CORPORATE INFORMATION

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3 CORPORATE INFORMATION BOARD OF DIRECTORS Executive Chairman : Encik Sulaiman Bin Mohd Hassan Independent Non-Executive Directors : Ms. Teh Bee Hong Mr. Tan Chin Toh Non-Independent Non-Executive Directors : Dato' Zolkipli Bin Abdul Mr. Chan Kun Hong Mr. Chu Fu Chih COMPANY SECRETARIES : Ms. Ang Mui Kiow Mr. Tang Sim Cheow REGISTERED OFFICE : Suite 14A2, Level 14, Menara Ansar, 65 Jalan Trus, Johor Bahru, Johor Darul Takzim. Telephone : Facsimile : PRINCIPAL PLACE OF BUSINESS : PLO 254, Jalan Pekeliling Pasir Gudang Industrial Estate Pasir Gudang Johor Darul Takzim SHARE REGISTRAR : Tenaga Koperat Sdn Bhd 20th Floor, Plaza Permata Jalan Kampar, Off Jalan Tun Razak Kuala Lumpur Telephone : Facsimile : AUDITORS : KPMG Level 14, Menara Ansar, 65 Jalan Trus, Johor Bahru, Johor Darul Takzim. PRINCIPAL BANKER : RHB Bank Berhad SOLICITORS : Leng & Co. STOCK EXCHANGE LISTING : The Main Board, Malaysia Securities Exchange Berhad 1

4 NOTICE OF ANNUAL GENERAL MEETING NOTICE IS HEREBY GIVEN THAT the Tenth Annual General Meeting of Dai Hwa Holdings (M) Berhad will be held at Sri Banang 2, Second Floor, Mutiara Hotel, Jalan Dato Sulaiman, Taman Century, Johor Bahru, Malaysia, on Friday, 30 April 2004 at a.m. or any adjournment thereof, for the purpose of considering and if thought fit, passing the following resolutions: A G E N D A 1. To receive and adopt the Audited Financial Statements for the year ended 31 December 2003 together with the Directors' and Auditors' Reports thereon. RESOLUTION 1 2. To re-elect the following directors retiring in accordance with the Articles of Association of the Company: (a) Sulaiman Bin Mohd Hassan - Article 82 RESOLUTION 2 (b) Dato' Zolkipli Bin Abdul - Article 82 RESOLUTION 3 (c) Tan Chin Toh - Article 89 RESOLUTION 4 (d) Chan Kun Hong - Article 89 RESOLUTION 5 (e) Chu Fu Chih - Article 89 RESOLUTION 6 3. To approve the payment of Directors' Fees for the year ended 31 December RESOLUTION 7 4. To re-appoint the retiring Auditors, Messrs KPMG as Auditors and to authorise the Directors to fix their remuneration. RESOLUTION 8 5. 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, BY ORDER OF THE BOARD Ang Mui Kiow Tang Sim Cheow Company Secretaries Johor Bahru 7 April 2004 Notes: (i) (ii) (iii) (iv) A proxy may but need not be a member of the Company and the provisions of Section 149(1)(b) of the Companies Act 1965 shall not apply to the Company. To be valid, the duly completed proxy form must be deposited at the Registered Office of the Company situated at Suite 14A2, Level 14, Menara Ansar, 65 Jalan Trus, Johor Bahru, Johor, Malaysia not less than 48 hours before the time for holding the meeting. A member shall be entitled to appoint more than two (2) proxies to attend and vote at the same meeting. Where a member appoints two (2) or more proxies, he shall specify the proportion of his shareholdings to be represented by each proxy. If the appointer is a corporation, the proxy form must be executed under its common seal or under the hand of its attorney. 2

5 STATEMENT ACCOMPANYING NOTICE OF ANNUALGENERAL MEETING Pursuant to Paragraph 8.28(2) of the Malaysia Securities Exchange Berhad Listing Requirements 1. The Directors standing for re-election are: (a) Sulaiman Bin Mohd Hassan - Article 82 (b) Dato' Zolkipli Bin Abdul - Article 82 (c) Tan Chin Toh - Article 89 (d) Chan Kun Hong - Article 89 (e) Chu Fu Chih - Article 89 The above named Directors except for Encik Sulaiman Bin Mohd Hassan & Mr. Chan Kun Hong, do not have any interests in the shares of the Company and its subsidiaries and their further details are furnished under profile of Directors on page 4 to 5 of the annual report. Details of Encik Sulaiman Bin Mohd Hassan's & Mr. Chan Kun Hong's shareholdings are disclosed under Analysis of Shareholdings on page 49 of the annual report 2. Details of the place, date and hour of the Tenth Annual General Meeting are as follows: Place Date Hour Sri Banang 2, Second Floor 30 April a.m. Mutiara Hotel, Jalan Dato Sulaiman Taman Century Johor Bahru, Malaysia 3. Details of Directors' attendance at Board Meetings during the financial year are disclosed on page 7 of the annual report. 3

