FALMAC LIMITED Annual Report 2010

Transcription

1 FALMAC LIMITED Annual Report 2010 Specialist in Circular Knitting Machineries & Spare Parts

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3 FALMAC LIMITED Annual Report 2010 Content Page Chairman s Statement 02 Corporate Information 04 Corporate Governance 05 This annual report has been prepared by the Company and its contents have been reviewed by the Company s sponsor, PrimePartners Corporate Finance Pte. Ltd. (the Sponsor ) for compliance with the relevant rules of the Singapore Exchange Securities Trading Limited (the SGX-ST ). The Sponsor has not independently verified the contents of this annual report. This annual report has not been examined or approved by the SGX-ST and the SGX-ST assumes no responsibility for the contents of this annual report, including the correctness of any of the statements or opinions made or reports contained in this annual report. The contact person for the Sponsor is Mr Mark Liew, Managing Director, Corporate Finance, at 20 Cecil Street, #21-02 Equity Plaza, Singapore , telephone (65)

4 Chairman s Statement Dear Shareholders The Board of Directors ( New Board ) have put in tremendous efforts to rebuild the Company during As reported in our FY2009 annual report and various public announcements on SGXNET during 2010, the Company s two main subsidiaries in China, namely Falmac Machinery (Tianjin) Ltd. and Falmac Textile (Tianjin) Co.Ltd. (the China Subsidiaries ) continued to operate in a limited fashion in China during the past year under the former CEO, Mr Charlie Cheng who despite the Company s insistence, refused to transfer the authorised legal representative positions for the China Subsidiaries to the Company s authorised appointee. The China Subsidiaries are legally and financially independent of the Company. Although the Company wholly and legally owns the two China Subsidiaries, the New Board considers that the de facto and effective control over these subsidiaries was lost with the advent of the New Board on 5 October 2009 as Mr Charlie Cheng and/or his nominee is still the named legal representative of these China subsidiaries and has continued to deny the New Board access to the factory premises as well as to the accounting and financial records of these China subsidiaries. In addition, till the date of these financial statements, no audited or management financial statements of these China subsidiaries for the financial year ended 31 December 2010 and 2009 are available for the Group s consolidation purpose. As a result of these limitations and constraints, the financial results and positions of these China subsidiaries have been excluded from the Group s consolidated financial statements with effect from 1 January As announced on 28 December 2009, the Board resolved to rationalise and streamline its businesses which would involve divesting a substantial part of its textile businesses which have been incurring significant losses for many years. Given the significant liabilities and uncertainties of the China Subsidiaries and further investment of significant new capital and time needed to turnaround the situation (assuming this is possible), the Board opined that it is in the best interests of shareholders to divest these loss-making China Subsidiaries subject to shareholders approval. The investment costs of the China subsidiaries had also been fully provided for in the financial statements of the Company. The following are the significant milestones achieved by the New Board in its efforts to enhance Falmac s position as a public-listed Catalist company: In October 2009, the New Board comprising the Audit, Nomination and Remuneration Committees was quickly formed. The New Board comprises qualified directors who have the relevant expertise and experience to guide the Company in complying with the regulatory requirements of the SGX-ST and to guide the Company in furtherance of Shareholders interests; In order to rectify the failure of the former board of directors of the Company to issue the financial statements of the Company and its subsidiaries (the Group ) for the financial year ended 31 December 2008 (the FY2008 Accounts ) and to hold the annual general meeting to approve the FY2008 Accounts, the New Board held an annual general meeting in November 2009 to approve the FY2008 Accounts; In December 2009, the New Board appointed PrimePartners Corporate Finance Pte. Ltd. as the Company s Continuing Sponsor and the Company successfully transited to the Catalist sponsorsupervised regime; To safeguard shareholders interest and uphold corporate accountability, the Company had on 30 October 2009 initiated legal action against the former Chief Executive Officer, Mr Charlie Cheng, and former board of directors of the Company for breaches of directors fiduciary duties. In October 2009, the Company received a letter of statutory demand from Mr Charlie Cheng claiming for his past salaries and severance compensation totalling approximately S$1.8 million. The New Board has sought legal advice on this matter and the Company has successfully obtained a permanent injunction from the Singapore High Court to restrain Mr Charlie Cheng from commencing winding-up proceedings against the Company. The legal proceedings against Mr Charlie Cheng are still on-going and the Company is waiting for the date of trial to be fixed by the Singapore High Court; 2

