CORPORATE INFORMATION

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2 CORPORATE INFORMATION BOARD OF DIRECTORS Chairman Encik Sulaiman Bin Mohd Hassan (Appointed on 1 May ) Mr. Hsiao Wen Fu (Resigned on 1 May ) Managing Director Mr. Hsu, Tzu Li Independent Non-Executive Directors Tan Sri Ishak Bin Tadin Ms. Teh Bee Hong (Appointed on 31 March 2003) Mr. Chu Lap Yan (Resigned on 18 February 2003) Mr. Chang Chu Shien (Resigned on 12 March 2003) Non-Independent Non-Executive Directors Dato' Zolkipli Bin Abdul Mr. Chu Fu Chih Mr. Lai Seng Keong Alternate Directors Dato Ahmad Hassan Bin Osman (Alternate Director to Tan Sri Ishak Bin Tadin) Mr. Ng Cheng Wee (Alternate Director to Mr. Chu Fu Chih) (Resigned on 31 August ) 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 BANKERS RHB Bank Berhad Bumiputra-Commerce Bank Berhad Citibank Berhad SOLICITORS Leng & Co. STOCK EXCHANGE LISTING The Main Board, Kuala Lumpur Stock Exchange COMPANY SECRETARIES Ms. Ang Mui Kiow Mr. Tang Sim Cheow (Appointed on 8 May 2003) 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 1

3 NOTICE OF ANNUAL GENERAL MEETING NOTICE IS HEREBY GIVEN THAT the Ninth Annual General Meeting of will be held at Mutiara Hotel, Dewan Johor, 2nd Floor, Jalan Dato Sulaiman, Taman Century, Johor Bahru, Malaysia, on Saturday, 28 June 2003 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 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) Chu Fu Chih - Article 82 RESOLUTION 2 (b) Lai Seng Keong - Article 82 RESOLUTION 3 (c) Teh Bee Hong - Article 89 RESOLUTION 4 3. To approve the payment of Directors' Fees for the year ended 31 December. RESOLUTION 5 4. To re-appoint the retiring Auditors, Messrs KPMG as Auditors and to authorise the Directors to fix their remuneration. RESOLUTION 6 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 4 June 2003 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

4 STATEMENT ACCOMPANYING NOTICE OF ANNUAL GENERAL MEETING Pursuant to Paragraph 8.28(2) of the Kuala Lumpur Stock Exchange Listing Requirements 1. The Directors standing for re-election are: (a) Chu Fu Chih - Article 82 (b) Lai Seng Keong - Article 82 (c) Teh Bee Hong - Article 89 The above named Directors 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 5 to 6 of the annual report. Tan Sri Ishak Bin Tadin who is above the age of 70 and retiring pursuant to Section 129(2) of the Companies Act, 1965 has indicated his intention not to seek re-election at the Ninth Annual General Meeting. 2. Details of the place, date and hour of the Ninth Annual General Meeting are as follows: Place Date Hour Mutiara Hotel, Dewan Johor 28 June a.m. 2nd Floor, Jalan Dato Sulaiman Taman Century Johor Bahru, Malaysia 3. Details of Directors' attendance at Board Meetings during the financial year are disclosed on page 8 of the annual report. 3

5 PROFILE OF DIRECTORS Sulaiman Bin Mohd Hassan Non-Independent Non-Executive Chairman A Malaysian, aged 69, was appointed as the Non-Independent Non-Executive Director on 1 March 1995 and was appointed as Chairman on 1 May. 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. Hsu, Tzu-Li Managing Director A Taiwanese, aged 56, was appointed as the Managing Director of the Company on 25 April. He is also the Chairman of the Remuneration Committee and a member of the Nomination Committee. Mr Hsu, Tzu-Li holds a Degree in Foreign Language and Literature from Dong-Wu University, Taiwan. He joined Dai Hwa Industrial Co., Ltd since 1973 and held various positions in different departments. He was assigned to PT. Dai Hwa Industrial ("Pt. DHI") in Indonesia as President Director since Currently, he still oversees the operations of Pt. DHI. Mr Hsu is a shareholder of the holding company, Dai Hwa Industrial Co. Ltd. Mr Hsu 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. Tan Sri Ishak bin Tadin Senior Independent Non-Executive Director A Malaysian, aged 71, was appointed as the Independent Non-Executive Director and Senior Independent Director on 1 March 1995 and 2 May respectively. He is also the Chairman of the Audit Committee and a member of Nomination Committee. Tan Sri Ishak graduated with a Bachelor of Arts (Hons) Degree from University of Malaya. He has been with the civil service for more than 35 years and held various senior positions including that of State Secretary, Secretary General of the Ministry of Transport from 1981 to 1986 and Auditor General of the Government of Malaysia from 1986 to He served on the Board of Directors of Malaysian Airlines Systems Berhad, Malayan International Shipping Corporation Berhad and Kontena Nasional Berhad from 1981 to 1986 and was also the Chairman of Kuala Lumpur Commodities Exchange. He is currently a Director of Malaysian Industrial Development Finance Bhd. Tan Sri Ishak 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. 4

