 900 2004 70,092 (50,216) (67,343) 186,751 187,651 187,651 137,435 1,163,528 – – – – PLANTATION RM 2005 (4,380) 33,960 (10,507) 894,710 673,505 696,958 696,958 692,578 353,214 (339,364) – – – – RM 2004 55,950 813,843 869,793 (793,541) 1,228,206 2,408,474 1,607,384 1,607,384 (2,029,296) 75,086,317 – – – – PROPERTY RM 2005 277,193 4,748,955 (5,926,263) (1,317,590) (2,494,898) (2,494,898) (2,286,357) (4,781,255) (4,504,062) 85,267,625 after (“MI”) income activities equipment ordinary activities of associated companies before taxation taxation interests after MI REVENUE External Sales RESULTS Segment results Other operating Finance cost (net) Investing Impairment loss - plant and -investments (Loss)/profit from Share of results (Loss)/profit Taxation (Loss)/profit Minority (Loss)/profit Primary Reporting – Business Segments 36. SEGMENTAL ANALYSIS (CONT’D)

86 FARLIM GROUP (MALAYSIA) BHD (82275-A) NOTES TO THE FINANCIAL STATEMENTS (cont’d)

RM 2004 3,567,160 7,380,341 20,360,156 443,319,209 463,679,365 314,152,433 314,152,433 TOTAL RM 2005 7,622,705 7,790,889 12,778,528 269,007,768 376,870,280 389,648,808 269,007,768 RM 2004 3,183,641 6,674,318 18,937,783 147,422,755 166,360,538 104,885,611 104,885,611 RM 2005 MANUFACTURING 7,472,936 7,201,723 12,778,528 138,865,613 151,644,141 105,287,748 105,287,748 – – – RM 2004 10,337 10,337 25,721 25,721 – – – RM INVESTMENT 2005 9,456 9,456 26,878 26,878 RM 2004 15,605 71,662 4,569,063 6,230,319 1,422,373 5,991,436 6,230,319 – – TRADING RM 2005 48,481 3,397,097 3,021,012 3,021,012 3,397,097 – RM 381 2004 23,173 319,301 319,301 6,550,869 6,550,869 – PLANTATION RM 2005 3,438 4,393 330,319 330,319 6,120,582 6,120,582

– RM 2004 344,741 633,980 284,766,185 284,766,185 202,691,481 202,691,481

– PROPERTY RM 2005 146,331 536,292 159,965,726 228,853,617 228,853,617 159,965,726 INFORMATION liabilities expenditure amortisation OTHER Segment assets Investment in associates Total assets Segment Total liabilities Capital Depreciation and Primary Reporting – Business Segments 36. SEGMENTAL ANALYSIS (CONT’D)

FARLIM GROUP (MALAYSIA) BHD (82275-A) 87 NOTES TO THE FINANCIAL STATEMENTS (cont’d) – – – RM 2004 674,202 6,706,139 7,380,341 7,380,341 – – – DEPRECIATION RM 2005 557,347 7,233,542 7,790,889 7,790,889 – – – RM 2004 383,519 3,183,641 3,567,160 3,567,160 CAPITAL – – – RM EXPENDITURE 2005 149,769 7,472,936 7,622,705 7,622,705 – – – RM 2004 200,337,504 113,814,929 314,152,433 314,152,433 – – – RM 2005 TOTAL LIABILITIES 269,007,768 269,007,768 154,538,721 114,469,047 RM 2004 1,422,373 18,937,783 20,360,156 443,319,209 463,679,365 287,208,594 156,110,615 – RM TOTAL ASSETS 2005 12,778,528 12,778,528 376,870,280 389,648,808 230,254,934 146,615,346 RM 2004 400,333 656,264 (7,084,469) (6,684,136) (6,585,993) (5,929,729) (12,613,865) RESULTS – RM 2005 (3,546,038) (9,585,848) (6,419,659) (6,419,659) (13,131,886) (19,551,545)

– – – RM 2004 COMPANY 89,619,458 111,304,107 200,923,565 200,923,565

– – – REVENUE RM 2005 OF ASSOCIATED 92,501,735 123,861,455 216,363,190 216,363,190 CHINA CHINA REPUBLIC OF REPUBLIC OF Secondary Reporting - Geographical Segments MALAYSIA PEOPLE’S GROUP SHARE MALAYSIA PEOPLE’S 36. SEGMENTAL ANALYSIS (CONT’D)

88 FARLIM GROUP (MALAYSIA) BHD (82275-A) NOTES TO THE FINANCIAL STATEMENTS (cont’d)

37. SUBSIDIARIES AND ASSOCIATES

The Group’s equity interest in each of the subsidiary and associate, country of incorporation and their respective principal activities are as follows:-

Subsidiaries

Effective Country of Group Equity Name of the Company Incorporation 2005 2004 Principal Activities % % Direct Subsidiaries Bandar Subang Sdn. Bhd. Malaysia 100 100 Property development and investment holding

Kanchil Jaya Sdn. Bhd. Malaysia 100 100 Property development and investment holding

Farlim Jaya Sdn. Bhd. Malaysia 100 100 Property development

Farlim (Johor) Sdn. Bhd. Malaysia 51 51 Cultivation of oil palm

Farlim Marketing Sdn. Bhd. Malaysia 51 51 Trading in building materials

Farlim Suiwah Sdn. Bhd. Malaysia 70 70 Property development

Baka Suci Sdn. Bhd. Malaysia 80 80 Property development

Victory Ace Sdn. Bhd. Malaysia 82 82 Pre-operating

Ria Bahagia Sdn. Bhd. Malaysia 100 100 Pre-operating

+ Farlim Group (China) Ltd. People’s Republic 100 100 Investment holding of China

+ Quanzhou Farlim Real Estate Co., Ltd. People’s Republic 73.3 73.3 Property development of China

Indirect Subsidiaries Kertih-Paka Country & Malaysia 100 100 No commenced business operation Golf Resorts Sdn. Bhd.*