5 A new accounting function was set up in March 2010 to improve the accounting and financial reporting capabilities of the Group after the resignation of the former Chief Financial Officer of the Company in early 2008; On 8 March 2010, the Company successfully signed a sale and purchase agreement to acquire all the shares in CNMC Goldmine Limited ( CNMC Goldmine ) for a purchase consideration of S$150 million (the Proposed Acquisition ). This proposed acquisition would provide the Company with an opportunity to enter into the gold exploration and mining business in Malaysia and exit from its lossmaking textile business. This will presumably transform Falmac into the first gold mining company to be listed in Singapore. Shareholders approval will be sought to approve the Proposed Acquisition in due course. As I am a shareholder and director in CNMC Goldmine, an independent financial adviser will be appointed to advise minority shareholders on the acquisition. The New Board plans to complete the Proposed Acquisition in the third quarter of 2011; On 21 May 2010, the Company signed a memorandum of understanding with Unitex Global Ltd ( Unitex ), a Singapore-based textile machineries manufacturer to co-operate on business referrals and strategic alliances which will build the platform for either a joint venture or acquisition of the subsidiaries of the Company by Unitex in the future; In January 2010 and June 2010, the Company settled outstanding corporate income taxes and certain staff s past salaries and Central Provident Fund monies which the former board of directors had not addressed before their departure; In February 2010 and September 2010, the Company completed two share placement exercises and raised total gross proceeds of approximately S$2.7 million to pay for professional expenses incurred in relation to the reverse takeover exercise and for general working capital purposes; Throughout 2010, the New Board issued many announcements to keep the SGX-ST and Shareholders informed of the progress of the Company s restructuring efforts; Throughout 2010, the Company successfully negotiated with creditors to reduce and forgive certain indebtedness. As a result, the capital deficiency of the Group improved significantly from approximately S$12.0 million as at 31 December 2009 to approximately S$4.0 million as at 31 December Net profit amounted to approximately S$5.3 million compared to losses of S$2.5 million in 2009 due mainly to such debt restructurings. To reduce losses, the Company had ceased operations in Singapore in Accordingly the Company also recorded no sales in Singapore for the financial year ended 31 December 2010; and Till to date, the New Board has been working on regaining access to the Company s two factories in Tianjin, China. We have engaged a legal counsel to act for us. In retrospect, China is a difficult place to do business for small and medium-sized enterprises without well-endowed resources and connections. For any given situation, the outcome is imponderable due to bureaucracy and officialdom. On behalf of the Board, I wish to express my thanks and appreciation to the professional teams and business associates as well as other stakeholders for their understanding, patience and encouragement through these years. We look forward to your continuing support in the new financial year. Choo Chee Kong Chairman Dated: 3 March

6 Corporate Information Board of Directors Choo Chee Kong Wong Lock Chee Yeoh Wee Liat Kuan Cheng Tuck (Independent Director and Chairman) (appointed on 5 Oct 2009) (Managing Director) (appointed on 5 Oct 2009) (Non- executive Director) (appointed on 5 Oct 2009) (Independent Director) (appointed on 5 Oct 2009) Auditors LTC LLP Certified Public Accountants 1 Raffles Place #20-02 One Raffles Place Singapore Tel Fax ltc@ltc-cpa.com Partner-in-charge:Mr Lim Boon Cheng (Appointed since financial year ended 31 December 2010) Audit Committee Kuan Cheng Tuck (Chairman) Choo Chee Kong Yeoh Wee Liat Nominating Committee Choo Chee Kong (Chairman) Kuan Cheng Tuck Yeoh Wee Liat Corporate Office Falmac Limited 215 Henderson Road #03-05 Henderson Industrial Park Singapore Tel Fax wlc88@singnet.com.sg falmac2009@yahoo.com.sg Remuneration Committee Choo Chee Kong (Chairman) Kuan Cheng Tuck Yeoh Wee Liat Company Secretary Nancy Quek Registered Office 25 International Business Park #04-22/26 German Centre Singapore Tel Fax Company Registration No R Falmac Machinery (Tianjin) Ltd Ninghe Jing Ji Kai Fa Qu Ninghe County Tianjin , China Falmac Textile (Tianjin) Co Ltd 7 Guang Ming Road, Lutai City Ninghe County Tianjin , China Catalist Sponsor PrimePartners Corporate Finance Pte. Ltd. 20 Cecil Street #21-02 Equity Plaza Singapore Telephone: Share Registrar Boardroom Corporate & Advisory Services Pte Ltd 50 Raffles Place #32-01 Singapore Land Tower Singapore Tel Fax

