BOUTIQUE JUSCO 1 UTAMA SHOPPING CENTRE AEON SEBERANG PERAI CITY SHOPPING CENTRE JUSCO MELAKA SHOPPING CENTRE

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2 BOUTIQUE JUSCO 1 UTAMA SHOPPING CENTRE AEON SEBERANG PERAI CITY SHOPPING CENTRE JUSCO MELAKA SHOPPING CENTRE

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4 Ultraman Ultraman

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7 Content 2-3 I Notice of Annual General Meeting 4 I Statement of Contents accompanying Notice of Annual General Meeting 5 I Corporate Information 6-8 I Board of Directors and Directors Profile 9-10 I Chairman s Statement I Statement on Corporate Governance 15 I Statement on Internal Control I The Audit Committee I Financial Statements I List of Properties I Analysis of Shareholdings enclosed I Proxy Form

8 2 NOTICE OF ANNUAL GENERAL MEETING NOTICE IS HEREBY GIVEN that the Fifteenth Annual General Meeting of the Company will be held at the Conference Room of Teo Guan Lee Corporation Berhad, Plot 28 Lorong Perusahaan Maju 4, Prai Industrial Estate, Prai, Pulau Pinang on Tuesday, 25 November 2008 at a.m. for the following purposes: As Ordinary Business A G E N D A 1. To receive the Audited Financial Statements for the year ended 30 June 2008 together with the reports of the Directors and Auditors thereon. Ordinary Resolution 1 2. To re-appoint Mr. Toh Peng Hoe, a Director retiring under Section 129 of the Companies Act, Ordinary Resolution 2 3. To re-elect the following Directors retiring under the provision of Article 98 of the Articles of Association of the Company, and who, being eligible, have offered themselves for reelection: a) Mr. Toh Peng Hua Ordinary Resolution 3 b) Mr. Toh Su Meng Ordinary Resolution 4 4. To re-appoint Messrs. Peter Chong & Co. (formerly known as BKR Peter Chong) as Auditors of the Company and to authorise the Board of Directors to fix their remuneration. Ordinary Resolution 5 As Special Business To consider and if thought fit, to pass with or without modifications the following ordinary resolutions: 5. To approve the payment of Directors Fees of RM20, for the year ended 30 June Ordinary Resolution 6 6. Authority to Issue Shares That pursuant to Section 132D of the Companies Act, 1965 and approvals from Bursa Malaysia Securities Berhad ( Bursa Securities ) and other relevant governmental/ regulatory authorities where such authority shall be necessary, the Board of Directors be authorised to issue and allot shares in the Company from time to time until the conclusion of the next Annual General Meeting and upon such terms and conditions and for such purposes as the Board of Directors may, in their absolute discretion, deem fit provided that the aggregate number of shares to be issued shall not exceed ten per centum (10%) of the issued share capital of the Company for the time being, and that the Board of Directors be also empowered to obtain the approval for the listing of and quotation for the additional shares so issued on Bursa Securities. Ordinary Resolution 7 7. To transact any other business of which due notice shall have been given in accordance with the Companies Act, By Order of the Board, CHAN CHEE KHEONG (MAICSA ) TAN CHOONG KHIANG (MAICSA ) Secretaries Penang Date: 3 November 2008 ANNUAL REPORT 2008 TEO GUAN LEE CORPORATION BERHAD ( A)

9 NOTICE OF ANNUAL GENERAL MEETING (cont d) Notes: 3 A member entitled to attend and vote is entitled to appoint at least one (1) proxy to attend and vote instead of him. A proxy may but need not be a member of the Company and the provisions of Section 149(1)(a) and (b) of the Companies Act, 1965 shall not apply to the Company. Where a member appoints more than one (1) proxy, the appointment shall be invalid unless he specifies the proportions of his holdings to be represented by each proxy. To be valid this form duly completed must be deposited at the registered office of the Company at Plot 28 Lorong Perusahaan Maju 4, Prai Industrial Estate, Prai, Pulau Pinang not less than forty-eight (48) hours before the time for holding the meeting. If the appointor is a corporation, this form must be executed under its Common Seal or under the hand of its attorney. Explanatory Notes on Special Business Directors Fees This proposed Ordinary Resolution 6, if passed, will authorise the payment of Directors fees for the financial year ended 30 June 2008 amounting to RM20, Authority to Issue Shares This proposed Ordinary Resolution 7, if passed, will empower the Directors of the Company to issue and allot shares in the Company up to an amount not exceeding 10% of the total issued capital of the Company for the time being for such purposes as the Directors consider would be in the best interest of the Company. This Authority will, unless revoked or varied by the Company in general meeting, will expire at the next Annual General Meeting of the Company.