Cabaran Resorts Sdn. Bhd.* Malaysia 100 100 Property development

Angkatan Wawasan Sdn. Bhd.* Malaysia 100 100 Investment holding

Saga Realty & Development Sdn. Bhd.* Malaysia 100 100 Property development

LJ Harta Sdn. Bhd.** Malaysia 80 80 Property development

Kaplands Sdn. Bhd.** Malaysia 100 100 Property development

FARLIM GROUP (MALAYSIA) BHD (82275-A) 89 NOTES TO THE FINANCIAL STATEMENTS (cont’d)

37. SUBSIDIARIES AND ASSOCIATES (CONT’D) Effective Country of Group Equity Name of the Company Incorporation 2005 2004 Principal Activities % % Indirect Subsidiaries + Farlim Realty Ltd.*** People’s Republic 100 100 Dormant of China

+ Farlim Food Industries Ltd.*** People’s Republic 100 100 Dormant of China

+ Max Surplus Ltd. *** People’s Republic 100 100 Dormant of China

+ Quanzhou Farlim Group People’s Republic 51 51 Production, printing, packing services, (China) Limited *** of China trading and real estate development

+ Quanzhou Zhong Qiao Star People’s Republic 30.6 30.6 Dormant Light Stainless Steel Co., Ltd.*** of China

+ Quanzhou Baojia Garment Co., Ltd.*** People’s Republic 35.7 35.7 Production of garments of China

+ Fujian Province Fuji-Sino Elevators Co., Ltd. People’s Republic 33.23 33.23 Production of elevators (formerly known as Quanzhou Fuji of China - Sino Elevators Co., Ltd.)

+ People’s Republic 38.25 38.25 Sale of electronic and office (Quanzhou Zhong Qiao Trading of China appliances Co.,Ltd.)***@

+ People’s Republic 33.23 33.23 Installation and maintenance of (Quanzhou Li Da Elevators of China elevators Engineering Co.Ltd.)****@

Direct Associate + Crimson Omega Sdn. Bhd. Malaysia – 30 Trading in general consumable

Indirect Associates + Quanzhou Zhong You Optical People’s Republic 20.40 20.40 Production of Optical equipment Instruments Co., Ltd.*** of China

+ Quanzhou Qingyuan Beer Co., Ltd. People’s Republic 20.40 20.40 Production of beer (formerly known as Quanzhou of China C.S.I Beer Co Ltd.)***

+ Quanzhou Zhongfa Improved Fuel People’s Republic 21.42 21.42 Dormant Co., Ltd.*** of China

+ People’s Republic 20.40 20.40 Production of microwave (Fujian Province Tai Ke Telecommunication of China transmission equipment Equipment Co., Ltd.) (formerly known as Fujian Province Quanzhou Tai Ke Telecommunication Equipment Co., Ltd.)***@ 90 FARLIM GROUP (MALAYSIA) BHD (82275-A) NOTES TO THE FINANCIAL STATEMENTS (cont’d)

37. SUBSIDIARIES AND ASSOCIATES (CONT’D) Effective Country of Group Equity Name of the Company Incorporation 2005 2004 Principal Activities % % Indirect Associates + Quanzhou Jastar Co., Ltd.***# People’s Republic 20.40 20.40 Dormant of China

+ People’s Republic 17.85 17.85 Production of seasoning (Fu Da Seasoning Company)***@ of China

+ People’s Republic 15.30 15.30 Production of piscicultural (Quanzhou Long Run Piscicultural of China accessories Technology Co., Ltd.)***@

+ People’s Republic 25.50 25.50 Production of light industrial (Quanzhou Qiao Li Light Industrial of China machinery and manufacturing of Machinery Co., Ltd.)***@ pressure vessel

+ These companies are not audited by Monteiro & Heng * Held indirectly through Bandar Subang Sdn. Bhd. ** Held indirectly through Kanchil Jaya Sdn. Bhd. *** Held indirectly through Farlim Group (China) Ltd. **** Held indirectly thorugh Fuji-Simo Elevators Co., Ltd. (formerly known as Quanzhou Fuji-Sino Elevators Co., Ltd.) # Companies which are under liquidation. @ Name in English is for identification purpose.

38. SIGNIFICANT EVENTS DURING THE FINANCIAL YEAR

a) On 12 May 2005, the Company had announced the following proposals:

i) Proposed renounceable two-call rights issue of up to 52,800,000 new ordinary shares of RM1.00 each (“Rights Shares”) in Farlim Group (Malaysia) Bhd. (“Farlim”) to be credited as fully paid-up at an issue price of RM1.00 per share on the basis of two (2) Rights Shares for every five (5) existing ordinary shares of RM1.00 each in Farlim (“Farlim Shares”) held at the book closure date to be determined and announced later together with up to 21,120,000 new free detachable warrants (“Warrants”) on the basis of two (2) new warrants for every five (5) Rights Shares subscribed (“Proposed Rights Issue”);

ii) Proposed debt settlement (“Proposed Debt Settlement”) through:

a) Proposed settlement of the outstanding debt under USD Syndication due to syndicated lenders (“Syndicated Lenders”) through the issuance of Redeemable Convertible Secured Bonds (“RCSB);

b) Proposed settlement of the outstanding debt under the bilateral facilities due to bilateral lenders (“Bilateral Lenders”) through the issuance of Redeemable Convertible Secured Loan Stocks (“RCSLS”) or conversion of the outstanding debt into term loan; and

c) Proposed issuance of Irredeemable Convertible Unsecured Loan Stocks (“ICULS”) to Syndicated Lenders and Bilateral Lenders;

iii) Proposed increase in the authorised share capital from RM300,000,000 comprising 300,000,000 shares in Farlim to RM500,000,000 comprising 500,000,000 shares in Farlim; and

FARLIM GROUP (MALAYSIA) BHD (82275-A) 91 NOTES TO THE FINANCIAL STATEMENTS (cont’d)

38. SIGNIFICANT EVENTS DURING THE FINANCIAL YEAR (CONT’D)

iv) Proposed alterations to the Memorandum and Articles of Association of Farlim.