7 Corporate Governance Report on Corporate Governance The Board of Directors (the Board ) of Falmac Limited ( Falmac or the Company ) is committed to corporate governance within the Company and its subsidiaries (the Group ) and has taken steps to implement the recommendations of the Code of Corporate Governance (the Code ), as far as practicable and subject to those matters and limitations detailed in the Directors Report and Statement by Directors, in the context of the Group s business and organizational structure. Board of Directors The Board currently comprises 4 members. They are: Mr Choo Chee Kong Mr Wong Lock Chee Mr Yeoh Wee Liat Mr Kuan Cheng Tuck (Independent Director and Chairman) (Managing Director) (Non-executive Director) (Independent Director) All members of the Board except for Mr Wong Lock Chee (Managing Director) are non-executive. The Board and the Nominating Committee (the NC ) are of the view that the current size of the Board is appropriate, taking into account the nature and scope of the Group s operations, and business experiences of the Directors to govern and manage the Group s affairs. Mr Choo Chee Kong is the Non-executive Chairman of the Board. The Chairman s role is to schedule and chair the Board meetings, provide strategic directions and business objectives, seek new growth and diversification avenues and ensure compliance with the Company s guidelines on corporate governance. Mr Wong Lock Chee is the Managing Director of the Company. In carrying out his executive duties and responsibilities for the Group s operations and business, he is assisted by the management team. The Company meets the Code s recommendation that the Chairman and the Chief Executive Officer (in this case, the Managing Director) be separate persons to ensure that there is an appropriate balance of power and authority, and that accountability and independent decision-making are not compromised. The Board oversees the overall business and affairs of the Group, approves the Group s strategic plans and direction and reviews the Group s financial performance. Matters which specifically require the approval of the Board include, amongst others, any material acquisitions or disposals of assets, major undertakings and incurring of financial liabilities (other than in the ordinary course of the Group s business). In addition, corporate events and actions requiring Board approval were discussed and Directors resolutions in writing were made. On ad hoc basis, non-scheduled Board meetings may be convened to deliberate on urgent substantial matters. Board members have separate and independent access to the management of the Company and the Company Secretary. The Company Secretary attends the Board meetings and ensures that the relevant procedures and applicable rules and regulations are complied with. The Board (whether individually or collectively) has in the furtherance of its duties, if necessary and after consultation with the Chairman of the Board, access to independent professional advice at the Company s expense. The requirement of the Code that at least one third of the Board comprises Independent Directors is satisfied. The Independent Directors have confirmed that they do not have any relationship with the Company or its related companies or its officers that could interfere, or be reasonably perceived to interfere, with the exercise of the Directors independent business judgment with a view to the best interests of the Company. The Nominating Committee ( NC ) has reviewed and determined that the said Directors are independent. 5

8 Corporate Governance The Board will constantly examine its size and, with a view to determining the impact of the number upon effectiveness, decide on what it considers an appropriate size for the Board, which facilitates effective decision-making. The composition of the Board is reviewed on an annual basis by the Nominating Committee to ensure that the Board has the appropriate mix of expertise and experience. The Board, taking into account the nature of operations of the Group, considers its current size to be adequate for effective decision-making. Non-executive directors constructively challenge and help develop proposals on strategy, and review the performance of management in meeting agreed goals and objectives and monitor the reporting of performance. The NC is of the view that the current Board comprises persons who as a group provide capabilities required for the Board to be effective. Key information regarding the Directors is set out below. Key Information of Directors Mr Choo Chee Kong was appointed as Non-Executive Chairman on 5 October He has more than 20 years of experience in the banking and financial industry. He has 14 years of banking experience in DBS Bank, of which more than 8 years were with the Investment Banking Department. From year 2000 to 2006, he was CEO of SGX-listed Westcomb Financial Group Limited which he co-founded. From 2006 to April 2008, he was Deputy Chairman of Westcomb Financial Group. Mr Choo has been involved in the successful listing of more than 200 companies from Singapore, Malaysia, the PRC, Hong Kong, Philippines, Taiwan and Australia. He obtained his Bachelor s Degree (First Class Honours) in Mechanical Engineering from Liverpool University, UK and a Master of Business Administration from Bradford University, UK. Presently, Mr Choo is Chairman of CK AgriFeed Sdn Bhd., and Executive Director of CNMC Goldmine Limited. He is also an independent director of Second Chance Properties Ltd and FDS Networks Group Ltd, both companies listed on the Mainboard of the SGX-ST, and a senior advisor to CMIA Capital Partners Pte Ltd, a Singapore private equity firm. Mr Wong Lock Chee was appointed as the Managing Director on 5 October He is presently the Executive Director of CarrierNet Global Ltd, a company listed on the Catalist Board of SGX-ST. He has more than 25 years of experience in the IT and electronics industry. From 1977 to 1989, Mr Wong was the regional sales manager in building multi-million dollar distribution company with regional offices dealing with leading brands of IT products. From 1989 to 2003, he was involved in the setting up of a joint venture factory with a Japanese group in the manufacturing of air-conditioners in Vietnam. From 2004 to present, Mr Wong held several directorships in the food and beverage industry, the financial and property sector. Mr Yeoh Wee Liat was appointed as Non-Executive Director on 5 October He has 10 years of stockbroking experience being a remisier in Kim Eng Securities. After his departure from Kim Eng, he joined Asiafuel Pte Ltd for 10 years as a Director, trading in oil and oil bunkering. From 2000 till present he is the director of Cranton Lodge & Knight (Asia) Pte Ltd (Property Investment Company), Easi Advance Pte Ltd (Licenced money lending), and Pearl Marine Logistics Pte Ltd (Logistic support for the oil bunkering industries). Mr Kuan Cheng Tuck was appointed as our Independent Director on 5 October He is currently also an independent director of FDS Networks Group Ltd which is listed on the Mainboard of the SGX-ST. Mr Kuan has more than 16 years of experience in the fields of accounting, auditing as well as business and financial advisory. Mr Kuan currently manages his own accounting and financial consulting practices. Mr Kuan holds a Bachelor of Accountancy degree from the Nanyang Technological University of Singapore and a Bachelor of Laws degree from the University of London. He is a fellow member of the Association of Chartered Certified Accountants (ACCA), United Kingdom and a member of the Institute of Certified Public Accountants of Singapore as well as of the Singapore Institute of Directors (SID). Mr Kuan is also an associate member of the Institute of Chartered Secretaries and Administrators (ICSA), United Kingdom, of the Singapore Association of Institute of Chartered Secretaries and Administrators (SAICSA) and of the Insolvency Practitioners Association of Singapore (IPAS). 6