10 4 STATEMENT OF CONTENTS Accompanying the Notice of the Annual General Meeting of The Company 1. Directors Standing for Re-election/Re-appointment 1. Mr. Toh Peng Hoe, a Director who retires in compliance with Section 129(2) of the Companies Act, 1965 after having attained the age of seventy years. 2. Mr. Toh Peng Hua, a Director retiring under the provision of Article 98 of the Articles of Association of the Company. 3. Mr. Toh Su Meng, a Director retiring under the provision of Article 98 of the Articles of Association of the Company. The details of the Directors standing for re-election/re-appointment are set out in the Board of Directors and Directors Profile on pages 6 to a. Details of Board Meetings and attendances of Directors During the financial year ended 30 June 2008, the Board of Directors met five (5) times on the following dates: August October November February May 2008 All the above meetings were held at the Conference Room of Teo Guan Lee Corporation Berhad at Plot 28 Lorong Perusahaan Maju 4, Prai Industrial Estates, Penang. The attendance record of the Directors is shown in the table below: Name No of Meetings attended 1. Toh Peng Hoe 5/5 2. Toh Ping Hai 5/5 3. Toh Peng Hua 5/5 4. Dato Mustapha Bin Abdul Hamid 5/5 5. Chan Wah Chong 5/5 6. Toh Kian Beng 5/5 7. Toh Su Meng 5/5 b. The Fifteenth Annual General Meeting of the Company will be held at the Conference Room of Teo Guan Lee Corporation Berhad, Plot 28 Lorong Perusahaan Maju 4, Prai Industrial Estate, Prai, Pulau Pinang on Tuesday, 25 November 2008 at a.m. 3. The details of the Directors respective interest in the securities of the Company are set out in the Analysis of Shareholdings which appear on pages 76 to 78. ANNUAL REPORT 2008 TEO GUAN LEE CORPORATION BERHAD ( A)

11 CORPORATE INFORMATION CHAIRMAN Dato Mustapha Bin Abdul Hamid 5 MANAGING DIRECTOR DIRECTORS toh Peng Hoe toh Ping Hai Toh Peng Hua Chan Wah Chong Toh Kian Beng Toh Su Meng COMPANY SECRETARIES Chan Chee Kheong (MAICSA ) Tan Choong Khiang (MAICSA ) AUDIT COMMITTEE Chairman Member Chan Wah Chong (Independent Non-Executive Director) Dato Mustapha Bin Abdul Hamid (Independent Non-Executive Director) toh Kian Beng (Executive Director) NOMINATION COMMITTEE Chairman Member Dato Mustapha Bin Abdul Hamid (Independent Non-Executive Director) Chan Wah Chong (Independent Non-Executive Director) REMUNERATION COMMITTEE Chairman Member Dato Mustapha Bin Abdul Hamid (Independent Non-Executive Director) Chan Wah Chong (Independent Non-Executive Director) toh Peng Hoe (Executive Director) AUDITORS PRINCIPAL BANKERS Peter Chong & Co (formerly known as BKR Peter Chong) Chartered Accountants 19th Floor, Gurney Tower 18 Persiaran Gurney Penang Bank Islam Malaysia Berhad Malayan Banking Berhad OCBC Bank (Malaysia) Berhad Public Bank Berhad CIMB Bank Berhad REGISTERED OFFICE Plot 28 Lorong Perusahaan Maju 4 Prai Industrial Estate Prai, Penang Tel: Fax: REGISTRAR STOCK EXCHANGE LISTING PFA Registration Services Sdn. Bhd. Level 17, The Gardens North Tower Mid Valley City, Lingkaran Syed Putra Kuala Lumpur, Malaysia Tel: Fax: Bursa Malaysia Securities Berhad Second Board

12 6 BOARD OF DIRECTORS & DIRECTORS PROFILE DATO MUSTAPHA BIN ABDUL HAMID 56 years of age, Malaysian Independent and Non-Executive Director Member of Audit Committee Chairman of Nomination and Remuneration Committee Dato Mustapha Bin Abdul Hamid was appointed to the Board as an Independent and Non-Executive Director on 14 January 1994 and a member of the Audit Committee on 25 March He obtained a Bachelor of Social Science (Honours) Degree from University Science Malaysia and a Diploma in Public Management from National Institute of Public Administration (INTAN). Prior to venturing into the private sector, Dato Mustapha was the Principal Assistant Director in the Prime Minister s Department. Dato Mustapha is also an Independent Non-Executive Director of Safeguard Corporation Berhad. He has no family relationship with any Director and/or major shareholder of Teo Guan Lee Corporation Berhad. He has not been convicted of any offence in the past ten (10) years. TOH PENG HOE 72 years of age, Malaysian Non-Independent and Executive Director Group Managing Director Member of Remuneration Committee Toh Peng Hoe was appointed as Group Managing Director on 9 August He has 52 years of business experience and possesses in-depth knowledge and expertise of the garment trade. With his vision and stewardship, he has taken the Group from a small family business to an established importer and wholesaler and guided Teo Guan Lee Corporation Berhad to the eventual listing into the Second Board of Bursa Malaysia Securities Berhad. In his present capacity, he is responsible for the overall business development as well as formulation and implementation of the Group s strategic plans and policies. He has family relationship with other major shareholders of Teo Guan Lee Corporation Berhad. He has not been convicted of any offence in the past ten (10) years. TOH PING HAI 67 years of age, Malaysian Non-Independent and Executive Director Toh Ping Hai was appointed to the Board on 9 August With more than 45 years of working experience within the Group, he is involved in the business development and expansion of the Group. He is currently in charge of the operations of P.P.A.C (M) Sdn. Bhd. He is a substantial shareholder of Teo Guan Lee Corporation Berhad and has family relationship with other major shareholders of Teo Guan Lee Corporation Berhad. He has not been convicted of any offence in the past ten (10) years. ANNUAL REPORT 2008 TEO GUAN LEE CORPORATION BERHAD ( A)