6 PROFILE OF DIRECTORS (cont'd) Dato' Ahmad Hassan bin Osman (Alternate Director to Tan Sri Ishak Bin Tadin) Independent Non-Executive Director A Malaysian, aged 58, was appointed as an alternate Director to Tan Sri Ishak bin Tadin on 1 March Dato' Ahmad Hassan graduated with a Bachelor of Arts from the University of Malaya and Master of Economics from University of Wisconsin, Madison, USA. He joined the Malaysia civil service after graduation as an Assistant District Officer in the District and Land Office of Lower Perak and has been in the civil service for more than 30 years and held various senior positions including that of Deputy Director General, Economic Planning Unit of the Prime Minister's Department from 1989 to 1990 and Secretary General of the Ministry of Housing and Local Government from 1991 to He is currently a Director of Suiwah Corporation Berhad, TT Resources Berhad and Kimble Corporation Berhad. Dato' Ahmad Hassan 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 61 was appointed as the Non-Independent Non-Executive Director on 23 July 1997 as nominee director of Permodalan National Berhad. 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 a 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 Mascom (M) Sdn. Bhd., Abi Sdn. Bhd. and Kumpulan Sakata. 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 66, was appointed as the Non-Independent Non-Executive Director on 2 August He is also a member of the Nomination Committee and Remuneration Committee. 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 and Tone-Shine Industrial Co. Ltd. and Executive Director of 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. 5

7 PROFILE OF DIRECTORS (cont'd) Lai Seng Keong Non-Independent Non-Executive Director A Malaysian, aged 31, was appointed as the Executive Director on 25 April. He is also a member of the Audit Committee and Remuneration Committee. Mr Lai graduated with a Bachelor of Business (Accounting) from Monash University in Australia. He is a Chartered Accountant registered with the Malaysian Institute of Accountants and Certified Practicing Accountant registered with CPA Australia in He joined KPMG in 1996 as audit assistant and was promoted to audit senior in In 2000, he joined a plastic injection moulding company as finance manager and in, he joined Dai Hwa Malaysia Group as finance manager. He resigned from Dai Hwa Malaysia Group in March 2003 and currently he is the accounting manager of a multi national manufacturing company. Mr Lai 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 46, was appointed as the Independent Non-Executive Director on 31 March She is also a member of the Audit Committee and Nomination 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. 6

8 CHAIRMAN'S STATEMENT On behalf of the Board of Directors, I hereby present the Annual Report and the financial statements of the Group and of the Company for the financial year ended 31 December. Review of Results The Group's turnover dropped by 64% to RM317 million in the financial year ended 31 December primarily due to the loss of sales contract for TFT LCD monitors and lower demand for speaker boxes. As a result of the impairment losses on property, plant and equipment of RM44 million, retrenchment expenses of RM13 million, erosion of margin due to stiff competition, loss of sales contract for TFT LCD monitors and lower sales volume for speaker boxes, the Group registered a net loss for the current financial year of RM96 million as compared to a net profit of RM6 million in the previous financial year. The negative impact arising from the continuing weak market demand for consumer electronic products and intense pricing competition has resulted in the Group unable to achieve optimum economy of scale due to the low volume of sales and higher production cost. As part of the cost-cutting measures, the management has taken various actions including the retrenchment of excess work force and shutting down of certain production lines without jeopardizing its products quality. Prospects In view of the deteriorating market demand for speaker boxes, the Group is not expecting a turnaround in the coming financial year. In order to protect the interests of the Company and its shareholders, the Board has resolved to minimise further losses by scaling down the Group's operations with the objective of ceasing all business operations within this year. Acknowledgement On behalf of the Board, I would like to express my sincere appreciation to the management, staff and workers for their unwavering support, contribution and commitment. I would also like to extend my thanks and appreciation to the shareholders, valued customers, suppliers, bankers, business associates and government authorities for their continuous support and confidence. Sulaiman Bin Mohd Hassan Chairman 7