9 Corporate Governance The NC considers that the Board comprises members who as a group are able to provide the core competencies such as finance, business, management and industry knowledge to meet with the Company s objectives. Where necessary, directors will attend relevant courses to enhance their understanding of their corporate responsibilities. The Board delegates some of its duties to various committees of the Board as follows: The Audit Committee ( AC ) The AC comprises three Non-executive Directors of whom two are Independent Directors including the Chairman. The members of the AC are as follows: Kuan Cheng Tuck Choo Chee Kong Yeoh Wee Liat Chairman (Independent Director) Member (Independent Director) Member (Non-executive Director) The AC has performed those usual functions as stipulated under Section 201B of the Singapore Companies Act, the SGX Listing Manual and the Code of Corporate Governance to the fullest possible extent and subject to those matters and limitations detailed in the Statement by Directors dated 3 March 2011 and in the accompanying financial statements. The AC will continue to perform such functions, to the extent it could, for the subsequent financial years. The Company s independent auditors, LTC LLP, have carried out in the course of their statutory audit, an evaluation of the Company s key internal controls and risk management annually to the extent of their scope as laid out in their audit plan. Material control weaknesses are noted during the audit and reported to the AC. The Board believes that, in the absence of any evidence to the contrary, the system of internal controls maintained by the Group s management, and that was in place throughout the year and up to the date of this report, is adequate to meet the needs of the Group in its current business environment. The Company has closed down its Singapore operations. At present, the Company has outsourced its financial accounting function. The AC will be closely monitoring the financial reporting function to ensure timely and accurate reporting and disclosure to the shareholders of the Company going forward, subject to those limitations noted in the Directors Report and Statement by Directors. The AC has independent access to the external auditors. The AC meets with the external auditors without the presence of management to review matters that might be raised privately. The AC has reasonable resources to enable it to discharge its functions properly. The AC, after considering that the non-audit services provided by the external auditors to the Group were not significant, is satisfied with the independence of the independent auditors and has recommended to the Board of Directors that the auditors, LTC LLP, be nominated for re-appointment as auditors at the forthcoming Annual General Meeting of the Company. The Nominating Committee ( NC ) The NC comprises three Non-executive Directors, two of whom are Independent Directors including the Chairman. The members of the NC are as follows: Choo Chee Kong Kuan Cheng Tuck Yeoh Wee Liat Chairman (Independent Director) Member (Independent Director) Member (Non-executive Director) 7

10 Corporate Governance The primary functions of the NC are to review and evaluate nominations for appointment and re appointment to the Board and the various Committees, to assess the effectiveness of each Director and the Board as a whole and to determine whether or not a Director is independent. Where a Director has multiple representations, the NC also considers if he/she is able to adequately carry out his/her responsibilities. The NC has established the general guidelines for assessing the Board and each Director. The parameters include objective performance criteria, attendance records at Board and committee meetings, contribution and participation at meetings. These assessments will be carried out on an annual basis. The NC has assessed the current Board s performance to-date and is of the view that the performance of the Board as a whole is satisfactory. Although some of the Board members have multiple board representations, the NC is satisfied that sufficient time and attention has been given by the Directors to the Group. All Directors are subject to the provisions of the Company s Articles of Association whereby one-third of the Directors are required to retire and subject themselves to re-election by shareholders at every Annual General Meeting ( AGM ). The NC recommended to the Board that Mr Choo Chee Kong be nominated for re-election at the forthcoming AGM. In making the recommendation, the NC had considered the Directors overall contributions and performance. The Remuneration Committee ( RC ) The RC comprises three Non-executive Directors of whom two are Independent Directors including the Chairman of the RC. The members of the RC are as follows: Choo Chee Kong Kuan Cheng Tuck Yeoh Wee Liat Chairman (Independent Director) Member (Independent Director) Member (Non-executive Director) The primary functions of the RC are to review and recommend to the Board, the remuneration packages of each Executive Director and Executive Officer of the Company. The annual Directors fees, which include the fees paid/ payable to the Non-executive Directors, are recommended by the RC and endorsed by the Board. Directors fees will be paid to the Directors subject to obtaining approval of shareholders at the AGM. The members of the RC have access to expert advice on Executive remuneration, outside the Company, whenever it is required. To reward the directors for their contributions since coming on board in October 2009, the RC is recommending the payment of Directors fees of up to S$160,000 for the year ended 31 December 2010 subject to the approval of the shareholders at the forthcoming AGM. No directors fees have been recommended for the financial year ended 31 December No Director or employee has received more than S$250,000 for the year ended 31 December The Board is also disputing on the propriety, validity and reasonableness of the remuneration purportedly payable to a former director, Mr Charlie Cheng as disclosed in Note 7 to the financial statements. 8