6 PROFILE OF DIRECTORS Sulaiman Bin Mohd Hassan Executive Chairman A Malaysian, aged 70, was appointed as the Non-Independent Non-Executive Director on 1 March He was subsequently appointed as Chairman on 1 May 2002 and re-designated as Executive Chairman on 1 August Encik Sulaiman Bin Mohd Hassan is a graduate of the FBI National Academy, USA and obtained a Diploma in Public Administration from University of Malaya. He served in the Royal Malaysian Police and retired in 1989 with the rank of Senior Assistant Commissioner I. Among the posts he held while in the Royal Malaysian Police were Deputy Director, CID (Narcotic Division) and Chief Police Officer, Johor. Encik Sulaiman is a shareholder of the holding company, Dai Hwa Industrial Co. Ltd. Encik Sulaiman has no conflict of interest with the Group, nor has any family relationship with any other director or major shareholder of the Group. He has not been convicted of any offences within the past ten years. Dato' Zolkipli Bin Abdul Non-Independent Non-Executive Director A Malaysian, aged 62, was appointed as the Non-Independent Non-Executive Director on 23 July 1997 as nominee director of Permodalan National Berhad. He is also a member of the Audit Committee. Dato' Zolkipli holds a Master of Arts in Political Science from University of Iowa, USA. He is also a Fellow of the Chartered Institute of Transport, Malaysia. He has served the Malaysian Government for 32 years in the Prime Minister's Department, Embassies of Malaysia in Myanmar and the Philippines, Ministry of Works, Public Services Department and the Department of Civil Aviation. His last post before he retired in 1997 was as Deputy Secretary General, Ministry of Agriculture. He sits on the Board of New Straits Time Press (M) Berhad and is also the Chairman of the Audit Committee. He is also the Chairman of Kumpulan Sakata and a Director of Putra Capital Bhd. Dato' Zolkipli has no conflict of interest with the Group, nor has any family relationship with any other director or major shareholder of the Group. He has not been convicted of any offences within the past ten years. Chu Fu Chih Non-Independent Non-Executive Director A Taiwanese, aged 67, was appointed as the Non-Independent Non-Executive Director on 2 August He resigned on 31 December 2003 and re-appointed as the Non-Independent Non-Executive Director on 12 January Mr Chu holds a Master of Applied Science (Chemical Engineering) from Windsor University, Canada. He has extensive business experience of over 30 years especially in the electronics sector. Currently, he is the Chairman of Tone-Shine Electronics Industrial Co. Ltd, Tone-Shine Industrial Co. Ltd. and China Electric Manufacturing Co. Ltd, in Taiwan. Mr Chu is a director and shareholder of the holding company, Dai Hwa Industrial Co. Ltd. Mr Chu has no conflict of interest with the Group, nor has any family relationship with any other director or major shareholder of the Group. He has no directorship in other public companies and has not been convicted of any offences within the past ten years. 4

7 PROFILE OF DIRECTORS (con'd) Chan Kun Hong Non-Independent Non-Executive Director A Malaysian, aged 61, was appointed as the Non-Independent Non-Executive Director on 21 August He is also the Chairman of the Remuneration Committee and a member of the Nomination Committee. Mr Chan studied industrial engineering and production management in Taiwan. He was employed in the timber export trade for 6 years before joining a multi-national trading company as country manager for 11 years. Subsequently, he was involved in setting up a manufacturing company in manufacturing speaker boxes in Malaysia. He has also vast experiences in manufacturing control and production management. Mr Chan is a shareholder of the holding company, Dai Hwa Industrial Co. Ltd. Mr Chan has no conflict of interest with the Group, nor has any family relationship with any other director or major shareholder of the Group. He has no directorship in other public companies and has not been convicted of any offences within the past ten years. Teh Bee Hong Independent Non-Executive Director A Malaysian, aged 47, was appointed as the Independent Non-Executive Director on 31 March She is also the Chairman of the Audit Committee, member of the Nomination Committee and Remuneration Committee. Ms Teh graduated with a Bachelor of Commerce (Major in Accountancy) from University of New South Wales, Sydney. She is an Associate member of the Australian Society of Certified Practising Accountants and Malaysian Institute of Taxation, a Chartered Accountant registered with the Malaysian Institute of Accountants and a member of Auditors' of Ministry of Finance Malaysia. She has vast experience and exposure in the field of auditing, accounting and finance. Since 1996, she has set up her own auditing firm, namely Teh & Associates (JB). Ms Teh has no conflict of interest with the Group, nor has any family relationship with any other director or major shareholder of the Group. She has no directorship in other public companies and has not been convicted of any offences within the past ten years. Tan Chin Toh Independent Non-Executive Director A Malaysian, aged 46, was appointed as the Independent Non-Executive Director on 28 June He is also a member of the Audit Committee, Remuneration Committee and Chairman of Nomination Committee. Mr Tan graduated with LLB (Honours) from the University of London. He is also an Associate member of The Malaysian Institute of Chartered Secretaries and Administrators. He has vast experience and exposure in the field of civil, commercial and general litigation, conveyancing, general corporate work and miscellaneous legal work. Currently, he has his own legal practice, namely Messrs Andrew C.T. Tan & Co. in Johor Bahru. Mr Tan has no conflict of interest with the Group, nor has any family relationship with any other director or major shareholder of the Group. He has no directorship in other public companies and has not been convicted of any offences within the past ten years. 5