Collectively, referred to as “The Proposals”.

The Securities Commission (“SC”) via its letter dated 10 October 2005 did not approve the Proposals as the Proposed Rights Issue, which involves a second call of RM0.60 per Farlim share to be capitalised from the share premium reserve and revaluation reserves will result in an issue of securities that are not backed by assets. This is due to the fact that as at 31 December 2004, Farlim’s share premium reserves and revaluation reserves of RM29.6 million and RM5.8 million respectively, are deemed “exhausted” based on the shareholders’ funds of RM109.9 million compared to the issued and paid-up share capital of Farlim of RM120 million, as a result of accumulated losses of RM66.2 million (“SC’s Decission”).

On 30 November 2005, the Company had submitted an appeal against the SC’s Decision and had proposed to vary The Proposals as follows:-

i) To abort the Proposed Right Issue. In this regard, working capital which was initially intended to be funded via proceeds from the Proposed Right Issue shall now be funded via internally generated funds and proposed sale of investments.

ii) Issuance of additional nominal value of ICULS pursuant to the Proposed Debt Settlement. There will be no changes to the Proposed Debt Settlement with the abortion of the Proposed Rights Issue save for the issuance of additional ICULS.

b) The Company has on 18 February 2005 completed the following disposals in accordance with the terms and conditions of the Sale and Purchase Agreement (“SPA”) and Share Sale Agreement both dated 31 March 2004:-

a) Disposal of a ninety nine (99) years lease in respect of a piece of land known as Lot 7703, Daerah Timur Laut, Mukim 13, Pulau Pinang to Crimson Omega Sdn. Bhd. (“COSB”) for a total cash consideration of RM29,500,000/-; and

b) Disposal of 30,000 ordinary shares of RM1/- each and 600,000 10% Redeemable Cumulative Preference Shares of RM1/- each in COSB (representing 30% equity interest in COSB) to Suiwah Corporation Bhd. for a total consideration of RM500,000/-.

c) On 15 June 2004, Bandar Subang Sdn. Bhd. (“BSSB”), a wholly-owned subsidiary of the Company had entered into a sale and purchase agreement (“SPA”) with Rakyat Corporation Sdn. Bhd. (“RCSB”) for the acquisition of several parcels of land measuring approximately 60 acres located in Mukim Kajang/Cheras, Daerah Ulu Langat, Selangor Darul Ehsan (“Properties”) from RCSB for a cash consideration of RM38,000,000 (“Proposed Acquisition”).

The Proposed Acquisition is also subject to the fulfilment of the Conditions Precedent set out in the SPA and approval from any other relevant authorities, where applicable.

d) On 11 March 2005, the Kuala Lumpur High Court ruled in the Company’s favour in respect of the Company’s petition for winding-up of Esphere Enterprises Sdn. Bhd. (“EESB”).

EESB is indebted to the Company for the sum of RM6,864,684.93 in respect of deposit refundable to the Company by EESB and compensation thereon pursuant to the terms of a Letter of Intent dated 3rd May 2000, for the purchase of the entire 100% equity interest in Mahawira Sdn. Bhd. which was subsequently aborted.

On 23 September 2005, the Kuala Lumpur High Court gave an order to compel the directors of EESB to deliver the books and the records together with the statement of affairs.

92 FARLIM GROUP (MALAYSIA) BHD (82275-A) NOTES TO THE FINANCIAL STATEMENTS (cont’d)

39. EVENTS SUBSEQUENT TO BALANCE SHEET DATE

a) On 27 January 2006, the Kuala Lumpur High Court heard the case and directed the Liquidators and one of the directors of EESB who attended the court to resolve the matter out of court, failing which, to proceed with the cross examination on next hearing date fixed on 28 April 2006.

b) The SC had via its letter dated 20 February 2006 (which was received on 28 February 2006) approved the application by the Company in relation to the Proposed Debt Settlement, subject to amongst others, the following conditions:-

i) For the Proposed Debts Settlement, Commerce International Merchant Bankers Berhad (“CIMB”)/Farlim Group (Malaysia) Berhad (“Farlim”) is required to obtain the approval of the Foreign Investment Committee (“FIC”), under the Guidelines for the Acquisition of Interests, Mergers and Take-Overs by Local and Foreign Interest, in which, the application must be submitted to the SC, on behalf of the FIC;

ii) CIMB/Farlim to obtain SC’s prior approval should there be any changes to the terms and conditions of the RCSB, RCSLS and ICULS;

iii) CIMB to submit amongst others, the following information or documents to the SC prior to the issue date of the RCSB, RCSLS and ICULS:

a) Issue date, tenure of issue and issue size for the RCSB, RCSLS and ICULS;

b) A certified true copy of the executed trust deeds for the RCSB, RCSLS and ICULS; and

c) Written confirmation as required under Paragraph 7.02 of the Guidelines on the Offering of Private Debt Securities in relation to the non-rating for the RCSB and RCSLS.

iv) Farlim shall obtain all necessary approvals from all the relevant parties in relation to the proposed RCSB, RCSLS and ICULS and CIMB is to submit a written confirmation on the same to the SC prior to the issue date of the RCSB, RCSLS and ICULS;

v) CIMB/Farlim to disclose in writing to potential investors that each RCSB, RCSLS and ICULS issue will carry different risks and all potential investors are strongly encouraged to evaluate RCSB, RCSLS and ICULS issue on its own merit;

vi) CIMB is required to remind all relevant parties including Farlim and the trustee to the proposed RCSB, RCSLS and ICULS, of the need to observe and fully comply with all statutory requirements, in particular, those set out division 4 of Part IV of the Securities Commission Act, 1993; and

vii) CIMB/Farlim to fully comply with the relevant requirements as stipulated in the Policies and Guidelines on Issue/ Offer of Securities in relation to the implementation of the Proposals.