13 BOARD OF DIRECTORS & DIRECTORS PROFILE (cont d) TOH PENG HUA 64 years of age, Malaysian Non-Independent and Executive Director 7 Toh Peng Hua was appointed to the Board on 9 August He is the Managing Director of Teo Guan Lee (KL) Sdn. Bhd. He has been involved in the wholesaling and retailing business for over 42 years. Currently, he is responsible for managing and overseeing the day-to-day management, strategic business planning and operations of Teo Guan Lee (KL) Sdn. Bhd. and its subsidiaries. He is a substantial shareholder of Teo Guan Lee Corporation Berhad and has family relationship with other major shareholders of Teo Guan Lee Corporation Berhad. He has not been convicted of any offence in the past ten (10) years. CHAN WAH CHONG 44 years of age, Malaysian Independent and Non-Executive Director Chairman of Audit Committee Member of Nomination and Remuneration Committee Chan Wah Chong was appointed to the Board and Chairman of Audit Committee on 10 August He started his career in accountancy with Ernst & Young, an international accounting firm for 6 years before joining a local medium size audit firm as a senior staff for a year. He then joined a local pharmaceutical manufacturing concern as Corporate Finance Manager which he left after 1½ years to join a start up medical trading Company as its Finance Director. He is a qualified member of The Malaysian Institute of Certified Public Accountants since He is presently running his own corporate advisory company. He has no family relationship with any Director and/or major shareholders of Teo Guan Lee Corporation Berhad. He has not been convicted of any offence in the past ten (10) years. TOH KIAN BENG 46 years of age, Malaysian Non-Independent and Executive Director Member of Audit Committee Toh Kian Beng was appointed to the Board on 1 December 1994 and was subsequently appointed as Member of Audit Committee on 26 September She graduated with a Bachelor of Commerce degree from University of New South Wales, Australia in 1983 and joined a local accounting firm for 1½ years. She is a member of Malaysian Institute of Accountants (MIA) and Certified Practising Accountant (CPA), Australia. She joined Teo Guan Lee Group in 1985 and is responsible for the overall administrative, financial, planning and management of the Group. She is also involved in identifying new business ventures development and further expansion of the Group. She has family relationship with other major shareholders of Teo Guan Lee Corporation Berhad. She has not been convicted of any offence in the past ten (10) years.

14 8 BOARD OF DIRECTORS & DIRECTORS PROFILE (cont d) TOH SU MENG 59 years of age, Malaysian Non-Independent and Executive Director Toh Su Meng was appointed to the Board on 7 January He joined Teo Guan Lee Group after completing his secondary education as a Sales Representative. He is currently a Sales Manager of one of the subsidiary, Teo Guan Lee (Penang) Sdn. Bhd. and is in charge of wholesale division. He has family relationship with other major shareholders of Teo Guan Lee Corporation Berhad. He has not been convicted of any offence in the past ten (10) years. ANNUAL REPORT 2008 TEO GUAN LEE CORPORATION BERHAD ( A)

15 CHAIRMAN S STATEMENT 9 On behalf of the Board of Directors, I am pleased to present to you the Annual Report and Audited Financial Statements of Teo Guan Lee Corporation Berhad for the financial year ended 30 June Financial Review For the financial year under review, the Group achieved a revenue of RM million, an increase of RM15.31 million over last year s revenue of RM85.13 million. The Group posted a profit before tax of RM12.43 million, an increase of RM1.89 million from the profit before tax of RM10.54 million achieved in the year before. The improved turnover and profit before tax for the year under review is attributable to the continuous efforts undertaken in strengthening the brands positioning and concerted efforts to improve efficiencies in this difficult retail environment. Review of Operations The retailing of children s apparel continues to be the main focus of the Group s business. The various children brand names registered double digit growth due to an increase in number of outlets and sales per outlet. The diversification into the baby segment by acquiring Puppy Winks continued into its second year of operation and contributed positively to the Group. The focus was on strengthening the brand s position in the market and improving its product range. The Group has further embarked on expanding the baby segment by signing on Tom & Jerry baby wear licensing agreement and it is expected to be launched early next year. The year under review also saw the opening of 4 new retail boutiques for its Cartoon labels under Cartoon Extra and Cartoon Network and 2 more in the pipeline to be opened in December The Group will continue to open retail boutiques in suitable strategic locations.