9 CORPORATE GOVERNANCE STATEMENT The Malaysian Code on Corporate Governance (the Code) is made mandatory with effect from June for public listed companies. The Code sets out the principles and best practices for adoption in an effort to raise standards of corporate governance in the country. 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. The Board is continuously improving its quality of decision and responsibility to the Group. The Board is responsible for reviewing of business strategy, investment plan, consideration of significant financial matters and reviewing financial and operation performance of the Group. However, the Board has not performed succession planning as the Group is in process of ceasing its operation. Meetings The Board meets four times a year. Additional meeting will be convened when there is urgent and important decision to be made. During the financial year ended 31 December, the Board held four meetings where it considered a variety of matters including financial results, strategic decisions and major operational issues of the Group. 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 agreed to improve 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: Name of Directors Number of Meeting Attended En. Sulaiman Bin Mohd Hassan 4/4 Tan Sri Ishak Bin Tadin 3/4 Mr. Hsu, Tzu Li 4/4 Dato' Zolkipli Bin Abdul 4/4 Mr. Lai Seng Keong 4/4 Mr. Chang Chu Shien 3/4 Mr. Chu Fu Chih 2/4 Mr. Chu Lap Yan 1/4 Mr. Hsiao Wen Fu* 1/1 * Mr. Hsiao Wen Fu resigned on 1 May 8

10 CORPORATE GOVERNANCE STATEMENT (cont'd) 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 during the year 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. Board Balance During the financial year ended 31 December, the Board has eight (8) members and two (2) Alternate Directors, of which one resigned during the financial year. The Board includes two (2) Executive Directors (including Managing Director) and six (6) Non-Executive Directors. The Independent Non-Executive Directors are Tan Sri Ishak Bin Tadin, Chang Chu Shien and Chu Lap Yan and the Non-Independent Non-Executive Directors are the Chairman, Sulaiman Bin Mohd Hassan, Dato' Zolkipli Bin Abdul and Chu Fu Chih. The brief profile of each Director is presented on page 4 and page 6 of this annual report. The independent status of the directors adopted by the Board is consistent with paragraph 1.01 of the Listing Requirements of Kuala Lumpur Stock Exchange. The Board is satisfied that the number of members were sufficient and effective in meeting the Group's needs and requirements. Mr. Ng Cheng Wee resigned from the position of Alternate Director on 31 August. Ms Teh Bee Hong was appointed as an Independent Non-Executive Director on 31 March 2003 subsequent to the resignation of the two independent directors, i.e. Mr. Chu Lap Yan and Mr. Chang Chu Shien on 18 February 2003 and 12 March 2003 respectively. As at the date of this statement, the Board currently consists of two (2) independent directors and five (5) non-independent directors, thus the Board complied with paragraph of the KLSE 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 and operation. There is clear division of responsibilities to ensure a balance of authority and power. The 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. Mr. Hsu, Tzu Li, Managing Director, is primarily responsible for the operations of the Group. The non-executive directors contribute in areas such as performance monitoring and improving governance and controls. The Board has appointed Tan Sri Ishak Bin Tadin as Senior Independent Non-Executive Director. He is currently an Independent Non-Executive Director and Chairman of the Audit Committee. With the additional new role, he welcomes any concerns pertaining to the Group that may be conveyed to him. 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 Senior Management and the service of the Company Secretary. Directors are given adequate time to read Board papers before each meeting. All corporate announcements, including the announcement of the quarterly financial results, are reviewed by the audit committee and approved by the Board. 9