40. FINANCIAL INSTRUMENTS

a) Financial Risk Management and Objectives

The Group seeks to manage effectively various risks namely credit, liquidity, foreign currency, market and interest rate risk, to which the Group is exposed to in its daily operation.

i) Credit Risk

The management has a credit policy in place to monitor and minimise the exposure of default. Trade receivables are monitored on an ongoing basis.

As at balance sheet date, there were no significant concentrations of credit risk in the Group other than unsecured advances made to holding company as mentioned in Note 9 to the financial statements.

FARLIM GROUP (MALAYSIA) BHD (82275-A) 93 NOTES TO THE FINANCIAL STATEMENTS (cont’d)

40. FINANCIAL INSTRUMENTS (CONT’D)

a) Financial Risk Management and Objectives (cont’d)

ii) Liquidity Risk

The Group actively manages its debt maturity profile, operating cash flows and the availability of funding so as to ensure that all financing, repayment and funding needs are met. As part of its overall prudent liquidity management, the Group maintains sufficient levels of cash or cash equivalents to meet its working capital requirements.

In addition, the Group has also embarked on the Proposed Debts Settlement Scheme to restructure the terms of repayment of existing loans to achieve the objective of matching the repayment schedules to its expected cash flows from orderly assets disposal and future operating cash flows.

iii) Foreign Currency Risk

The Group maintains a natural hedge, whenever possible, by borrowing in the currency of the country in which the future revenue streams to be generated. However, the Group is exposed to foreign currency risk on its syndicated US Dollars denominated loan that was not hedged.

To mitigate the foreign currency risk, the Group has embarked on the Proposed Debts Settlement Scheme with the lenders for the conversion of the foreign currency loan into Ringgit denominated bonds.

iv) Market Risk

The principal exposure to market risk arises mainly from the changes in equity prices of quoted investments held by a subsidiary. The subsidiary manages disposal of its investments to optimise returns on realisation.

v) Interest Rate Risk

The Group’s primary interest rate risk relates to interest-bearing debt as at 31 December 2005. The investments in financial assets are mainly short term in nature and they are not held for speculative purposes.

The Group actively reviews its debt portfolio, taking into account the nature of its assets. This strategy allows it to capitalise on cheaper funding in a low interest rate environment and achieve a certain level of protection against interest rate hikes.

Effective interest rates. Effective Within 1 - 5 > 5 As at 31 December 2005 Interest Rate 1 Year Years Years Total Group % RM RM RM RM

Financial Assets Amount owing by holding company 6.85 - 9.50 – 61,489,849 – 61,489,849 Cash held under Housing Development Account 1.50 - 2.00 5,870,039 – – 5,870,039 Deposits 2.75 - 3.70 18,074,185 – – 18,074,185

Financial Liabilities Hire purchase payables 9.41 - 11.26 106,473 170,551 – 277,024 Bank overdrafts and bankers’ acceptance 2.93 - 7.50 1,081,254 – – 1,081,254 Long term borrowings 6.85 - 9.50 136,705,557 40,833,660 – 177,539,217

94 FARLIM GROUP (MALAYSIA) BHD (82275-A) NOTES TO THE FINANCIAL STATEMENTS (cont’d)

40. FINANCIAL INSTRUMENTS (CONT’D)

a) Financial Risk Management and Objectives (cont’d)

v) Interest Rate Risk (cont’d)

Effective Within 1 - 5 > 5 As at 31 December 2005 Interest Rate 1 Year Years Years Total Company % RM RM RM RM

Financial Assets Amount owing by holding company 6.85 - 9.50 – 61,487,048 – 61,487,048 Amount owing by subsidiaries 6.85 - 9.50 – 24,173,365 – 24,173,365 Cash held under Housing Development Account 1.50 - 2.00 5,683,436 – – 5,683,436 Deposits 2.75 - 3.70 6,793,404 – – 6,793,404

Financial Liabilities Hire purchase payables 9.41 - 11.26 11,288 44,296 – 55,584 Long term borrowings 6.85 - 9.50 58,947,864 38,330,899 – 97,278,763

Effective Within 1 - 5 > 5 As at 31 December 2004 Interest Rate 1 Year Years Years Total Group % RM RM RM RM

Financial Assets Amount owing by holding company 4.81 - 5.94 – 58,704,456 – 58,704,456 Cash held under Housing Development Account 1.50 - 2.00 2,434,680 – – 2,434,680 Deposits 2.75 - 4.00 16,036,522 – – 16,036,522

Financial Liabilities Hire purchase payables 3.45 - 11.26 175,086 212,949 10,154 398,189 Bank overdrafts and bankers’ acceptance 3.05 - 8.50 1,764,685 – – 1,764,685 Long term borrowings 3.50 - 8.06 107,868,373 87,727,592 250,913 195,846,878

Company

Financial Assets Amount owing by holding company 4.81 - 5.94 – 58,701,656 – 58,701,656 Amount owing by subsidiaries 4.18 - 10.30 – 21,891,418 – 21,891,418 Cash held under Housing Development Account 1.50 - 2.00 1,887,492 – – 1,887,492 Deposits 2.75 - 4.00 4,814,321 – – 4,814,321

Financial Liabilities Hire purchase payables 9.41 - 11.26 37,864 – – 37,864 Long term borrowings 3.50 - 7.75 29,825,899 83,234,440 – 113,060,339

FARLIM GROUP (MALAYSIA) BHD (82275-A) 95 NOTES TO THE FINANCIAL STATEMENTS (cont’d)

40. FINANCIAL INSTRUMENTS (CONTI’D)

b) Fair Values

The fair values of financial assets and financial liabilities approximate their respective carrying values on the balance sheets of the Group and of the Company, except for amounts owing by/to holding company, subsidiaries, associates and long term borrowings.

It is not practical to estimate the fair values of the amounts owing by/to holding company, subsidiaries, associates and long term borrowings due principally to the inability to estimate the settlement date without incurring excessive costs as these amounts either lack a fixed repayment term or are in the process of being restructured. However, the Group does not anticipate the carrying amounts recorded at the balance sheet date to be significantly different from the values that would be eventually received or settled.