8 CHAIRMAN'S STATEMENT On behalf of the Board of Directors of Dai Hwa Holdings (M) Berhad, I am pleased to present the and financial statements of the Group and of the Company for the financial year ended 31 December Financial Performance 2003 was a very challenging and difficult year for the Group. The Group suffered a sharp decline in sales as a result of intense competition in the speaker boxes industry and also the loss of sales contract for TFT LCD monitors since May In order to protect the interests of the Company and its shareholders, the Group scaled down its operations in early part of the year and ceased the entire business operations on 15 August 2003 to minimise further losses. The Group posted a lower turnover of RM54.2 million, a decline of 83% from RM316.8 million recorded in the previous financial year. The Group registered a substantially lower net loss for the current financial year of RM16.6 million as compared to RM95.5 million in the previous financial year. The aforesaid was mainly attributed to the recognition of impairment losses on property, plant and equipment of RM43.8 million and retrenchment expenses of RM13.3 million in year 2002, and loss for the current year include reversal of impairment losses of RM4.6 million and gain on disposal of property, plant and equipment of RM1.3 million. Shareholders' funds stand at RM38.2 million at 31 December The Board of Directors does not recommend the payment of any dividend in respect of the financial year ended 31 December 2003 as there is no retained profit available for distribution as dividend. Prospects The Company is an affected listed issuer pursuant to Paragraph 2.1 of Practice Note No. 10/2001 ("PN 10") of the Malaysia Securities Exchange Berhad ("MSEB") Listing Requirements. The Company is required to comply with the requirements under PN 10 of the MSEB Listing Requirements. The Group is currently pursuing various assets realisation and working out plans to restructure the Group, details of which will be announced to the MSEB according to the requirements stated in PN 10 of the Listing Requirements. The Board of Directors will channel its effort and resources to ensure the success of the restructuring exercise to protect the interests of shareholders. Appreciation and Acknowledgement On behalf of the Board, I would like to express my sincere gratitude and appreciation to all directors who have retired or resigned during the financial year and all current directors for their invaluable contribution to the Company over the past years. Finally, I would also like to take this opportunity to thank the staff, valued customers, suppliers, bankers, business associates and government authorities for their continuous support and confidence in the Group through these difficult times. Sulaiman Bin Mohd Hassan Chairman 6

9 CORPORATE GOVERNANCE STATEMENT The Board is pleased to provide the following statement, which outlines the main corporate governance practices that were in place throughout the financial year, unless otherwise stated. Board of Directors Board Responsibilities The Board is aware of the important role it plays in determining the direction and operation of the Group and hence, it is continuously improving its quality of decisions and responsibility to the Group. However, no succession planning was in place as the Group has ceased operations on 15 August 2003 as announced on 24 July Meetings During the financial year ended 31 December 2003, the Board held ten meetings where it considered a variety of matters including financial results, strategic decisions and major operational issues of the Group in view of the preparation to cease its operations and to realise the assets of the Company. The Board meetings are structured with a pre-set agenda. The board papers for the Agenda, are distributed a few days before the meeting. The management has improved the timing in providing board papers. All proceedings from the Board meetings are minuted and signed by the Chairman of the meeting. Details of attendance by each of the directors during the financial year are as follows: Date of Name of Directors Appointment/ (Resignation) Number of Meeting Attended En. Sulaiman Bin Mohd Hassan - 10/10 Dato' Zolkipli Bin Abdul - 10/10 Mr. Hsu Tzu Li ( ) 8/8 Mr. Lai Seng Keong ( ) 6/6 Tan Sri Ishak Bin Tadin (Retired on ) 5/6 Ms. Teh Bee Hong /6 Mr. Chang Chu Shien ( ) 4/4 Mr. Tan Chin Toh /4 Mr. Chu Fu Chih ( ) 3/10 Mr. Chan Kun Hong /1 Mr. Chu Lap Yan ( ) Not Applicable Board Committees There are three (3) Board Committees formed to assist the Board in the execution of its duties. The three (3) Board Committees are Audit Committee, Remuneration Committee and Nomination Committee. The Audit Committee was formed on 15 June 1995 and a more comprehensive terms of reference was adopted in The Remuneration Committee and Nomination Committee were formed on 27 December 2001 and the respective terms of reference have been agreed and approved by the Board. The Chairman of the various committees will report to the Board on the outcome of each Committee meeting which would include the proceedings, deliberations and recommendations by such meeting. 7