11 CORPORATE GOVERNANCE STATEMENT (cont'd) Appointment to the Board Nomination Committee The Nomination Committee was formed in, and its memberships and terms of reference are as follows: Chairman : Members : Tan Sri Ishak Bin Tadin (Senior Independent Non-Executive Director) (Appointed on 13 March 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) 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 not through the Nominating Committee carried out the process for neither assessing the effectiveness of the Board as a whole nor the effectiveness of the committees of the Board. 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 obligation are met. 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) except for Ms Teh Bee Hong who registered for the MAP schedule to be held on 29 and 30 July The Directors will continue to undergo other relevant training programmes to further enhance their skills and knowledge where relevant. 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. This 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

12 CORPORATE GOVERNANCE STATEMENT (cont'd) Directors' Remuneration Remuneration Committee The Remuneration Committee was formed in, and its memberships and terms of reference are as follows: Chairman : Members : Hsu, Tzu Li (Managing Director) (Appointed on 18 February 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) Chu Fu Chih (Non-Independent Non-Executive Director) 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 chairman should be a matter for the board as a whole. The individual concerned should abstain from the discussion of their respective remuneration. The policy practiced 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. Details of the Directors' Remuneration Details of the nature and amount of each major element of the remuneration of each Director of the Company are as follows: Aggregate Remuneration Remuneration Executive Directors Non-Executive Directors Total RM RM RM Fees - 104, ,040 Salaries 127, ,729 EPF 9,820-9,820 Allowance 2,752-2,752 Bonus 8,835-8,835 Benefits in kind 16,380-16,380 Total 165, , ,556 Analysis of Remuneration Total Number of Number of Total Remuneration Executive Directors Non-Executive Directors 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. 11

13 CORPORATE GOVERNANCE STATEMENT (cont'd) Shareholders The Group recognises the importance of communicating with its shareholders and does this through the annual report, Annual General Meeting (AGM) and Company website. 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 the resolution 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 website, provide a comprehensive introduction of our Group structure and products. The Group's financial information and other announcements are also accessible at the KLSE website. 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 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 No formal internal audit function was established during the financial year. However, the Board is of the view that the direct involvement of executive directors and regular review by the personnel from the Holding Company of the Group in monitoring and managing risks and internal controls is deemed adequate. Relationship with the Auditor The representatives of the external auditors, Messrs KPMG, were invited to attend four Audit Committee Meetings and four Board 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 is RM249,

14 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, the Audit Committee convened four meetings. The members and their attendance are as follows:- Chairman Attendance Tan Sri Ishak Bin Tadin (Senior Independent Non-Executive Director) 4/4 Members Lai Seng Keong (Non-Independent Non-Executive Director) 4/4 Chang Chu Shien (Independent Non-Executive Director - resigned on ) 3/4 Teh Bee Hong (Independent Non-Executive Director - appointed on ) N/A 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 Kuala Lumpur Stock Exchange. i. Membership (1) The Committee shall be appointed by the Board form 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) an executive director of the Company or any related corporation; (b) an officer or one who has been an officer within the last two years of the Company or related corporation; (c) a major shareholder of the Company or any related corporation; (d) 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; (e) a nominee or representative of an executive director or major shareholder of the Company or any related corporation; (f) a professional adviser of the Company or any related corporation; (g) a person who has engaged in a transaction with the Company within the last two years for a value exceeding RM 250,000; (h) 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 Accountants 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. (4) The member of the Committee shall elect from among their number a chairman who is non-executive and independent, as defined above. 13

15 AUDIT COMMITTEE (cont'd) i. Membership (cont'd) (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 Kuala Lumpur Stock Exchange 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 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: (a) Investigate any activity within the Committee's terms of reference; (b) Have resources which are reasonably required to enable it to perform its duties; (c) Have full and unrestricted access to any information pertaining to the Company or the Group; (d) Have direct communication channels with the external auditors and person(s) carrying out the internal audit function or activity (if any); (e) Obtain outside legal or other independent professional advice and secure the attendance of outsiders with relevant experience and expertise if it consider this necessary; (f) Convene meetings with the external auditors, excluding the attendance of the executive members of the Committee, whenever deemed necessary. iii. Duties The duties of the Committee shall be to review the following and report the same to the Board: (a) Any matters concerning the appointment and dismissal of the external auditors and the audit fee; (b) The nature and scope of the audit by the external auditors before commencement; (c) 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); (d) Any financial information for publication, including quarterly and annual financial statements, before submission to the Board; (e) The external auditors' management letter and management's response; (f) The adequacy and relevance of the scope, functions and resources of internal audit and the necessary authority to carry out its work; (g) The audit plan and work programme of internal audit; (h) Findings of internal audit work and management response; (i) (j) (k) (l) 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