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

i) Cash and Cash Equivalents, Trade and Other Receivables/Payables and Long Term Borrowings Due Within One Year

The carrying amounts approximate fair values due to the relatively short term to maturity of these financial instruments.

ii) Other Investments

The fair value of quoted shares is determined by reference to stock exchange quoted market bid prices at the close of the business on the balance sheet date.

The nominal/notional amount and net fair value of contingent liabilities (as disclosed in Note 33 to the financial statements) are not recognised in the balance sheet as at 31 December 2005 as it is not practicable to make a reliable estimate due to the uncertainties of timing, costs and eventual outcome.

96 FARLIM GROUP (MALAYSIA) BHD (82275-A) STATEMENT BY DIRECTORS

We, DATO’ SERI LIM GAIT TONG and DATO’ HAJI MOHD. IQBAL BIN KUPPA PITCHAI RAWTHER, being two of the directors of FARLIM GROUP (MALAYSIA) BHD., do hereby state that in the opinion of the directors, the financial statements set out on pages 9 to 70 are drawn up so as to give a true and fair view of the state of affairs of the Group and of the Company as at 31st December 2005 and of the results and cash flows of the Group and of the Company for the year ended on that date in accordance with the provisions of the Companies Act, 1965 and the applicable approved accounting standards in Malaysia.

On behalf of the Board,

DATO’ SERI LIM GAIT TONG Director

DATO’ HAJI MOHD. IQBAL BIN KUPPA PITCHAI RAWTHER Director

Kuala Lumpur Date: 19 April 2006

STATUTORY DECLARATION

I, DATO’ SERI LIM GAIT TONG, being the director primarily responsible for the financial management of FARLIM GROUP (MALAYSIA) BHD., do solemnly and sincerely declare that to the best of my knowledge and belief, the financial statements set out on pages 9 to 70 are correct, and I make this solemn declaration conscientiously believing the same to be true, and by virtue of the provisions of the Statutory Declarations Act, l960.

DATO’ SERI LIM GAIT TONG

Subscribed and solemnly declared by the abovenamed at Kuala Lumpur in the Federal Territory on 19 April 2006

Before me,

MOHD RADZI BIN YASIN Commissioner for Oaths NO.W. 327

FARLIM GROUP (MALAYSIA) BHD (82275-A) 97 REPORT OF THE AUDITORS TO THE MEMBERS OF FARLIM GROUP (MALAYSIA) BHD. (Incorporated in Malaysia)

We have audited the financial statements set out on pages 9 to 70.

These financial statements are the responsibility of the Company’s directors.

It is our responsibility to form an independent opinion, based on our audit, on those financial statements and to report our opinion to you, as a body, in accordance with Section 174 of the Companies Act, 1965 and for no other purpose. We do not assume responsibility towards any other person for the content of this report.

We conducted our audit in accordance with approved standards on auditing in Malaysia. Those standards require that we plan and perform the audit to obtain reasonable assurance 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 directors, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion:-

a) the financial statements are 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 state of affairs of the Group and of the Company as at 31 December 2005 and of the results and cash flows of the Group and of the Company for the year ended on that date; and

ii) the matters required by Section 169 of the Companies Act, 1965 to be dealt with in the financial statements of the Group and of the Company; and

b) the accounting and other records and the registers required by the Companies Act, 1965 to be kept by the Company and its subsidiary companies of which we have acted as auditors have been properly kept in accordance with the provisions of the said Act.

We have considered the financial statements and the auditors’ reports of the subsidiaries of which we have not acted as auditors, which are indicated in Note 37 to the financial statements, being financial statements that have been included in the consolidated financial statements.

We are satisfied that the financial statements of the subsidiaries that have been consolidated with the financial statements of the Company 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 and did not include any comment made under subsection (3) of Section 174 of the Act.

Without qualifying our opinion, we draw your attention to Note 9 to the financial statements which states that the Company has received a revised repayment proposal from the holding company based on the principle of full repayment by 31 December 2007. The directors of the Company are of the opinion that the amount owing by the holding company will be recovered in due course and no allowance is required to be incorporated into the current year’s financial statements.

Monteiro & Heng No. AF 0117 Chartered Accountants

Heng Ji Keng No. 578/05/06 (J/PH) Partner

Kuala Lumpur Date: 19 April 2006

98 FARLIM GROUP (MALAYSIA) BHD (82275-A) REPORT OF THE AUDITORS TO THE CONTROLLER OF HOUSING PURSUANT TO SECTION 9(3) OF THE HOUSING DEVELOPMENT (CONTROL AND LICENSING) ACT, 1966 ON THE FINANCIAL STATEMENTS OF FARLIM GROUP (MALAYSIA) BHD. (Incorporated in Malaysia)

We have audited the financial statements set out on pages 9 to 70.

These financial statements are the responsibility of the Company’s directors.

In our opinion:- a) the financial statements are 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 the state of affairs of the Company as at 31 December 2005 and of the results and cash flows of the Company for the year ended on that date; and b) the accounting and other records examined by us are properly kept; and c) we have received satisfactory information and examinations from the officers and agents of the Company as required for the purpose of our audit.

Monteiro & Heng Heng Ji Keng No. AF 0117 No. 578/05/06 (J/PH) Chartered Accountants Partner

Kuala Lumpur Date: 19 April 2006

FARLIM GROUP (MALAYSIA) BHD (82275-A) 99 REPORT OF THE AUDITORS TO THE CONTROLLER OF HOUSING PURSUANT TO REGULATION 12 OF THE HOUSING DEVELOPMENT (HOUSING DEVELOPMENT ACCOUNT) REGULATIONS 1991 ON THE FINANCIAL STATEMENTS OF FARLIM GROUP (MALAYSIA) BHD. (Incorporated in Malaysia)

In the course of our audit as external auditors of Farlim Group (Malaysia) Bhd. for the year ended 31 December 2005, we have audited the Housing Development Accounts to be opened and maintained pursuant to the Housing Development (Housing Development Account) Regulations 1991.