11 Corporate Governance There were no share options granted to the employees during the financial year ended 31 December There were also no outstanding share options as at 31 December There is no employee related to a Director, whose remuneration exceeded S$150,000 for the financial year ended 31 December Communication with Shareholders The Board believes in transparency and strives towards timely dissemination of material information to the Company s shareholders and the public. The information is disseminated through the SGXNET system. All shareholders of the Company shall receive the annual report and notice of AGM. In presenting the annual financial statements and half-yearly announcements to shareholders, it is the aim of the Board to provide the shareholders with a detailed analysis, explanation and assessment of the Group s financial position and prospects. At the AGM, shareholders are given the opportunity to air their views and to ask the Directors and the management questions regarding the Group and its business. The independent auditors are also present to assist the Directors in addressing any relevant queries from the shareholders. The Company ensures that there are separate resolutions at general meetings on each distinct issue. The Company s Articles of Association allow a member of the Company to appoint one or two proxies to attend and vote at its general meetings. Securities Transactions The Company has adopted a policy on securities transactions to provide guidance to its Directors and employees on the implications of insider trading in accordance with the SGX -ST Best Practices Guide. The Company has adopted the following practices: (a) (b) An officer should not deal in the Company s securities on short-term considerations; and The Company and its officers should not deal in the Company s securities during the period commencing one month before the announcement of the Company s half year and full year financial statements and ending on the date of announcements of such results, or when they are in possession of unpublished price-sensitive information on the Group. Whistle-Blowing Policy The Company will formalise a Whistle-Blowing Policy to allow persons employed by the Group a channel to report any suspicion of non-compliance with regulations, policies and fraud, amongst others, to the appropriate authority for resolution, without any prejudicial implications to these employees. Subject to the finalisation of the policy, the AC has been vested with the power and authority to receive, investigate and enforce appropriate action when any such non-compliance matter is brought to its attention. 9

12 Corporate Governance Material Contracts Business Corporate Services Pte Ltd ( BCS ) which is owned by two directors, Mr Wong Lock Chee and Mr Yeoh Wee Liat, has an outstanding loan balance due from the Company of approximately S$400,000 as at 31 December In addition, BCS has also provided temporary advances to the Company for working capital purposes during the financial year (see also Interested Person Transactions section). Save as disclosed above, the Company is not aware of any material contracts that are either still subsisting at the end of financial year ended 31 December 2010 or entered into by the Group during the financial year ended 31 December 2010, and which involve the interests of any Director, controlling shareholder or employees. Interested Person Transactions During the financial year, BCS waived an amount of S$4,228,689 owing by the Company to BCS. In addition, the Company also repaid BCS a sum of S$412,218 and a director s loan of S$102,762 to Mr Choo Chee Kong during the financial year. Save as disclosed above, there were no interested person transactions of more than S$100,000 entered into by the Group during the financial year ended 31 December 2010, as defined under the Rules of Catalist. Use of Proceeds During the financial year, the Company has managed to raise gross proceeds totalling S$2,745,669 from two placement exercises in February 2010 and September Details of the use of proceeds from the aforesaid placement of shares are as follows:- Intended use Forecasted Actual Amount unutilised S$ 000 S$ 000 S$ 000 General working capital purposes 1,806 1, Professional fees in relation to reverse takeover exercise Placement expenses incurred by the Company Total 2,746 1, Non-Sponsor Fees Our Sponsor, PrimePartners Corporate Finance Pte. Ltd., received approximately S$130,000 for financial advisory services rendered in relation to the Proposed Acquisition for the financial year ended 31 December Non-Audit Fees Non-audit fees of S$9,800 relating to professional tax services rendered were paid to an affiliated company of our Company s independent auditors, LTC LLP, during the financial year ended 31 December

13 FALMAC LIMITED Annual Report 2010 Financial Content Directors Report 12 Statement by Directors 15 Independent Auditors Report 16 Balance Sheets 20 Consolidated Statement of Comprehensive Income 21 Consolidated Statement of Changes in Equity 22 Consolidated Statement of Cash Flows 23 Notes to the Financial Statements 24 Statistics of Shareholdings 54 Notice of Annual General Meeting 56 Proxy Form 11