10 CORPORATE GOVERNANCE STATEMENT (con'd) Board Balance The Board has (6) members of which three were newly appointed during the financial year ended 31 December The Board includes one (1) Executive Chairman and five (5) Non-Executive Directors. The Independent Non-Executive Directors are Ms. Teh Bee Hong and Mr. Tan Chin Toh and the Non-Independent Non-Executive Directors are Dato' Zolkipli Bin Abdul, Mr. Chu Fu Chih and Mr. Chan Kun Hong. The brief profile of each Director is presented on page 4 to page 5 of this. The independent status of the directors adopted by the Board is consistent with paragraph 1.01 of the Listing Requirements of Malaysia Securities Exchange Berhad. The Board is satisfied that the number of members was sufficient and effective in meeting the Group's needs and requirements. Dato' Ahmad Hassan bin Osman ceased as the Alternate Director to Tan Sri Ishak Bin Tadin on 28 June Ms. Teh Bee Hong and Mr. Tan Chin Toh were appointed as Independent Non-Executive Directors on 31 March 2003 and 28 June 2003 respectively, subsequent to the resignation of two independent directors, i.e. Mr. Chu Lap Yan, Mr. Chang Chu Shien and the retirement of Tan Sri Ishak Bin Tadin on 18 February, 12 March and 28 June 2003 respectively. As at the date of this statement, the Board currently consists of two (2) independent directors and four (4) non-independent directors, thus the Board complied with paragraph of the Malaysia Securities Exchange Berhad Listing Requirements to have at least two (2) directors or one-third of the Board, whichever is higher, to be Independent Directors. The Directors collectively bring with them a wide range of experience and expertise in areas such as finance, corporate affairs, marketing, legal and operation. There is clear division of responsibilities to ensure a balance of authority and power. The Executive Chairman, Encik Sulaiman Bin Mohd Hassan is the head of the Board and he is responsible for leading the Board and ensures that all Directors receive sufficient relevant information on financial and non financial matters to enable them to participate actively in Board meetings. Since the Group has ceased its operations on 15 August 2003, Mr. Chan Kun Hong had been appointed to work closely with the Executive Chairman to realize the assets of the Group so as to maximize the return to the shareholders. The non-executive directors contribute in areas such as performance monitoring and improving governance and controls. The Board has not appointed a Senior Independent Non-Executive Director after the retirement of Tan Sri Ishak Bin Tadin. Tan Sri Ishak were also the Chairman of the Audit Committee. However, the Board has appointed Ms. Teh Bee Hong on 28 June 2003 to replace him as Chairman of the Audit Committee. Supply of Information The Chairman ensures that all Directors, whether as a full board or in their individual capacity, have full access to information within the Group and to professional advice where necessary and in appropriate circumstances, in furtherance of their duties, at the Group's expenses. Every Director has direct access to the Management and the service of the Company Secretary. Directors are given adequate time to read Board papers before each meeting. All corporate announcements are reviewed and approved by the Board prior to release to the Malaysia Securities Exchange Berhad. 8

11 CORPORATE GOVERNANCE STATEMENT (con'd) Appointment to the Board Nomination Committee The Nomination Committee members are as follows: Chairman : Members : Tan Chin Toh (Independent Non-Executive Director) (Appointed as member on 28 June 2003 and as chairman on 20 October 2003) Tan Sri Ishak Bin Tadin (Senior Independent Non-Executive Director) (Appointed on 13 March 2003 and retired on 28 June 2003) Chang Chu Shien (Independent Non-Executive Director) (Resigned on 12 March 2003) Teh Bee Hong (Independent Non-Executive Director) (Appointed on 31 March 2003) Chu Fu Chih (Non-Independent Non-Executive Director) (Resigned on 31 December 2003) Chan Kun Hong (Non-Independent Non-Executive Director) (Appointed on 31 December 2003) Terms of Reference: (1) The committee should compose exclusively of non-executive directors, a majority of whom, are independent. (2) Recommend to the board, candidates for directorships. (3) Consider, in making its recommendations, candidates for directorships proposed by the Chief Executive Officer, any director or shareholder. (4) Recommend to the board, directors to fill the seats on board committees. The Board has through the Nomination Committee considered the mix of skills, experience and competencies of the Board members to discharge their duties effectively. Appointment Process The nominees will be considered and evaluated by the Nomination Committee. The Committee will then recommend the selected nominees to be approved and appointed by the Board. The Company Secretary will ensure that all appointments are properly made, that all information necessary is obtained, as well as legal and regulatory obligations are met. The above process has been applied in the appointment of Mr. Chan Kun Hong, Mr. Tan Chin Toh and Ms. Teh Bee Hong during the financial year under review. Directors' Training There is no formal training and orientation programme for Directors. However, all Directors have attended and successfully completed the Mandatory Accreditation Programme (MAP) conducted by the Research Institute of Investment Analysis Malaysia (RIIAM). The Directors will continue to undergo other relevant training programmes to further enhance their skills and knowledge where relevant. 9

12 CORPORATE GOVERNANCE STATEMENT (con'd) Re-Election According to the provision of the Articles of Association of the Company, at least one-third of the Board is subject to retirement by rotation at each Annual General Meeting. The directors to retire in each year are the directors who have been longest in office since their appointment or re-appointment. A retiring Director is eligible for re-appointment. The Articles of Association also provide that the Managing Director who shall be elected from amongst the Board members shall also retire once at least in each three years and shall be eligible for re-election. These provide an opportunity for the shareholders to renew their mandates. The election of each Director is voted on separately. To assist shareholders in their decision, sufficient information such as personal profile, meeting attendance and the shareholdings in the Group of each Director standing for election are furnished in a separate statement accompanying the Notice of the AGM. Directors over seventy (70) years of age are required to submit themselves for re-appointment annually in accordance with Section 129 (6) of the Companies Act, Directors' Remuneration Remuneration Committee The Remuneration Committee members are as follows: Chairman : Members : Chan Kun Hong (Non-Independent Non-executive Director) (Appointed on 21 August 2003) Hsu, Tzu Li (Managing Director) (Appointed on 18 February 2003 and resigned on 1 August 2003) Chu Lap Yan (Independent Non-Executive Director) (Resigned on 18 February 2003) Lai Seng Keong (Non-Independent Non-Executive Director) (Appointed on 18 February 2003 and resigned on 23 July 2003) Chu Fu Chih (Non-Independent Non-Executive Director) (Resigned on 31 December 2003) Tan Chin Toh (Independent Non Executive Director) (Appointed on 1 August 2003) Teh Bee Hong (Independent Non Executive Director) (Appointed on 31 December 2003) Terms of Reference: (1) The committee consists mainly of non-executive directors. (2) To recommend to the Board the remuneration of the executive directors. (3) Executive directors should play no part in decisions on their own remuneration. (4) The determination of remuneration packages of non-executive directors, including non-executive chairmen should be a matter for the board as a whole. The individual concerned should abstain from the discussion of their respective remuneration. The policy practised on Directors' remuneration by the Remuneration Committee is to provide the remuneration package necessary to attract, retain and motivate Directors of the quality required to manage the business of the Group and to align the interest of the Directors with those of the shareholders. In the process, the Committee has recommended the remuneration for two new independent non-executive directors namely, Mr. Tan Chin Toh and Ms. Teh Bee Hong. 10