16 10 CHAIRMAN S STATEMENT (cont d) Industry Outlook The Malaysian Economy is confronting the most challenging year of recent times. Global macroeconomics and credit market conditions are getting tougher due to the deepening global credit crisis. Although the country s economic fundamentals remain sound, consumer confidence would undoubtedly be affected. The domestic economy is plagued with the burdensome combination of mounting inflation risks, weak domestic demand and political uncertainties. High commodities and crude oil prices, the silver lining of exports have come off and these add further uncertainty to export growth in the medium term. Nonetheless, as the Malaysian economy is relatively domestic driven, the effects are far more subdued. Undoubtedly the country will experience a slowdown in growth but consumer spending will not be drastically reduced as long as there is job security, backed by high savings and growth in income. Moving Forward The Group is well poised to confront the difficulties facing the retail environment. The Group is now in a firm financial position and with the strengths of its brands in the market place as well as continuous cost control measures to improve efficiencies, the Group is able to weather the difficult operating environment. Corporate Proposal On 24 October 2008, the Company announced that after considering the capital reserves available as at 30 June 2008, the Board of Directors have decided to enlarge the Issued and Paid-up Capital of the Company via a higher Bonus Issue and the Proposed Private Placement. The Company will not proceed with the Proposed Acquisition and the Proposed Bonus Issue is revised to an issuance of 15,535,800 new ordinary shares of RM1.00 each in TGL on the basis of three (3) bonus shares for every five (5) existing ordinary shares of RM1.00 each held in TGL on an entitlement date to be determined later. Dividend No dividend has been recommended for the year ended 30 June Acknowledgements On behalf of the Board, I would like to express my sincere appreciation to my fellow Directors for their guidance and counsel. I also wish to thank all our customers, business associates, bankers and shareholders for their confidence and continued support throughout the year. Last but not least, my heartfelt gratitude goes to the management and staff for their contributions and dedication to the Group without which the Group would not progress to where it is today. Thank you. DATO MUSTAPHA BIN ABDUL HAMID CHAIRMAN 28 October 2008 ANNUAL REPORT 2008 TEO GUAN LEE CORPORATION BERHAD ( A)

17 STATEMENT ON CORPORATE GOVERNANCE The Malaysian Code of Corporate Governance ( The Code ) introduced in March 2000, sets out the principles and best practices that companies may apply in the direction and management of their business and affairs towards achieving optimal governance framework and maximizing shareholder value. 11 The principles and best practices of the Code were incorporated into the Listing Requirements of the Bursa Malaysia Securities Berhad to promote transparency and accountability of the Public Listed Companies in Malaysia. Set out below is a statement on how the Group has applied the principles and the extent of its compliance with the best practices during the financial year ended 30 June A. The Board of Directors The Board (i) The Board has overall responsibility for the strategic direction and control of the Group. The Board meets regularly on a quarterly basis and additionally as required. The Board met five (5) times for year ended 30 June 2008 on the following dates: Date August October November February May 2008 (ii) Board Balance The composition of the Board reflects a balance of 5 Executive Directors and 2 Independent Non-Executive Directors with a good mix of experience in business, finance & accounting, sales & marketing and public services which are relevant to the business operations of the Group. The Directors profiles are presented on Pages 6 to 8 of the Annual Report. The Executive Directors are generally responsible for making and implementing strategic plans and policies for the Group and overseeing overall conduct of the Group whilst Non-Executive Directors are persons of calibre playing a significant role in exercising independent and unbiased judgement through their knowledge and experience from other business sectors. (iii) Supply of Information All the Directors have full and timely access to information concerning the Company and the Group. The Directors were given agenda and board papers containing information relevant to the business of the meeting for informed decision making and proper judgement. The Board papers include financial, operational and corporate development. The Directors have access to the advice and services of the Company Secretary and the senior management staff of the Company. (iv) Appointment to the Board The Committee will evaluate and recommend new member(s) to the Board of Directors. The Board of Directors would review the Company s requirements and assess the quality of the present Board members periodically. Any new appointment, after due deliberation require general consensus of the Board. The Nomination Committee comprises the following: Dato Mustapha Bin Abdul Hamid Chan Wah Chong - Independent & Non-Executive Director - Independent & Non-Executive Director During the financial year, the Committee met once on 18 October (v) Directors Training All the Directors will continue to undergo the Continuing Education Programme ( CEP ) to keep abreast of various issues facing the changing business environment and market.the Board of Directors are making arrangements for the Directors to attend any relevant training programme to further enhance their knowledge to enable them to discharge their responsibilities more effectively.

18 12 STATEMENT ON CORPORATE GOVERNANCE (cont d) A. The Board of Directors (cont d) (vi) Re-election of Directors Any director appointed during the year is required under Article 105 of the Company s Articles of Association to retire and seek re-election by shareholders at the following AGM ( AGM ) immediately after their appointment. The articles also require that one third of the Directors including the Managing Director, to retire by rotation and seek re-election at each AGM and that each director shall submit himself for re-election every 3 years. Directors over the age of seventy (70) are required to submit themselves for re-appointment annually in accordance to Section 129(6) of the Companies Act, B. Directors Remuneration The Remuneration Committee is responsible for the making of recommendations to the Board on the remuneration packages of Executive Director and recommends to the Board for approval. The current policy and procedure on remuneration is transparent and is based on corporate and individual performance. The determination of the remuneration packages of each director is a matter of the Board and each Director concerned plays no part in the decisions on their own remuneration. Directors fees are tabled at the Annual General Meeting for the approval of the shareholders of the Company. The Remuneration Committee comprises of the following: Dato Mustapha Bin Abdul Hamid - Independent & Non-Executive Director Chan Wah Chong - Independent & Non-Executive Director Toh Peng Hoe - Executive Director During the financial year, the Committee met on 21 May The aggregate remuneration of the Directors of the Company is as follows:- Salary Fees Bonus Statutory Contribution Total Executive 546,000 37,250 29, ,468 Non-Executive 20,000 20, ,468 The number of Directors of the Company who served during the financial year and whose total remuneration from the Group following within the respective bands are as follows: Executive Non-Executive RM1 - RM50,000 2 RM50,001 - RM100,000 3 RM100,001 - RM150,000 1 RM150,001 - RM200,000 RM200,001 - RM250, ANNUAL REPORT 2008 TEO GUAN LEE CORPORATION BERHAD ( A)