Housing Development Bank Project Number of Account No. withdrawals examined 1070014436 Southern Bank Berhad Desa Ixora and Sri Ivori (-)* 1070015767 Southern Bank Berhad Sri Ivori (-)* 507125126635 Maybank Berhad Kompleks Farlim (-)* 507125126628 Maybank Berhad Desa Ixora, Sri Ivori and Sri Impian 42 3115324604 Public Bank Berhad Sri Impian 4 3126051407 Public Bank Berhad Casa Idaman 43 3133629903 Public Bank Berhad Sri Kristal 1 * No withdrawal was noted for the year ended 31 December 2005.

Based on our workdone, nothing has come to our attention that cause us to believe that the monies in the Housing Development Accountants have not been withdrawn in accordance with the Regulations.

Monteiro & Heng Heng Ji Keng No. AF 0117 No. 578/05/06 (J/PH) Chartered Accountants Partner

Kuala Lumpur Date: 19 April 2006

100 FARLIM GROUP (MALAYSIA) BHD (82275-A) STATISTICS OF SHAREHOLDINGS AS AT 8 MAY 2006

Share Capital

Authorised : RM300,000,000.00 Issued and Fully Paid-up : RM120,000,000.00

1. SUBSTANTIAL SHAREHOLDERS Direct Indirect Name of Shareholder No. of Shares % No. of Shares %

Farlim Holding Sdn. Bhd. 60,571,234 50.48 – –

2. DIRECTORS’ INTERESTS

According to the Register of Directors’ Shareholdings, the interest of Directors in shares in the Company, holding company and subsidiary companies are as follows : - Ordinary Shares The Company Number % Farlim Group (Malaysia) Bhd. Dato’ Seri Lim Gait Tong 10,000 0.01 Dato’ Haji Mohd. Iqbal Bin Kuppa Pitchai Rawther 2,257,000 1.88 Ng Bock Tye 10,000 0.01 Datin Seri Chin Chew Lin 10,000 0.01 Lim Yat Koi @ Lim Yoke Kwai 10,000 0.01 Lam Chin Loong 10,000 0.01 Dato’ Zainol Abidin Bin Dato’ Haji Salleh 29,667 0.02

The holding company Farlim Holding Sdn. Bhd. Dato’ Seri Lim Gait Tong 45,773 68.83 Dato’ Haji Mohd. Iqbal Bin Kuppa Pitchai Rawther 15,355 23.09 Ng Bock Tye 2,303 3.46 Lim Yat Koi @ Lim Yoke Kwai 3,071 4.62

The subsidiary companies Baka Suci Sdn. Bhd. Dato’ Seri Lim Gait Tong 1 0.002 Dato’ Haji Mohd. Iqbal Bin Kuppa Pitchai Rawther 1 0.002

Victory Ace Sdn. Bhd. Dato’ Seri Lim Gait Tong 1 0.01 Dato’ Haji Mohd. Iqbal Bin Kuppa Pitchai Rawther 1 0.01

Farlim Marketing Sdn. Bhd. Lim Yat Koi @ Lim Yoke Kwai 50,000 10.00

Max Surplus Limited Lim Yat Koi @ Lim Yoke Kwai 1 50.00

Dato’ Haji Mohd. Iqbal Bin Kuppa Pitchai Rawther is, by virtue of his interest in a corporate shareholder, deemed interested in 168,750 (33.75%) shares in a subsidiary company, Farlim Marketing Sdn. Bhd.

By virtue of their interests in shares in the holding company as substantial shareholders, Dato’ Seri Lim Gait Tong and Dato’ Haji Mohd. Iqbal Bin Kuppa Pitchai Rawther are also deemed interested in shares in the Company to the extent the holding company has an interest.

FARLIM GROUP (MALAYSIA) BHD (82275-A) 101 STATISTICS OF SHAREHOLDINGS (cont’d) AS AT 8 MAY 2006

2. DIRECTORS’ INTERESTS (CONT’D)

Other than as stated above, none of the Directors had any interest in shares in the Company and its related corporations.

3. NUMBER AND CLASS OF SHAREHOLDERS

Class of Shares No. of Shareholders Voting Rights

Ordinary Shares of RM1.00 each 7,958 One vote for each Ordinary Share

4. DISTRIBUTION SCHEDULE OF ORDINARY SHARES

Size of Holdings Shareholders Holdings Number % Number %

Less than 100 4 0.05 40 0.00 100 to 1,000 2,971 37.33 2,954,600 2.46 1,001 to 10,000 4,400 55.29 17,550,883 14.63 10,001 to 100,000 519 6.52 13,120,177 10.93 100,001 to 5,999,999 63 0.79 75,912,300 63.26 6,000,000 and above 1 0.01 10,462,000 8.72

5. THIRTY LARGEST ACCOUNT HOLDERS OF ORDINARY SHARES

No. Names of Shareholders Shareholdings Number %

1. AMMB Nominees (Tempatan) Sdn. Bhd. 10,462,000 8.72 Pledged Securities Account for Farlim Holding Sdn. Bhd. (FHB000A) 2. PM Nominees (Asing) Sdn. Bhd. 5,912,100 4.93 Morning Star Securities Limited for Castle Rock Limited 3. PM Nominees (Asing) Sdn. Bhd. 5,563,700 4.64 Morning Star Securities Limited for Prime Treasure Limited 4. Mayban Nominees (Tempatan) Sdn. Bhd. 4,185,000 3.49 Pledged Securities Account for A.A. Anthony Securities Sdn. Bhd. (501123111480) 5. Mayban Nominees (Tempatan) Sdn. Bhd. 4,178,000 3.48 Pledged Securities Account for A.A. Anthony Securities Sdn. Bhd. (507013226474) 6. AMMB Nominees (Tempatan) Sdn. Bhd. 3,890,000 3.24 Pledged Securities Account for Farlim Holding Sdn. Bhd. (FHB000) 7. A.A. Anthony Nominees (Tempatan) Sdn. Bhd. 3,830,000 3.19 Pledged Securities Account for Tan Teong Beng 8. A.A. Anthony Nominees (Tempatan) Sdn. Bhd. 3,435,000 2.86 Pledged Securities Account for Lintajaya Sdn. Bhd. 9. Tasec Nominees (Tempatan) Sdn. Bhd. 2,335,000 1.95 Danaharta Managers Sdn. Bhd. for Farlim Holding Sdn. Bhd 10. A.A. Anthony Nominees (Tempatan) Sdn. Bhd. 2,253,000 1.88 Pledged Securities Account for Chung Swee Hock