13 CORPORATE GOVERNANCE STATEMENT (con'd) Details of the Directors' Remuneration The Company's Directors' aggregate remuneration from the Group categorized into appropriate components for the financial year are as follows: Aggregate Remuneration Executive Non-Executive Remuneration Directors Directors Total Fees Salaries EPF & Socso 2 2 Allowance Bonus Benefits in kind Consultation Fees Total Analysis of Remuneration Number of Number of Total Executive Non-Executive Remuneration Directors Directors Total RM 0 to RM 50, RM 50,001 to RM 100, Total The Board is of the view that disclosure of the remuneration bands of the Company's directors is sufficient. Shareholders The Group recognises the importance of communicating with its shareholders and does this through the annual report, Annual General Meeting (AGM). The Group has always complied with the necessary notice required in despatching the notices for General Meeting together with the relevant papers to shareholders. At the AGM, the shareholders are encouraged to ask questions both on the resolutions being proposed or about the Group's operations in general. Where it is not possible to provide immediate answers, the Chairman will undertake to furnish the shareholder with appropriate and relevant answers after the AGM. The Chairman of the Board also addresses the shareholders on the review of the Group's operations for the financial year and outlines the prospects of the Group for the subsequent financial year in the Group annual report. The Group's financial information and other announcements are also accessible at the Malaysia Securities Exchange Berhad website. 11

14 CORPORATE GOVERNANCE STATEMENT (con'd) Accountability and audit Financial reporting The Board aims to provide and present a balanced and meaningful assessment of the Group's financial performance and prospects at the end of the financial year, primarily through the annual financial statements and quarterly announcement of results to shareholders as well as the Chairman's statement and review of operations in the annual report. The Board is assisted by the Audit Committee and external auditors to oversee and review the Group's financial reporting processes and the quality of its financial reporting. Directors' Responsibility Statement In Respect Of The Audited Financial Statements For The Financial Year Ended 31 December 2003 The Board is responsible for ensuring the financial statements of the Group give a true and fair view of the state of affairs of the Group and of the Company as at the end of the accounting period and of their profit and loss and cashflows for the period then ended. In preparing the financial statements, the Directors have ensured that applicable approved accounting standards in Malaysia and the provision of the Companies Act, 1965 have been applied. In preparing the financial statements, the Directors have selected and applied consistently suitable accounting policies and made reasonable and prudent judgment and estimates. The Directors also have a general responsibility for taking such steps as is reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. State of Internal Control The Board recognises their ultimate responsibility for the Group's system of internal control and the need to review its effectiveness regularly in order to safeguard the Group's assets and therefore shareholders' investment in the Group. This system, by its nature, can only provide reasonable but not absolute assurance against misstatement, frauds or loss. Internal Audit Function The Group ceased operations on 15 August 2003 and the Group did not conduct any internal audit during the financial year. However, the Audit Committee is responsible to ensure that there are sufficient controls in line with the Group's policies and procedures. Relationship with the Auditor The representatives of the external auditors, Messrs KPMG, were invited to attend four Audit Committee Meetings to present and discuss on financial result and other relevant issues. All the Audit Committee Meetings with the external auditors were held with the executive board members present. Non-Audit Fees The amount of non-audit fee paid to external auditors for the financial year ended 31 December 2003 is RM102,

15 AUDIT COMMITTEE 1. MEMBERS AND MEETINGS The Audit Committee was established in 1995 and comprises three members, of whom two-third are independent non-executive directors. During the financial year ended 31 December 2003, the Audit Committee convened four meetings. The members and their attendance are as follows:- Chairman Attendance Ms Teh Bee Hong 3/3 (Appointed as member on and as chairman on ) Tan Sri Ishak Bin Tadin (Senior Independent Non-Executive Director) 2/2 (Retired on 28 June 2003) Members Lai Seng Keong (Non-Independent Non-Executive Director- resigned on ) 2/2 Chang Chu Shien (Independent Non-Executive Director - resigned on ) 1/1 Tan Chin Toh (Independent Non-Executive Director - appointed on ) 2/2 Dato' Zolkipli Bin Abdul (Non-Independent Non-Executive Director) 2/2 (Appointed on ) 2. TERMS OF REFERENCE The Board has adopted the following revised terms of reference for the Audit Committee to conform to the Listing Requirements of the Malaysia Securities Exchange Berhad. i. Membership (1) The Committee shall be appointed by the Board from amongst the non-executive directors of the Company and shall consist of not less than three members, of whom the majority shall be independent, not being: (a) (b) (c) (d) (e) (f) (g) (h) an executive director of the Company or any related corporation; an officer or one who has been an officer within the last two years of the Company or related corporation; a major shareholder of the Company or any related corporation; a relative of an executive director, officer or major shareholder of the Company or its related corporation, being a spouse, parent, brother, sister, child (including adopted or step child) and the spouse of such brother, sister or child; a nominee or representative of an executive director or major shareholder of thecompany or any related corporation; a professional adviser of the Company or any related corporation; a person who has engaged in a transaction with the Company within the last two years for a value exceeding RM 250,000; a person having a relationship that, in the opinion of the directors, would interfere with the exercise of independent judgement in carrying out the duties of the Committee (2) The Committee shall include at least one person who is member of the Malaysian Institute of Acountants or alternatively a person who must have at least 3 years' working experience and have passed the examinations specified in Part 1 of the 1st Schedule of the Accountant Act 1967 or is a member of one of the associations specified in Part II of the said Schedule. (3) No alternate director shall be appointed as a member of the Committee. 13