14 Directors Report The Directors are pleased to present their report to the members together with the audited consolidated financial statements of Falmac Limited (the Company ) and its subsidiaries (collectively, the Group ) and the balance sheet of the Company. 1 DIRECTORS The Directors of the Company in office at the date of this report are: Mr Choo Chee Kong Mr Wong Lock Chee Mr Yeoh Wee Liat Mr Kuan Cheng Tuck (Independent Director and Chairman) (Managing Director) (Non- executive Director) (Independent Director) 2 ARRANGEMENTS TO ENABLE DIRECTORS TO ACQUIRE SHARES OR DEBENTURES Neither at the end of nor at anytime during the financial year was the Company a party to any arrangement whose object is to enable the Directors of the Company to acquire benefits by means of the acquisition of shares or debentures of the Company or any other body corporate. 3. DIRECTORS INTERESTS IN SHARES AND DEBENTURES The directors of the Company holding office at the end of the financial year had no interests in the share capital and debentures of the Company and related corporations as recorded in the Register of Directors Shareholdings kept by the Company under Section 164 of the Singapore Companies Act except as follows: No. of ordinary shares Direct No. of ordinary shares Deemed At beginning of year, or date of appointment, if later At end of year At beginning of year, or date of appointment, if later At end of year Mr Wong Lock Chee (*) 24,643,846 24,643,846 Mr Yeoh Wee Liat (*) 24,643,846 24,643,846 (*) Mr Wong Lock Chee and Mr Yeoh Wee Liat are the directors of Business Corporate Services Pte Ltd ( BCS ), a substantial shareholder of the Company. There was no change in any of the abovementioned interest between the end of the financial year and 21 January

15 Directors Report 4. DIRECTORS CONTRACTUAL BENEFITS Since the end of the previous financial year, no Director has received or become entitled to receive a benefit which is required to be disclosed under Section 201(8) of the Singapore Companies Act, by reason of a contract made by the Company or a related corporation with the Director or with a firm of which he is a member or with a Company in which he has a substantial financial interest save as disclosed in the accompanying financial statements. 5. SHARE OPTIONS During the financial year, there were: a) b) No options granted by the Company or its subsidiaries to any person to take up unissued shares in the Company or its subsidiaries; and No shares issued by virtue of any exercise of options to take up unissued shares of the Company or its subsidiaries. At the end of the financial year, there were no unissued shares of the Company or its subsidiaries under option. 6. AUDIT COMMITTEE The members of the Audit Committee at the date of this report are as follows: Mr Kuan Cheng Tuck (Chairman) Mr Choo Chee Kong Mr Yeoh Wee Liat The Audit Committee has performed those usual functions as stipulated under section 201B of the Singapore Companies Act, the SGX Listing Manual and the Code of Corporate Governance to the fullest possible extent and subject to those matters and limitations detailed in the Statement by Directors dated 3 March 2011 and in the accompanying financial statements. The AC will continue to perform such functions, to the extent it could, for the subsequent financial years. The Audit Committee, after having reviewed all non-audit services provided by the independent auditors to the Group, was satisfied with the independence of the independent auditors and has recommended to the Board of Directors that the auditors, LTC LLP, be nominated for re-appointment as auditors at the forthcoming Annual General Meeting of the Company. 13

16 Directors Report 7. INDEPENDENT AUDITORS The independent auditors, LTC LLP, have expressed their willingness to accept re-appointment. On behalf of the Board of Directors Choo Chee Kong Director Wong Lock Chee Director 3 March

17 Statement by Directors The accompanying financial statements of Falmac Limited ( the Company ) and its subsidiaries (collectively, the Group ) are set out on pages 20 to 53. To the best of our knowledge, information and belief, and subject to those matters highlighted in our previous statements dated 18 November 2009 and 8 April 2010 and those qualifications and/or reservations expressed by the auditors in the previous financial years that might collectively have a significant impact on the opening balances of accumulated losses as well as of the trade and other payables of the Group and of the Company, the accompanying financial statements have been 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 31 December 2010 and of the results, changes in equity and cash flows of the Group for the financial year then ended in accordance with the provisions of the Singapore Companies Act and Singapore Financial Reporting Standards. In our opinion, at the date of this statement, subject to the successful completion and/or implementation of those matters set out in Note 2(I)(c) to the financial statements, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they fall due. On behalf of the Board of Directors CHOO CHEE KONG. WONG LOCK CHEE 3 March