19 STATEMENT ON CORPORATE GOVERNANCE (cont d) C. Relations with Shareholders and Investors 13 The Company recognizes the importance of keeping shareholders and investors informed of the Group s business corporate developments. Such information is disseminated via the Company s Annual Report, circulars to shareholders, quarterly financial results and various announcements made from time to time. The Annual General Meeting ( AGM ) remains the principal forum for dialogue with shareholders. D. Accountability and Audit (i) Financial Reporting The Directors aim to provide a balanced and meaningful assessment of the Group s financial performance and prospects primarily through the Annual Report and quarterly financial statements. (ii) Internal Control The Board acknowledges that it is responsible for maintaining a sound system of internal controls which provides reasonable assessment of effective and efficient operations, internal financial controls and compliance with laws and regulations as well as with internal procedures and guidelines. (iii) Relationship with Auditors The Company has always maintained a formal and transparent relationship with the Auditors in seeking professional advice and ensuring compliance with accounting standards. (iv) Responsibility Statement by the Board of Directors The Board of Directors under paragraph 15.27(a) of the Listing Requirements of the Bursa Malaysia Securities Berhad are required to issue a statement explaining their responsibility in preparing the annual audited financial statements. Under the Companies Act 1965, the Directors are required to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Group and of the Company at the financial year end and of the results and cash flows of the Group and of the Company for the financial year then ended. In preparing the financial statements of Teo Guan Lee Corporation Berhad for the financial year ended 30 June 2008, the directors have considered and followed the applicable approved Malaysian Accounting Standards, made judgments and estimates that are prudent and reasonable and adopted appropriate accounting policies. The directors are also responsible in ensuring that the Company and Group keep accounting records which disclose with reasonable accuracy at any time the financial position of the Company, and which enables them to ensure the financial statements comply with the Companies Act, They are also responsible for taking such steps as are reasonably open to them to ensure the safeguarding of the assets of the Group and of the Company and to prevent and detect fraud and other such irregularities. E. Other Information a) Options, Warrants or Convertible Securities The amount of share options granted over unissued shares to Directors and employees were disclosed in the Directors Report. b) Imposition of Sanctions/Penalties There were no sanctions and/or penalties imposed on the Company or its subsidiaries, Directors or management by the relevant regulatory bodies. c) Non Audit Fees The amount of non audit fees paid to external auditors was disclosed in the financial statements. d) Variation in Results There was no material variance between the unaudited profit after tax announced and the audited profit after tax. e) Material Contracts During the financial year, there were no material contracts with the Company and its subsidiaries involving Directors and major shareholders other than as disclosed in the Director s Report and Notes to the Financial Statements.

20 14 STATEMENT ON CORPORATE GOVERNANCE (cont d) f) Corporate Social Responsibility As a corporate citizen, it is important for us to include corporate social responsibility ( CSR ) as an integral part of our business mainstream operations and practices. The Group had undertaken a number of activities in its efforts to give back to society and the less fortunate. In the year under review, the Group made a donation towards the building fund of a primary school SJK(C) Pai Teik in Nibong Tebal, Seberang Perai. The Group had also made a donation towards relief work carried out in earthquake struck Wenchuan country in Sichuan, China. Sichuan was struck by a magnitude 7.9 earthquake on 12 May The earthquake caused significant damage as well as casualties in the region. ANNUAL REPORT 2008 TEO GUAN LEE CORPORATION BERHAD ( A)

21 STATEMENT ON INTERNAL CONTROL Introduction 15 Pursuant to paragraph 15.27(b) of the Bursa Malaysia Securities Berhad ( Bursa Securities ) Listing Requirements, the Board of Directors of Teo Guan Lee Corporation Berhad is pleased to provide the following statement on the state of internal control of the Group, which has been prepared in accordance with the Statement of Internal Control - Guidance for Directors of Public Listed Companies issued by the Institute of Internal Auditors Malaysia and adopted by the Bursa Securities. Internal Control The Board acknowledges that it is responsible for maintaining a sound system of internal controls, which provides reasonable assessment of effective and efficient operations, internal financial controls and compliance with laws and regulations as well as with internal procedures and guidelines. Key elements of the Group s systems of internal control are: There is monthly monitoring and review of financial results for all major departments within the Group, including monitoring and reporting thereon, of performance against the operating plans and annual budgets. The Group s management teams communicate regularly to monitor performance; The Group has a defined organizational structure with clear lines of accountability and which has a documented delegation of authority that sets out the decisions that need to be taken and the appropriate authority levels of Management including matters that require Board approval; There are operating manuals that set out the policies, procedures and practices to be adopted by all the companies in the Group, to ensure clear accountabilities and control procedures are in place for all business units. The Group is continuously improving its existing control procedures to address the changing environment of its business operations and practices; and The Group s systems of internal controls are designed to provide reasonable but not absolute assurance against the risks of material errors, fraud or losses from occurring. It is possible that internal control may be circumvented or overridden. Furthermore, because of changing circumstances and conditions, the effectiveness of an internal control system may vary over time. The rationale of the systems of internal controls is to enable the Group to achieve its corporate objectives within an acceptable risk profile and cannot be expected to eliminate all risks. The Board is of the view that there is no significant breakdown or weaknesses in the system on internal controls of the Group that have resulted in material losses incurred by the Group. The Group continues to take any necessary measures to strengthen its internal control structure and manage its risks. Internal Audit During the financial year ended 30 June 2008, the Company outsourced its internal audit function. A review on the Company s compliance in applying the Principles and Best Practices based on the Malaysian Code of Corporate Governance and Chapter 15 of the Listing Requirements of Bursa Malaysia Securities was done. Recommendations were made to the Board for areas that need improvement.