16 AUDIT COMMITTEE (con'd) (4) The member of the Committee shall elect from among their number a chairman who is non-executive and independent, as defined above. (5) If one or more member of the Committee resign, die or for any other reason cease to be a member with the result that the Listing Requirements of the Malaysia Securities Exchange Berhad are breached, the Board shall, within three months of that event, appoint such number of new members as may be required to correct the breach. (6) The Board shall review the term of office of Committee members no less than every three years. ii. Authority (7) The Committee is authorised by the Board, in accordance with the procedures to be determined by the Board (if any) and at the cost of the Company, to: iii. (a) (b) (c) (d) (e) (f) Duties Investigate any activity within the Committee's terms of reference; Have resources which are reasonably required to enable it to perform its duties; Have full and unrestricted access to any information pertaining to the Company or the Group; Have direct communication channels with the external auditors and person(s) carrying out the internal audit function or activity (if any); Obtain outside legal or other independent professional advice and secure the attendance of outsiders with relevant experience and expertise if it consider this necessary; Convene meetings with the external auditors, excluding the attendance of the executive members of the Committee, whenever deemed necessary. (8) The duties of the Committee shall be to review the following and report the same to the Board: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) Any matters concerning the appointment and dismissal of the external auditors and the audit fee; The nature and scope of the audit by the external auditors before commencement; The external auditors' audit report, areas of concern arising from the audit and any other matters the external auditors may wish to discuss (in the absence of management if necessary); Any financial information for publication, including quarterly and annual financial statements, before submission to the Board; The external auditors' management letter and management's response; The adequacy and relevance of the scope, functions and resources of internal audit and the necessary authority to carry out its work; The audit plan and work programme of internal audit; Findings of internal audit work and management response; Any evaluations on internal controls by auditors; Extent of cooperation and assistance given by employees; The propriety of any related party transactions and conflict of interest situations that may arise within the Company of the Group; Any other matter as directed by the Board. 14

17 AUDIT COMMITTEE (con'd) iv. Overseeing the Internal Audit Function (9) The Committee shall oversee all internal audit functions and is authorised to commission investigations to be conducted by internal audit as it deems fit. (10) The internal auditor shall report directly to the Committee and shall have direct access to the Chairman of the Committee. (11) All proposals by management regarding the appointment, transfer or dismissal of the internal auditor shall require the prior approval of the Committee. v. Quorum for Meetings (12) The quorum shall be formed only if there is a majority of members present at the meeting who are independent directors. vi. Attendance at Meetings (13) The Managing Director, Finance Manager and the Company Secretary and the Head of Internal Audit shall normally attend meetings but may asked to leave a meeting as and when deemed necessary by the Committee. (14) A representative of the external auditors shall attend the meeting to consider the final audited financial statements and such other meetings determined by the Committee. (15) Non-member directors shall not attend unless specifically invited to by the Committee. vii. Frequency of Meetings (16) The Chairman shall call for meetings, to be held not less than four times a year. The external auditors may request a meeting if they consider one necessary. viii. Reporting Procedures (17) The Company Secretary shall be the Secretary of the Committee. He shall record attendance of all members and invitees and take minutes to record the proceedings of every meeting of the Committee. All minutes of meetings shall be circulated to every member of the Board. (18) The Committee shall prepare an annual report to the Board that provides a summary of the activities of the Committee for inclusion in the Company's annual report. (19) The Committee shall assist the Board in preparing the following for publication in the Company's annual report: (a) (b) (c) (d) Statement on the Company's application of the principles set out in Part 1 of the Malaysian Code on Corporate Governance; Statement on the extent of compliance with the Best Practices in Corporate Governance set out in Part 2 of the Malaysian Code on Corporate Governance, specifying reasons for any areas of noncompliance (if any) and the alternatives adopted in such areas; Statement on the Board's responsibility for preparing the annual audited accounts; and Statement about the state of internal control of the Group. (20) The Committee may report any breaches of the Listing Requirements, which have not been satisfactorily resolved, to the Malaysia Securities Exchange Berhad. (21) Review the following and report the same to the Board of Directors of the Company: (a) (b) (c) with the external auditor, the audit plan; with the external auditor, his evaluation of the system of internal controls; with the external auditor, his audit report; 15