18 Independent Auditors Report to the members of Falmac Limited We were engaged to audit the accompanying financial statements of Falmac Limited (the Company ) and its subsidiaries (the Group ) set out on pages 20 to 53, which comprise the consolidated balance sheet of the Group and the balance sheet of the Company as at 31 December 2010, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows of the Group for the financial year then ended, and a summary of significant accounting policies and other explanatory information. Management s Responsibility for the Financial Statements Management is responsible for the preparation of financial statements that give a true and fair view in accordance with the provisions of the Singapore Companies Act (the Act ) and Singapore Financial Reporting Standards, and for devising and maintaining a system of internal accounting controls sufficient to provide a reasonable assurance that assets are safeguarded against loss from unauthorised use or disposition; that transactions are properly authorised and that they are recorded as necessary to permit the preparation of true and fair profit and loss accounts and balance sheets and to maintain accountability of assets. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on conducting the audit in accordance with Singapore Standards on Auditing. Because of the matters described in the Bases for Disclaimer of Opinion paragraphs, however, we were not able to obtain sufficient appropriate audit evidence to provide a basis for our audit opinion. Bases for Disclaimer of Opinion 1. The directors had stated in the Statement by Directors dated 3 March 2011, that to the best of their knowledge, information and belief, subject to those matters highlighted in their previous statements dated 18 November 2009 and 8 April 2010 and those qualifications and/or reservations expressed by the auditors in the previous financial years that might collectively have a significant impact on the opening balances of accumulated losses as well as of the trade and other payables of the Group and of the Company, the accompanying financial statements have been 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 31 December 2010 and of the results, changes in equity and cash flows of the Group for the financial year then ended in accordance with the provisions of the Singapore Companies Act and Singapore Financial Reporting Standards. In addition, the directors are of the opinion that, at the date of that statement, subject to the successful completion and/or implementation of those matters set out in Note 2(I)(c) to the financial statements, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they fall due. We disclaimed an opinion on the financial statements for the financial year ended 31 December 2009 in respect of, among other matters, the qualifications in the Statement of Directors dated 8 April We were unable to access the necessary accounting records on the opening balances of the accumulated losses and the trade and other payables of the Group and the Company which were brought forward to the current financial year ended 31 December 2010 as mentioned in the Statement by Directors. In addition, we were also unable to satisfy ourselves on the appropriateness of those transactions that occurred in the current financial year that related to the previous financial years balances. As a result of these matters, we were unable to determine whether any adjustments might have been found necessary in respect of recorded or unrecorded opening balances of the accumulated losses, the trade and other payables and the other elements making up the financial statements. 16

19 Independent Auditors Report to the members of Falmac Limited 2. As disclosed in note 8 to the financial statements, although the Company wholly and legally owns the China subsidiaries, the current Board of Directors considers that the de facto and effective control over these China subsidiaries was lost with the appointment of the current Board of Directors on 5 October 2009 as a nominee of the former Chief Executive Officer and former director of the Company (Charlie Cheng), Leon Zhao, is the named legal representative of these China subsidiaries and that the current Board of Directors has been denied access to the factory premises as well as to the accounting and financial records of these China subsidiaries. In addition, no audited or unaudited management financial statements of these China subsidiaries for the financial years ended 31 December 2009 and 2010 were available for the Group s consolidation purposes. As a result of these limitations and constraints, the financial results and positions of these China subsidiaries have been excluded from the Group s consolidated financial statements with effect from 1 January In the absence of the relevant financial information for the financial years ended 31 December 2009 and 2010 of the China subsidiaries, we were unable to determine whether any adjustments might have been found necessary in respect of the consolidated financial statements, had the China subsidiaries been effectively excluded from the Group consolidated financial statements on 5 October 2009, the date when the Company lost control of the China subsidiaries. We disclaimed an opinion on the financial statements for the previous financial year ended 31 December 2009 in respect of, among other matters, the matter described above. 3. As disclosed in notes 8 and 9 to the financial statements, the Company has classified the investments in the China subsidiaries as financial assets, available-for-sale. As a result of the absence of the financial statements and other matters relating to the China subsidiaries as mentioned in paragraph 2 above, we were unable to determine whether any adjustments might have been found necessary in respect of the valuation of the financial assets, available-for-sale, stated at nil balance as at 31 December 2010, and the other elements making up the financial statements. 4. The Group s and Company s trade payable balances totalling $234,000 as stated in note 6 to the financial statements was brought forward from the prior financial years. Due to a lack of supporting documentation, we were unable to determine whether any adjustments might have been found necessary in respect of recorded and unrecorded trade payable balances and the other elements making up the financial statements. 5. For the other payables disclosed in note 7 to the financial statements, there is insufficient supporting documentation for the balances brought forward from the prior financial years, being: the amount of $575,000 owing to the outside parties of the Group and Company, the amount of $2,530,000 owing to a former subsidiary in China, and the amount of $1,017,000 owing to a former director of the Company. We were unable to confirm or verify by alternative means these other payable amounts included in the balance sheets as at 31 December As a result of these matters, we were unable to determine whether any adjustments might have been found necessary in respect of recorded and unrecorded other payables and the other elements making up the financial statements. 17