22 16 THE AUDIT COMMITTEE A. The Members of the Audit Committee are: a) Chan Wah Chong - Chairman (Independent Non-Executive Director) b) Dato Mustapha Bin Abdul Hamid - Member (Independent Non-Executive Director) c) Toh Kian Beng - Member (Executive Director) B. The Terms of Reference of the Audit Committee are as follows: Constitution The Board has established a Committee of the Board to be known as the Audit Committee. Membership 1. The Committee shall be appointed by the Board from amongst the Directors of the Company and shall consist of not less than 3 members. A quorum shall be 2 members. 2. The Committee Members shall not be: a) Executive Directors of the Company or any related corporation; b) A spouse, parent, brother, sister, son or adopted son, daughter or adopted daughter of an Executive Director of the Company or of any related corporation; or c) Any person having a relationship which, in the opinion of the Board of Directors, would interfere with the exercise of independent judgement in carrying out the functions of the Audit Committee. 3. The members of the Committee shall select a Chairman from among their members who is not an Executive Director or employee of the Company or any related corporation. 4. If a member of the Committee resigns, dies or for any other reason ceases to be a member with the result that the number of members reduced below 3, the Board of Directors shall, within 3 months of that event, appoint such number of new members as may be required to make up the minimum number of 3 members. Authority 5. The Committee is authorised by the Board to investigate any activity within its Terms of Reference. It is authorised to seek any information it requires from any employee and all employees are directed to co-operate with any request made by the Committee. 6. The Committee is authorised by the Board to obtain outside legal or other independent professional advice and to secure the attendance of outsiders with relevant experience and expertise if it considers this necessary. ANNUAL REPORT 2008 TEO GUAN LEE CORPORATION BERHAD ( A)

23 THE AUDIT COMMITTEE (cont d) Functions The functions of the Committee shall be: a) to consider and recommend the nomination of a person or persons as auditors together with such other functions as may be agreed to by the Audit Committee and the Board of Directors. b) to discuss with the external Auditors on their audit plan including the assistance given by the employees of the Company to the external Auditors; c) to review the quarterly and year-end financial statements of the Company, focusing particularly on: i) any changes in accounting policies and practices; ii) significant adjustments arising from the audit; iii) the going concern assumption; iv) compliance with accounting standards and other legal requirements; and v) any significant and unusual events. d) to consider any related party transaction and conflict of interest situation that may arise within the Company or the Group including any transaction, procedure or course of conduct that raises questions of management integrity; e) to review the major risk area of the Group; f) to discuss problems and reservations arising from the interim and final audits, and any matter the auditors may wish to discuss (in the absence of management where necessary); g) to review evaluation by the external Auditors on the System of Internal Controls, the external Auditors management letter and management s response; h) to do the following where an internal audit function exists: i) review the adequacy of the scope, functions, competency and resources of the internal audit function and that it has the necessary authority to carry out its work; ii) review the internal audit programme, processes, results of the internal audit programme, processes or investigation undertaken and whether or not appropriate action is taken on the recommendations of the internal audit function; iii) review any appraisal or assessment of the performance of members of the internal audit function; iv) approve any appointment or termination of senior staff members of the internal audit function; v) review the resignation of internal audit staff members and provide the staff member the opportunity to submit his reasons for resigning; i) to review the allocation of options during the year under the company s Employees Share Option Scheme ( ESOS ) to ensure that this is in compliance with the allocation criteria determined by the ESOS committee and in accordance with the By-Laws of the ESOS; j) to consider the major findings of internal investigations and management s response; k) to consider other topics as defined by the Board. Attendance at Meetings 8. The Audit Committee may require the attendance of any management staff from the Finance/Accounts Department or other Departments deemed necessary together with a representative or representatives from the external Auditors. Other Board members shall also have the right of attendance. However, at least twice a year the Committee shall meet with the external Auditors without executive Board members present. 9. The Company Secretary shall be the Secretary of the Committee.

24 18 THE AUDIT COMMITTEE (cont d) Frequency of meetings 10. Meetings shall be held not less than four times a year. The external Auditors may request a meeting if they consider that one is necessary. Reporting procedures 11. The Secretary shall circulate the minutes of meetings of the Audit Committee to all members of the Board. Activities for the year During the financial year ended 30 June 2008, the Audit Committee met five (5) times on the following dates: August October November February May 2008 The attendance record of the Directors is shown in the table: Attended Chan Wah Chong 5/5 Dato Mustapha Bin Abdul Hamid 5/5 Toh Kian Beng 5/5 All the meetings were held at the Conference Room of Teo Guan Lee Corporation Berhad office at Plot 28 Lorong Perusahaan Maju 4, Prai Industrial Estate, Prai. During the year, the activities of the Audit Committee included: 1. Reviewing the annual and quarterly financial result announcements. 2. Reviewing external auditors report in addition to credit and accounting issues arising from audit and updates of new developments on accounting standards under the new FRS (Financial Reporting Standards). 3. Reviewing audit strategy and plan with external auditors. 4.. Reviewing the Internal Audit Report. ANNUAL REPORT 2008 TEO GUAN LEE CORPORATION BERHAD ( A)