18 AUDIT COMMITTEE (con'd) (d) (e) (f) (g) (h) (i) (j) the assistance given by the employees of the Company of the Group to the external auditor; 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; 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 recommendation of the internal audit function; 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; 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; any letter of resignation from the external auditors of the Company; and whether there is reason (supported by grounds) to believe that the Company's external auditor is not suitable for reappointment; and (22) Recommend the nomination of a person or persons as external auditors; (23) To seek advice from independent experts; (24) To review the external auditor's management letter and management process; (25) (a) To consider the appointment of the external auditor, the audit fee and any questions of resignation or dismissal; (b) (c) (d) (e) (f) (g) To discuss with the external auditor before the audit commences, the nature and scope of the audit, and ensure co-ordination where more than one audit firm is involved; To review the quarterly and year-end financial statement of the Board, focusing particularly on:- Any changes in accounting policies and practices; Significant adjustments arising from the audit; The going concern assumption; Compliance with accounting standards and other legal requirements. To discuss problems and reservations arising from the interim and final audits, and any matter the auditor may wish to discuss (in the absence of management where necessary); To review the external auditor's management letter and management response; To do the following where an internal audit function exists:- Review the adequacy of the scope, functions and resources of the internal audit function, and that it has the necessary authority to carry out its work; Review the internal audit programme and results of the internal audit process and where necessary ensure the appropriate action is taken on the recommendations of the internal audit function; Review and appraisal or assessment of the performance of members of the internal audit function; Approve any appointment or termination of senior staff member of the internal audit function; Inform itself of resignations of internal audit staff member and opportunity to submit his reasons for resigning To consider any related party transaction that may arise within the Company or the Group; 16

19 AUDIT COMMITTEE (con'd) (h) (i) To consider the major findings of internal investigations and management's response; and To consider the other topics as defined by the Board. 3. SUMMARY OF ACTIVITIES The activities carried out by the Audit Committee during the financial year are as follows:- i. Reviewed with the external auditors the annual financial statements for the financial year ended 31 December 2002; ii. iii. iv. Reviewed the quarterly unaudited financial results announcement with the external auditors; Reviewed and sought management explanations and recommended actions on the quarterly and annual financial results and performance of the Group prior to submission to the Board of Directors for consideration and approval; Reviewed the recurrent related party transactions entered into by the Group; v. Reviewed major operational issues of the Group, which have significant impact on the results of the Group. 4. INTERNAL AUDIT FUNCTION The Group has scaled down its business operations with the intention to eventually cease operations on 15 August 2003 and the Company did not conduct any internal audit during the financial year. However, the Audit Committee is responsible to ensure that there are sufficient controls in line with the Group's policies and procedures. 17

20 STATEMENT ON INTERNAL CONTROL Introduction The Board is committed to maintain a sound system of internal control in the Group and is pleased to provide the following statement on the state of internal control of the Group for the financial year ended 31 December 2003, which has been prepared in accordance with the Statement on Internal Control-Guidance for Directors of Public Listed Companies issued by the Institute of Internal Auditors in Malaysia and adopted by Malaysia Securities Exchange Berhad. Board responsibility The Board is ultimately responsible for the Group's system of internal control, which includes the establishment of an appropriate control framework as well as reviewing its adequacy and integrity. Because of the limitations that are inherent in any system of internal control, this system is designed to manage rather than eliminate the risk of failure to achieve corporate objectives. Accordingly, it can only provide reasonable but not absolute assurance against material misstatement or loss. The system of internal control covers financial as well as operational controls. The Group has ceased its operations on 15 August The Board confirms that the Group has an ongoing process for identifying, evaluating and managing significant risks faced by the Group, that has been in place for the financial year under review. During the financial year ended 31 December 2003, the Board extended the responsibilities of the Audit Committee to include the scope as below: ensuring adequate controls are in place; and overseeing the care and custody of the Group's remaining assets. The key features of the Group's internal control system during the financial year ended 31 December 2003 are as follows: the Board reviewed the key financial and operational, legal and regulatory matters on a quarterly basis; the Board reviewed budgetary and expenditure requirements of the Group; active involvement by the director(s) in the daily operations and decision making of the Group; and Enterprise risk management framework An independent professional services firm was appointed to assist the Group in developing and formalizing the risk management framework for the Group in December However, the Board had confirmed to defer establishing a formal risk management framework in the Group until such time the Group has a new core business. Internal audit function The Group ceased its operations on 15 August 2003 and the Company did not conduct any internal audit during the financial year. 18

21 RECURRENT RELATED PARTY TRANSACTIONS The Group has obtained a shareholder mandate in the Eighth Annual General Meeting held on 15 June 2002 for the Group to enter into recurrent transactions with its related parties. The mandate is valid for the transactions incurred from 15 June 2002 till the Annual General Meeting held on 28 June The related parties involved are as follows: Name of Companies Relationship 1. Dai Hwa Industrial Co. Ltd Holding Company having 57.60% interest in the total issued ("DHICL") and paid-up share capital of the Company. 2. Great Tone Limited Person connected with DHICL % owned by Fenton ("GT") Overseas Holdings Inc., which is 100% owned by DHICL. 3. Pt. Dai Hwa Industrial Indonesia Person connected with DHICL % owned by DHICL and ("Pt. DHI") 21.82% owned by GT. 4. I.S.T. Company Ltd Person connected with DHICL. 90% owned by GT. ("IST") The details of transactions entered into by the Group with its related parties since 1 January 2003 to 31 December 2003 are as follows :- Nature of Transactions Parties Involved Transactions Incurred from 1 January 2003 to 31 December 2003 () Value of Transactions Per Shareholder Mandate obtained on 15 June 2002 (covering period from 15 June 2002 to 28 June 2003) () Sales of speaker boxes DHICL GT Pt. DHI 2, ,775 8,950 3,984 Sales of component parts GT Pt. DHI 9,106 13,396 Sales of machinery DHICL 3,000 Purchases of raw materials, component parts and speaker units DHICL GT Pt. DHI IST 2,142 1,183 10,081 24,480 2,000 17,604 Purchase of machinery DHICL 2,000 Purchases of moulds and tools DHICL Purchases of speaker boxes GT Pt. DHI 11,711 1,415 19