20 Independent Auditors Report to the members of Falmac Limited 6. The Group has written back certain opening balances of trade and other payables of $1,850,000 to other income as stated in note 13 to the financial statements. Due to a lack of supporting documentation, we were unable to determine the validity and appropriateness of the amount of trade payables of $15,000, accruals for directors fee of $108,000, amounts owing to former directors of $400,000, shareholders loan of $974,000 and accruals for interest on shareholders loan of $262,000 that have been written back to other income. As a result of these matters, we were unable to determine whether any adjustments might have been found necessary in respect of the trade and other payables written back to other income for the financial year ended 31 December 2010 and the other elements making up the financial statements. 7. As disclosed in note 8 to the financial statements, there were four subsidiaries that had been excluded from the consolidated financial statements with effect from 1 January 2009 and these companies were dissolved and/or struck-off prior to the financial year ended 31 December In the absence of the financial statements at the dates that these companies were dissolved and/or struck-off, we were unable to determine whether any adjustments might have been found necessary in respect of the consolidated financial statements, had the said subsidiaries been effectively excluded from the consolidated financial statements at the dates of their dissolution. We disclaimed an opinion on the financial statements for the previous year ended 31 December 2009 in respect of, among other matters, the matter described above. 8. As disclosed in note 8 to the financial statements, the consolidated financial statements include audited financial information of three subsidiaries, Faltex Pte Ltd, Falmac International Pte Ltd and Falmac (Hong Kong) Limited. We were however unable to obtain sufficient and appropriate information from the component auditors to satisfy ourselves that the financial statements of these subsidiaries are in form and content appropriate and proper for the purpose of the preparation of the consolidated financial statements. Accordingly, we were unable to determine whether any adjustments might have been found necessary in respect of the inclusion of the financial information of these subsidiaries in the consolidated financial statements. 9. As disclosed in note 8 to the financial statements, the consolidated financial statements include unaudited financial information of two subsidiaries, Penchant International Limited and Falmac (USA) Inc,. In the previous financial year ended 31 December 2009, we disclaimed an opinion on the financial statements relating to that year in respect of, among other matters, the inclusion of the unaudited financial information of these two subsidiaries in the consolidated financial statements. We were unable to obtain sufficient and appropriate audit evidence relating to the unaudited financial information of these subsidiaries which were included in the consolidated financial statements. Accordingly, we were unable to determine whether any adjustments might have been found necessary in respect of the inclusion of the financial information of these subsidiaries in the consolidated financial statements. 18

21 Independent Auditors Report to the members of Falmac Limited 10. As disclosed in note 2(I)(c) to the financial statements, the Group and Company had capital deficiencies of $4,059,000 and $4,053,000 respectively as at 31 December 2010; and the Group s and the Company s current liabilities exceeded their current assets by $4,059,000 and $4,053,000 respectively as of the reporting date. The financial statements of the Group and Company have been prepared on a going concern basis and the Board of Directors is of the view that the validity of the going concern assumption is dependent on the factors mentioned in note 2(I)(c)(i) to (v) to the financial statements. We were unable to obtain sufficient appropriate evidence regarding the going concern assumption in the preparation of the financial statements. In the event that the Group and the Company are unable to continue in operational existence for the foreseeable future, the Group and the Company might be unable to discharge their liabilities in the normal course of business. In addition, the Group and the Company might have to provide for further liabilities that might arise. No such adjustments have been made to these financial statements. 11. As disclosed in note 22(b) to the financial statements, there is uncertainty related to the outcome of the lawsuit filed against the Company by the former Chief Executive Officer and former director of the Company, Charlie Cheng, claiming for his past salaries and severance compensation of approximately $1.8 million. Disclaimer of Opinion on the Financial Statements Because of the significance of the matters referred to in the Bases for Disclaimer of Opinion paragraphs, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. Accordingly, we do not express opinion on the financial statements. Report on Other Legal and Regulatory Requirements In our opinion, except for the accounting and other records pertaining to those matters referred to in the Bases for Disclaimer of Opinion paragraphs, the accounting and other records required by the Act to be kept by the Company have been properly kept in accordance with the provisions of the Act. LTC LLP Public Accountants and Certified Public Accountants Singapore, 3 March

22 Balance Sheets as at 31 December 2010 GROUP COMPANY Note $ 000 $ 000 $ 000 $ 000 CAPITAL DEFICIENCY AND LIABILITIES Share capital 4 24,018 21,355 24,018 21,355 Accumulated losses and reserves (28,077) (33,325) (28,071) (34,192) Total capital deficiency (4,059) (11,970) (4,053) (12,837) Current liabilities Trade payables ,301 Other payables 7 4,219 6,310 4,213 6,301 Loan from a substantial shareholder , ,992 Income tax liability Total current liabilities 4,853 11,977 4,847 12,844 Total capital deficiency and liabilities ASSETS Non-current assets Investments in subsidiaries 8 Total non-current assets Current assets Financial assets, available-for-sale 9 Trade receivables Other receivables and prepayments Cash and cash equivalents Total current assets Total assets The accounting policies and explanatory notes form an integral part of the financial statements. 20

23 Consolidated Statement of Comprehensive Income GROUP Note $ 000 $ 000 Revenue Cost of sales Gross profit Other income 13 6, , Gain on deconsolidation of subsidiaries 2,172 Administrative expenses (1,022) (272) Other expenses (4,884) Finance cost 14 (50) Profit/(Loss) before income tax 15 5,121 (2,425) Income tax expenses (85) Net profit/(loss) for the financial year 5,286 (2,510) Other comprehensive income: Currency translation differences arising from consolidation (38) 313 Total comprehensive income/(loss) for the financial year 5,248 (2,197) Earnings/(Loss) per share (cents) Basic (1.62) The accounting policies and explanatory notes form an integral part of the financial statements. 21