102 FARLIM GROUP (MALAYSIA) BHD (82275-A) STATISTICS OF SHAREHOLDINGS (cont’d) AS AT 8 MAY 2006

5. THIRTY LARGEST ACCOUNT HOLDERS OF ORDINARY SHARES (CONT’D)

No. Names of Shareholders Shareholdings Number %

11. EB Nominees (Tempatan) Sendirian Berhad 2,188,000 1.82 Pledged Securities Account for Farlim Holding Sdn. Bhd. (PBR) 12. IOI Corporation Berhad 2,000,000 1.67 13. Ong Ee Nah 2,000,000 1.67 14. RHB Capital Nominees (Tempatan) Sdn. Bhd. 1,952,900 1.63 Pledged Securities Account for Farlim Holding Sdn. Bhd. (771001) 15. ECM Libra Securities Nominees (Tempatan) Sdn. Bhd. 1,925,000 1.60 Pledged Securities Account for Tan Mee Har (MD0004) 16. PM Nominees (Tempatan) Sdn. Bhd. 1,795,700 1.50 Pledged Securities Account for Ooi Phaik Sim (D) 17. ECM Libra Securities Nominees (Tempatan) Sdn. Bhd. 1,771,000 1.48 Pledged Securities Account for Yam Shih Min (MD0092) 18. ECM Libra Securities Nominees (Tempatan) Sdn. Bhd. 1,752,000 1.46 Pledged Securities Account for Tan Chong Chai (MD0003) 19. AmBank (M) Berhad 1,375,000 1.15 Pledged Securities Account for Yam Shih Min (Smart) 20. AmBank (M) Berhad 1,373,000 1.14 Pledged Securities Account for Neoh Chong Poh (Smart) 21. OSK Nominees (Asing) Sdn Berhad 1,350,000 1.13 Exempt an for OSK Asia Securities Limited 22. AmBank (M) Berhad 1,323,000 1.10 Pledged Securities Account for Kung Aik @ Kung Seak Kiang (Smart) 23. RHB Nominees (Tempatan) Sdn. Bhd. 1,247,000 1.04 Pledged Securities Account for Mohd. Iqbal Bin Kuppa Pitchai Rawther (Lee Liak Chin) 24. TA Nominees (Tempatan) Sdn. Bhd. 1,150,000 0.96 Pledged Securities Account for Lim Yem Soon 25. AmBank (M) Berhad 1,134,000 0.95 Pledged Securities Account for Chew Hock Pheng (Smart) 26. Mayban Nominees (Tempatan) Sdn. Bhd. 1,091,000 0.91 Pledged Securities Account for Farlim Holding Sdn. Bhd. (01423545672A) 27. PM Nominees (Tempatan) Sdn. Bhd. 1,078,000 0.90 Pledged Securities Account for Teh Kean Sai (D) 28. RHB Nominees (Tempatan) Sdn. Bhd. 1,000,000 0.83 Pledged Securities Account for Mohd. Iqbal Bin Kuppa Pitchai Rawther (Chin Min Fooi) 29. A.A. Anthony Nominees (Tempatan) Sdn. Bhd. 1,000,000 0.83 Pledged Securities Account for Singa Layar Sdn. Bhd. 30. HSBC Nominees (Asing) Sdn. Bhd. 1,000,000 0.83 HPBS SG for Select Management Ltd.

FARLIM GROUP (MALAYSIA) BHD (82275-A) 103 LIST OF PROPERTIES AS AT 31 DECEMBER 2005

Date Of Net Book Description Of Acquistion/Last Value As At Property & Revaluation Expiry Date Land Area 31-12-05 Location Tenure Existing Use (Year) (Year) (Acres/Sf) (RM) Penang Lot Nos.15, 7715 & 7718, 7711 Leasehold Vacant Land/ 1991 2082 7.41acres 937,545 7713, 7722, 7946, 7956 ( On Going/ 8583-8586, 8456-8465, Future 8631-8637, 8753 Development) (total of 30 lots) Mukim 13, North East District, Penang.

Lot 7705-7710, 7732-7737 Leasehold Vacant Land/ 1998 2082 2.0 acres 4,282,250 Mukim 13, North East District, (Future Development ( Last Penang (12 Lots) Area 7) Revaluation)

Lot 7729 & 7745, Mukim 13, Leasehold (On Going 1991 2082 7.64 acres 2,220,661 North East District, Penang. Development Area 9D)

Lot 7746, Mukim 13, North East Freehold ( On Going 1996 – 0.18 acres 421,403 District, Penang. Development FBC Project)

Lot No. 7749, Mukim 13, Leasehold Local Market 1991 2082 0.89 acres 833,528 North East District, Penang. (Futrure Development)

Lot 13, Mukim 13, North East Freehold Vacant Land/ 1992 – 8.29 acres 264,940 District, Penang. (Future Development)

Lot 312, Section 2, Town of Freehold Vacant Land/ 1997 – 0.18 acress 142,087 Batu Ferringgi, Mukim 17 (Future Development) North East District, Penang.

Lot 428 Mukim 17, Tempat Leasehold Vacant Land/ 1997 2878 6.62 acres 5,113,792 Tanjung Bungah, North East (Future Development) District, Penang.