22 DIRECTORS' REPORT for the year ended 31 December 2003 The Directors have pleasure in submitting their report and the audited financial statements of the Group and of the Company for the year ended 31 December Principal activities The Company is an investment holding company. The principal activities of its subsidiaries are disclosed in Note 2 to the financial statements. All of its subsidiaries have ceased operations during the year and remained dormant. Results Group Company Net loss for the year (16,584) (17,921) Dividends There is no retained profit available for distribution as dividend for the financial year under review. Reserves and provisions There were no material transfers to or from reserves and provisions during the financial year under review except as disclosed in the financial statements. Directors of the Company Directors who served since the date of the last report are: Directors Alternate En. Sulaiman bin Mohd Hassan Y. Bhg. Dato' Zolkipli bin Abdul Ms. Teh Bee Hong (appointed on 31 March 2003) Mr. Tan Chin Toh (appointed on 28 June 2003) Mr. Chan Kun Hong (appointed on 21 August 2003) Mr. Chu Fu Chih (resigned on 31 December 2003; (reappointed on 12 January 2004) Y. Bhg. Tan Sri Ishak bin Tadin Y. Bhg. Dato Ahmad Hassan bin Osman (retired on 28 June 2003) (ceased on 28 June 2003) Mr. Lai Seng Keong (resigned on 23 July 2003) Mr. Hsu,Tzu-Li (resigned on 1 August 2003) 20

23 DIRECTORS' REPORT for the year ended 31 December 2003 (con'd) Directors' interests The holdings and deemed holdings in the ordinary shares of the Company and of its related corporations (other than wholly owned subsidiaries) of those who were Directors at year end as recorded in the Register of Directors' Shareholdings are as follows: Number of ordinary shares of NT1000 each At / At date of At Name of Directors Interest appointment Bought Sold Holding company - Dai Hwa Industrial Co. Ltd. En. Sulaiman bin Mohd Hassan Direct Mr. Chu Fu Chih Direct 15,000 15,000 Mr. Chan Kun Hong Direct 7,625 7,625 Number of ordinary shares of RM1.00 each At / At date of At Company Interest appointment Bought Sold En. Sulaiman bin Mohd Hassan Direct 36,000 36,000 Mr. Chan Kun Hong Direct 10,000 10,000 None of the other Directors holding office at the end of the financial year had any interest in the ordinary shares of the Company and of its related corporations during the year. Directors' benefits Since the end of the previous financial year, no Director of the Company has received nor become entitled to receive any benefit (other than a benefit included in the aggregate amount of emoluments received or due and receivable by Directors as shown in the financial statements) by reason of a contract made by the Company or a related corporation with the Director or with a firm of which the Director is a member, or with a company in which the Director has a substantial financial interest, except as disclosed in Note 20 to the financial statements. There were no arrangements during and at the end of the financial year which had the object of enabling Directors of the Company to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate. Issue of shares There were no changes in the issued and paid-up capital of the Company during the financial year. Options granted over unissued shares No options were granted to any person to take up unissued shares of the Company during the financial year. Other statutory information Before the financial statements of the Group and of the Company were made out, the Directors took reasonable steps to ascertain that: i) all known bad debts have been written off and adequate provision has been made for doubtful debts, and 21

24 DIRECTORS' REPORT for the year ended 31 December 2003 (con'd) ii) all current assets have been stated at net realisable value. At the date of this report, the Directors are not aware of any circumstances: i) that would render the amount written off for bad debts or the amount of the provision for doubtful debts in the Group and in the Company inadequate to any substantial extent, or ii) iii) that would render the value attributed to the current assets in the financial statements of the Group and of the Company misleading, or which have arisen which render adherence to the existing method of valuation of assets or liabilities of the Group and of the Company misleading or inappropriate, or iv) not otherwise dealt with in this report or the financial statements, that would render any amount stated in the financial statements of the Group and of the Company misleading. At the date of this report, there does not exist: i) any charge on the assets of the Group or of the Company that has arisen since the end of the financial year and which secures the liabilities of any other person, or ii) any contingent liability in respect of the Group or of the Company that has arisen since the end of the financial year. No contingent liability or other liability of any company in the Group has become enforceable, or is likely to become enforceable within the period of twelve months after the end of the financial year which, in the opinion of the Directors, will or may substantially affect the ability of the Group and of the Company to meet their obligations as and when they fall due. In the opinion of the Directors, except for the cessation of operations by all the subsidiaries as disclosed in the financial statements, the results of the operations of the Group and of the Company for the year ended 31 December 2003 have not been substantially affected by any item, transaction or event of a material and unusual nature nor has any such item, transaction or event occurred in the interval between the end of that financial year and the date of this report. Auditors The auditors, Messrs KPMG, have indicated their willingness to accept re-appointment. Signed in accordance with a resolution of the Directors:. Sulaiman bin Mohd Hassan Chairman. Chan Kun Hong Director Johor Bahru, Date: 25 March