25 FINANCIAL CONTENTS I Directors Report 25 I Statement by Directors 25 I Statutory Declaration 26 I Independent Auditors Report 27 I Consolidated Balance Sheet 28 I Consolidated Income Statement 29 I Consolidated Statement of Changes in Equity I Consolidated Cash Flow Statement 32 I Balance Sheet 33 I Income Statement 34 I Statement of Changes in Equity 35 I Cash Flow Statement I Notes to the Financial Statements

26 20 Directors report The Directors have pleasure in presenting their report together with the audited financial statements of the Group and of the Company. PRINCIPAL ACTIVITIES The principal activities of the Company are investment holding and provision of management services. The principal activities of its subsidiary companies are as disclosed in Note 10 to the financial statements. There have been no significant changes in the nature of these principal activities during the financial year. FINANCIAL RESULTS Group RM Company RM Profit for the financial year attributable to: Equity holders of the Company 9,322,643 9,685,686 Minority interest 89,174 9,411,817 9,685,686 DIVIDENDS No dividend has been paid or declared by the Company since the end of the previous financial year. The Directors do not recommend the payment of any dividend in respect of the current financial year. RESERVES AND PROVISIONS There were no material transfers to or from reserves or provisions during the financial year other than those disclosed in the financial statements. ISSUE OF SHARES AND DEBENTURES The Company has not issued any new shares or debentures during the financial year. EMPLOYEES SHARE OPTION SCHEME The Company s Employees Share Option Scheme ( ESOS ) was approved by the shareholders at the Extraordinary General Meeting ( EGM ) held on 5 January 2001 and became effective on 29 March 2001 for a period of 5 years. At the EGM held on 8 April 2005, the shareholders had approved amendments to the ESOS bye-laws and the extension of the duration of ESOS from 28 March 2006 to 28 March The main features of the ESOS are: (a) Eligible employees are those who have been confirmed in writing as an employee of the Group for at least one (1) year of continuous service at the date of the offer or an eligible Director who is a full-time Executive Director of the Group. Where a foreign employee is serving the Group under an employment contract, the contract shall be for a duration of at least three (3) years. (b) The total number of shares to be offered under the ESOS shall not exceed 15% of the issued and paid-up share capital of the Company at any point in time during the existence of the ESOS. (c) The option price shall be set at a discount of not more than 10% from the weighted average market price of the Company for the five (5) market days immediately preceding the date of offer or the par value of the shares of the Company of RM1.00 each, whichever is higher. ANNUAL REPORT 2008 TEO GUAN LEE CORPORATION BERHAD ( A)

27 Directors report (cont d) EMPLOYEES SHARE OPTION SCHEME (cont d) 21 (d) An option granted under ESOS shall be capable of being exercised by the grantee by notice in writing to the Company during the period from the date of the offer to 28 March The options granted shall be exercisable by the grantee in multiples of 1,000 shares in the following manner: Percentage of Total Options Exercisable Number of options granted Year 1 Year 2 Year 3 Year 4 Year 5 Below 20, % 20,000 to less than 100,000 40%* 30% 30%# 100,000 and above 20% 20% 20% 20% 20% * 40% or 20,000 ESOS shares, whichever is the higher # 30% or the remaining number of ESOS shares unexercised Options granted to full-time foreign employees shall be subject to a restriction on the exercise of the options whereby no more than 20% of the total options allotted to grantee can be exercised on an annual basis. However, where the employee is serving under an employment contract which should be for a duration of at least three (3) years, any remaining unexercised options can be exercised on the expiry of the employment contract if the remaining duration of the contract is less than five (5) years from the date on which the options are granted. (e) Options exercisable in a particular year but not exercised can be carried forward to the subsequent years subject to the time limit of the ESOS. (f) All the new ordinary shares issued arising from ESOS rank pari passu in all respects with the existing ordinary shares of the Company. (g) The grantees have no right to participate, by virtue of these options, in any share issue of any other company within the Group. (h) The movements in the Company s shares under options as at the beginning of the financial year until 30 June 2008 were as follows: Number of Options over Ordinary Shares of RM1 each Balance as Balance as at Granted Exercised Lapsed at Number of unissued shares under options at the following exercise price per share: - RM ,000 (51,000)* 630,000 - RM ,000 (4,000)* 10,000 * Due to staff resignations or offers not taken up. DIRECTORS IN OFFICE The Directors who have held office since the date of the last report are: Dato Mustapha Bin Abdul Hamid Toh Peng Hoe Toh Ping Hai Toh Peng Hua Toh Kian Beng Chan Wah Chong Toh Su Meng In accordance with Section 129(2) of the Companies Act 1965, Toh Peng Hoe, who is above seventy years of age, retires from the Board and offers himself for re-appointment under Section 129(6) of the Act, to hold office until the conclusion of the next Annual General Meeting. In accordance with the Company s Articles of Association, Toh Peng Hua and Toh Su Meng retire at the forthcoming Annual General Meeting and being eligible, are available for re-election.