16 AUDIT COMMITTEE (cont'd) iv. Overseeing the Internal Audit Function (1) The Committee shall oversee all internal audit functions and is authorised to commission investigations to be conducted by internal audit as it deems fit. (2) The internal auditor shall report directly to the Committee and shall have direct access to the Chairman of the Committee. (3) 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 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 (1) 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. (2) 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. (3) Non-member directors shall not attend unless specifically invited to by the Committee. vii. Frequency of Meetings 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 (1) 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. (2) 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. (3) The Committee shall assist the Board in preparing the following for publication in the Company's annual report: (a) Statement on the Company's application of the principles set out in Part 1 of the Malaysia Code on Corporate Governance; (b) 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 non-compliance (if any) and the alternatives adopted in such areas; (c) Statement on the Board's responsibility for preparing the annual audited accounts; and (d) Statement about the state of internal control of the Group. (4) The Committee may report any breaches of the Listing Requirements, which have not been satisfactorily resolved, to the Kuala Lumpur Stock Exchange. 15

17 AUDIT COMMITTEE (cont'd) 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 ; ii. iii. iv. Reviewed the quarterly unaudited financial results announcement with the external auditors and managing director of the Group; 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 has significant impact on the results of the Group. 4. INTERNAL AUDIT FUNCTION No formal internal audit function was established during the financial year. However, the Board is of the view that the direct involvement of executive directors and regular review by the personnel from the Holding Company of the Group in monitoring and managing risks and internal controls is deemed adequate. 16

18 STATEMENT ON INTERNAL CONTROL Introduction Paragraph 15.27(b) of the Kuala Lumpur Stock Exchange Listing Requirements requires the Board of Directors of public listed companies to include in the annual report a "statement about the state of internal control of the listed issuer as a group". 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, 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 KLSE. The Board is committed to maintaining a sound system of internal control in the Group and is pleased to provide the following statement, which outline the nature and scope of internal control of the Group during the year. 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 risk management and financial as well as operational controls. The Board confirms that there is a process for identifying, evaluating and managing significant risks faced by the Group, that has been in place since December. 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 at the end of the fourth quarter. This exercise is to create awareness among all management staff on the identification, measurement and control of the significant risk areas in the business processes. Workshops and interviews were conducted with the management staff of the Group to identify and evaluate the principal risks faced by the Group. A register of the principal risks and controls has been created, and information filtered to produce detailed risk register and a risk profile for the major business units. Internal audit function No formal internal audit function was established during the financial year. However, the Board is of the view that the direct involvement of executive directors and regular review by the personnel from the Holding Company of the Group in monitoring and managing risks and internal controls is deemed adequate. 17

19 RECURRENT RELATED PARTY TRANSACTIONS The Group has obtained a shareholder mandate in the Eighth Annual General Meeting held on 15 June for the Group to enter into recurrent transactions with its related parties. The mandate is valid for the transactions incurred from 15 June till the next Annual General Meeting. 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 Limitd 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 to 31 December are as follows :- Nature of Transactions Parties Involved Transactions Incurred from 1 January to 31 December () Value of Transactions Per Shareholder Mandate obtained on 8 January (covering period from 1 June to 15 June ) () Value of Transactions Per Shareholder Mandate obtained on 15 June (covering period from 15 June to 28 June 2003) () Sales of speaker boxes DHICL GT Pt. DHI 4, ,405 5, ,775 8,950 3,984 Sales of component parts GT Pt. DHI 1, ,166 15,742 9,106 13,396 Sales of machinery DHICL 446-3,000 Purchases of raw materials, component parts and speaker units DHICL GT Pt. DHI IST 151,336 10, , ,848 33, ,665 10,081 24,480 2,000 17,604 Purchase of machinery DHICL 494 3,500 2,000 Purchases of moulds and tools DHICL 763 1,854 3,000 Purchases of speaker boxes GT Pt. DHI 5, ,711 1,415 18