Lot 427 Mukim 17, Tempat Leasehold Vacant Land/ 1997 2878 9.62 acres 7,497,313 Tanjung Bungah, North East (Future Development) District, Penang.

No 1, 3, & 5 Lintang Angsana, Leasehold 3/S Shophouse 2003 2082 10,732 sf 4,118,400 Bandar Baru Ayer Itam, (Office Building) (Last revalua- Penang. Age of building : 14 tion) years

No 57B-1-4, University Shoplot Freehold Shoplot 2004 – 1,060 sf 259,200 Jalan Sungai Dua, (Vacant) 11700 Penang.

Sub-Total 43.10 Acres 26,091,119

104 FARLIM GROUP (MALAYSIA) BHD (82275-A) LIST OF PROPERTIES (cont’d) AS AT 31 DECEMBER 2005

Date Of Net Book Description Of Acquistion/Last Value As At Property & Revaluation Expiry Date Land Area 31-12-05 Location Tenure Existing Use (Year) (Year) (Acres/Sf) (RM) Prai No 22 Jalan Perai Utama 1, Freehold 3/S Shophouse 2000 – 3,689 sf 573,921 Taman Perai Utama, Age of building: 13600 Perai, Penang 6 years

Selangor No 2, 4, & 6 Jalan PJS Leasehold 3/S Shopoffice 1989 2093 15,864 sf 436,171 10/32, Bandar Sri Subang (Office Building) Petaling Jaya, Selangor Age of building: 9 years

No 8, Jalan PJS Leasehold 3/S Shopoffice 1995 2093 4,950 sf 232,071 10/32, Bandar Sri Subang, (Office Building) Petaling Jaya, Selangor Age of building: 9 years

Pahang Mukim of Bentong Pahang Freehold Vacant Land/ 1994 – 205.32 acres 10,495,970 (Future Development)

Terengganu Mukim of Kertih Kemaman, Freehold Vacant Land/ 1994 – 208 acres 1,604,301 Terengganu (Future Development)

Melaka PT No 100–143, HS (D) Leasehold Vacant Land/ 1997 2092 2.69 acres 307,431 28440–28483 (Ongoing PT No 160–190, HS (D) Development) 28500–28530 Mukim Semabok, Daerah Melaka Tengah, Melaka

GM452–3, 625 & 524 Lot Freehold Vacant Land/ 1997 – 0.70 acres 325,530 4030–1, 4203 & 4102 (Ongoing (formerly held under & Future PT 1956 HS (M) 1682 Development) PT 1783 HS (M) 1712 PT 1784 HS (M) 1713 PT 1855 HS (M) 1756) Mukim Kelamak, Alor Gajah Melaka

Johor Lot 1631–1640, CT6532–6541, Freehold Plantation Land 1992 – 497.6 acres 7,357,618 Lot 2180–2182, CT8368–8370, (Oil Palm Estate) Lot 2184–2193, CT8372-8381, Lot2200-2236, CT8383-8419, Mukim of Jemaluang, Daerah of Mersing, State Of Johore 957.97 acres 47,424,132

FARLIM GROUP (MALAYSIA) BHD (82275-A) 105 LOCATION MAP

South China Sea

Straits of Malacca

Mersing

106 FARLIM GROUP (MALAYSIA) BHD (82275-A) PROXY FORM

I/We, of (Block Letters) (Full Address)

being a member/members of FARLIM GROUP (MALAYSIA) BHD. hereby appoint

of or failing him, the Chairman of the Meeting as my/our proxy to attend and vote for me/us on my/our behalf at the Twenty- Fourth Annual General Meeting of the Company to be held at Holiday Villa, Classics 2, No. 9, Jalan SS12/1, Subang Jaya, 47500 Petaling Jaya, Selangor Darul Ehsan on Tuesday, 27 June 2006 at 10.00 a.m. or any adjournment thereof in the manner indicated below:

No. Resolutions For Against

1. Adoption of Financial Statements and Reports (Resolution 1) 2. Approval of Directors’ Fees (Resolution 2) 3. Re-election of Directors in accordance with Article 104 :- a) Dato’ Haji Mohd. Iqbal Bin Kuppa Pitchai Rawther (Resolution 3) b) Encik Ahmad Kamarudin Bin Ismail (Resolution 4) 4. Re-appointment of Directors pursuant to Section 129(6) of the Companies Act, 1965 :- a) Dato’ Zainol Abidin Bin Dato’ Haji Salleh (Resolution 5) b) Mr. Lam Chin Loong (Resolution 6) 5. Re-appointment of Auditors, Monteiro & Heng (Resolution 7) 6. Approval for Directors to allot and issue shares pursuant to Section (Resolution 8) 132D of the Companies Act, 1965

Please indicate with an “X” in the appropriate box against the resolution how you wish your proxy to vote. If no instruction is given, this form will be taken to authorise the proxy to vote at his/her discretion.

Number of Shares

Date Signature

Notes:-

A member entitled to attend and vote at the meeting is entitled to appoint a proxy to attend and vote instead of him/her. A proxy need not be a member of the Company. If the member is a corporation, this form must be executed either under its common seal or under the hand of an officer or attorney duly authorised in writing. To be valid, this form must be completed, signed and deposited at the Registered Office of the Company situated at No. 2-8, Bangunan Farlim, Jalan PJS 10/32 Bandar Sri Subang, 46000 Petaling Jaya, Selangor Darul Ehsan, Malaysia not less than forty-eight (48) hours before the time appointed for holding the meeting or any adjournment thereof.

FARLIM GROUP (MALAYSIA) BHD (82275-A) 107 Please fold across the lines and close

stamp

The Company Secretary FARLIM GROUP (MALAYSIA) BHD No. 2-8, Bangunan Farlim, Jalan PJS 10/32, Bandar Sri Subang, 46000 Petaling Jaya, Selangor Darul Ehsan, Malaysia

Please fold across the lines and close