28 22 Directors report (cont d) DIRECTORS BENEFITS Since the end of the previous financial year, no Director has received or become entitled to receive any benefit (other than Directors remuneration as disclosed in the financial statements) by reason of a contract made by the Company or a related corporation with the Director or with a firm of which the Director is a member, or with a company in which the Director has a substantial financial interest other than any deemed benefits arising from transactions as disclosed in Note 26 to the financial statements. During and at the end of the financial year, no arrangements subsisted to which the Company or a related corporation was a party, whereby Directors of the Company might acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate other than options granted to full-time Executive Directors of the Company pursuant to the ESOS. DIRECTORS INTEREST According to the register of Directors shareholdings, the interest of Directors in office at the end of the financial year in shares and share options of the Company and its related corporations were as follows: Shareholdings in the Company Number of Ordinary Shares of RM1.00 each Balance as Balance as at Bought Sold at Direct interest Toh Peng Hoe 68,000 68,000 Toh Ping Hai 47,000 47,000 Toh Peng Hua 32,000 32,000 Toh Kian Beng 30,000 30,000 Indirect interest Toh Peng Hoe 9,439, ,000 10,083,202 Toh Ping Hai 9,444, ,000 9,599,202 Toh Peng Hua 9,439,202 8,000 9,447,202 Toh Kian Beng 9,439,202 9,439,202 Toh Su Meng 1,000 1,000 Number of Options over Ordinary Shares of RM1.00 each Option price RM Balance as at Exercised Balance as at Toh Su Meng ,000 22,000 By virtue of their interest in shares of the Company, Messrs. Toh Peng Hoe, Toh Ping Hai, Toh Peng Hua and Toh Kian Beng are deemed to be interested in shares of all subsidiary companies to the extent the Company has an interest. None of the other Directors in office at the end of the financial year held or dealt in shares and share options in the Company or its related corporations during the financial year. ANNUAL REPORT 2008 TEO GUAN LEE CORPORATION BERHAD ( A)

29 Directors report (cont d) OTHER STATUTORY INFORMATION Before the balance sheets and income statements of the Group and of the Company were made out, the Directors took reasonable steps: 23 a) to ascertain that proper action had been taken in relation to the writing off of bad debts and the making of allowance for doubtful debts, and have satisfied themselves that all known bad debts had been written off and that adequate allowance had been made for doubtful debts; and b) to ensure that any current assets which were unlikely to realise their book values in the ordinary course of business have been written down to their estimated realisable values. At the date of this report, the Directors are not aware of any circumstances: a) which would render the amount written off for bad debts or the amount of the allowance for doubtful debts in the financial statements of the Group and of the Company inadequate to any substantial extent; or b) which would render the values attributed to the current assets in the financial statements of the Group and of the Company misleading; or c) which have arisen which render adherence to the existing method of valuation of assets or liabilities of the Group and of the Company misleading or inappropriate; or d) not otherwise dealt with in this report or financial statements which 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: a) any charge on the assets of the Group and of the Company which has arisen since the end of the financial year to secure the liability of any other person; or b) any contingent liability of the Group and of the Company which has arisen since the end of the financial year. No contingent or other liability 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 its obligations as and when they fall due. In the opinion of the Directors, a) the results of the Group s and the Company s operations during the financial year have not been substantially affected by any item, transaction or event of a material and unusual nature; and b) there has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely to affect substantially the results of operations of the Group and of the Company for the financial year in which this report is made.

30 24 Directors report (cont d) SIGNIFICANT EVENTS Newly Proposed Corporate Exercise On 12 April 2007 and subsequently revised on 17 May 2007, the Company announced to undertake the following: (a) Proposed acquisition of TGL Industries Sdn. Bhd. ( TGLI ) Proposed acquisition of the entire issued and paid-up share capital in TGLI of 300,000 ordinary shares of RM1.00 each from Teo Guan Lee Holdings Sendirian Berhad ( TGLH ) for a purchase consideration of RM12,330,415 to be wholly satisfied by the issuance of 12,330,415 new ordinary shares of RM1.00 each in the Company at an issue price of RM1.00 per share in accordance with conditional Share Sale Agreement dated 12 April 2007 ( SSA ). (b) Proposed private placement Proposed private placement of up to 5,000,000 new ordinary shares of RM1.00 each of the Company. (c) Proposed bonus issue Proposed bonus issue of up to 5,543,202 new ordinary shares of RM1.00 each in the Company on the basis of one (1) bonus share for every seven (7) existing shares held by the shareholders of the Company on the entitlement date to be determined later after the proposed acquisition and the proposed private placement in (a) and (b) above. On 26 July 2007 and 20 August 2008, the Company obtained conditional approvals from Ministry of International Trade and Industry ( MITI ) and Securities Commission ( SC ) respectively for the proposal (a) and (b) above. AUDITORS The auditors, Messrs. Peter Chong & Co. (formerly known as BKR Peter Chong), Chartered Accountants, have indicated their willingness to accept re-appointment. Signed on behalf of the Board in accordance with a resolution of the Directors... Toh Ping Hai Director... Toh Kian Beng Director Georgetown, Penang Dated: 15 October 2008 ANNUAL REPORT 2008 TEO GUAN LEE CORPORATION BERHAD ( A)