20 DIRECTORS' REPORT FOR THE YEAR ENDED 31 DECEMBER 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 set out in Note 3 to the financial statements. There has been no significant change in the nature of these activities during the financial year, except that one of its subsidiaries has discontinued production of TFT LCD monitors since May. Results Group Company Net loss for the year 95,540 57,156 Dividends Since the end of the previous financial year, the Company paid a first and final tax exempt dividend of 10 sen per ordinary share totalling RM11,270,000 in respect of the year ended 31 December on 31 July. The Directors do not recommend the payment of any final dividend in respect of the current financial year. Reserves and provisions There were no material transfers to or from reserves and provisions during the financial year except as disclosed in the statement of changes in equity. Directors of the Company The Directors who served since the date of the last report are: Alternate Directors Y. Bhg. Tan Sri Ishak bin Tadin Y. Bhg. Dato Ahmad Hassan bin Osman Mr. Hsu,Tzu-Li En. Sulaiman bin Mohd Hassan Mr. Chu Fu Chih Mr. Ng Cheng Wee (ceased on 31.8.) Y. Bhg. Dato' Zolkipli bin Abdul Mr. Lai Seng Keong Mr. Hsiao Wen Fu (resigned on 1.5.) Mr. Chu Lap Yan (resigned on 18 February 2003) Mr. Chang Chu Shien (resigned on 12 March 2003) 19

21 DIRECTOR REPORTS' FOR THE YEAR ENDED 31 DECEMBER (cont'd) Directors' interests The holdings and deemed holdings in the ordinary shares of the Company and of its related corporations (other than whollyowned subsidiaries) of those who were Directors at year end are as follows: Number of ordinary shares of NT1000 each Balance at Balance at Name of Directors Interest 1.1. Addition Disposal Holding company - Dai Hwa Industrial Co. Ltd. En. Sulaiman bin Mohd Hassan Direct Mr. Chu Fu Chih Direct 15,000 15,000 Mr. Chu Lap Yan Direct 6,398 6,398 Mr. Hsu, Tzu-Li Direct 1,518 1,518 Number of ordinary shares of RM1.00 each Balance at Balance at The Company Interest 1.1. Addition Disposal Tan Sri Ishak bin Tadin Direct 12,400 12,400 Dato Ahmad Hassan bin Osman Direct 9,600 5,000 14,600 En. Sulaiman bin Mohd Hassan Direct 36,000 36,000 Mr. Chang Chu Shien Direct 10,000 10,000 Mr. Hsu, Tzu-Li Direct 1,803,000 1,803,000 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 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. 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. 20

22 DIRECTORS' REPORT FOR THE YEAR ENDED 31 DECEMBER (cont'd) Options granted over unissued shares No options were granted to any person to take up any 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 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) iv) 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 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 impairment losses on property, plant and equipment, retrenchment expenses and discontinuance of production of TFT LCD monitors as disclosed in the financial statements, the results of the operations of the Group and of the Company for the year ended 31 December 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. 21

23 DIRECTORS' REPORT FOR THE YEAR ENDED 31 DECEMBER (cont'd) Auditors The auditors, Messrs KPMG, have indicated their willingness to accept re-appointment. Signed in accordance with a resolution of the Directors:. Tan Sri Ishak bin Tadin Director. Hsu, Tzu-Li Managing Director Johor Bahru, Date : 20 March

24 STATEMENT BY DIRECTORS PURSUANT TO SECTION 169(15) OF THE COMPANIES ACT, 1965 In the opinion of the Directors, the financial statements set out on pages 27 to 45, are drawn up in accordance with applicable approved accounting standards in Malaysia so as to give a true and fair view of the state of affairs of the Group and of the Company at 31 December and the results of their operations and cash flows for the financial year ended on that date. Signed in accordance with a resolution of the Directors:. Tan Sri Ishak bin Tadin Director. Hsu, Tzu-Li Managing Director Johor Bahru, Date : 20 March