NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2008 (CONT D)

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1 2.2 Summary of Significant Accounting Policies (cont d) (c) Property, Plant and Equipment, and Depreciation (cont d) The residual values, useful life and depreciation method are reviewed at each financial year-end to ensure that the amount, method and period of depreciation are consistent with previous estimates and the expected pattern of consumption of the future economic benefits embodied in the items of plant and equipment. An item of plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. The difference if any, between the net disposal proceeds and the net carrying amount is recognised in profit or loss and the unutilised portion of the revaluation surplus on that item is taken directly to retained earnings. (d) Investment Properties Investment properties are properties which are held either to earn rental income or for capital appreciation or for both. Such properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at fair value. Fair value is arrived at by reference to market evidence of transaction prices for similar properties and is performed by registered independent valuers having an appropriate recognised professional qualification and recent experience in the location and category of the properties being valued. Gains or losses arising from changes in the fair values of investment properties are recognised in profit or loss in the year in which they arise. A property interest under an operating lease is classified and accounted for as investment property on a propertyby-property basis when the holds it to earn rentals or for capital appreciation or both. Any such property interest under an operating lease classified as an investment property is carried at fair value. Investment properties are derecognised when either they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognised in profit or loss in the year in which they arise. (e) Construction Contracts Where the outcome of a construction contract can be reliably estimated, contract revenue and contract costs are recognised as revenue and expenses respectively by using the stage of completion method. The stage of completion is measured by reference to the proportion of contract costs incurred for work performed to date to the estimated total contract costs. Where the outcome of a construction contract cannot be reliably estimated, contract revenue is recognised to the extent of the contract costs incurred that it is probable will be recoverable. Contract costs are recognised as expenses in the period in which they are incurred. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. When the total of costs incurred on construction contracts plus, recognised profits (less recognised losses), exceeds progress billings, the balance is classified as amount due from customers on contracts. When progress billings exceed costs incurred plus, recognised profits (less recognised losses), the balance is classified as amount due to customers on contracts. (f) Impairment of Non-financial Assets The carrying amounts of assets, other than investment properties, construction contract assets, inventories and noncurrent assets held for sale, are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset s recoverable amount is estimated to determine the amount of impairment loss. MITHRIL 38

2 2.2 Summary of Significant Accounting Policies (cont d) (f) Impairment of Non-financial Assets (cont d) For goodwill, intangible assets that have an indefinite useful life and intangible assets that are not yet available for use, the recoverable amount is estimated at each balance sheet date or more frequently when indicators of impairment are identified. For the purpose of impairment testing of these assets, recoverable amount is determined on an individual asset basis unless the asset does not generate cash flows that are largely independent of those from other assets. If this is the case, recoverable amount is determined for the cash-generating unit (CGU) to which the asset belongs to. Goodwill acquired in a business combination is, from the acquisition date, allocated to each of the s CGUs, or groups of CGUs, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the are assigned to those units or groups of units. An asset s recoverable amount is the higher of an asset s or CGU s fair value less costs to sell and its value in use. In assessing value in use, the estimated future cash flows are discounted to their present values using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. Impairment losses recognised in respect of a CGU or groups of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to those units or groups of units and then, to reduce the carrying amount of the other assets in the unit or groups of units on a pro-rata basis. An impairment loss is recognised in profit or loss in the period in which it arises, unless the asset is carried at a revalued amount, in which case the impairment loss is accounted for as a revaluation decrease to the extent that the impairment loss does not exceed the amount held in the asset revaluation reserve for the same asset. Impairment loss on goodwill is not reversed in a subsequent period. An impairment loss for an asset other than goodwill is reversed if, and only if, there has been a change in the estimates used to determine the asset s recoverable amount since the last impairment loss was recognised. The carrying amount of an asset other than goodwill is increased to its revised recoverable amount, provided that this amount does not exceed the carrying amount that would have been determined (net of amortisation or depreciation) had no impairment loss been recognised for the asset in prior years. A reversal of impairment loss for an asset other than goodwill is recognised in profit or loss, unless the asset is carried at revalued amount, in which case, such reversal is treated as a revaluation increase. (g) Inventories Inventories are stated at lower of cost and net realisable value. Cost is determined using the first in, first out method. The cost of raw materials comprises costs of purchase. The costs of finished goods and work-in-progress comprise costs of raw materials, direct labour, other direct costs and appropriate proportions of manufacturing production overheads based on normal operating capacity. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. (h) Financial Instruments Financial instruments are recognised in the balance sheet when the has become a party to the contractual provisions of the instruments. Financial instruments are classified as liabilities or equity in accordance with the substance of the contractual arrangements. Interest, gains and losses relating to a financial instrument classified as a liability, are reported as expense or income. Distributions to holders of financial instruments classified as equity are recognised directly in equity. Financial instruments are offset when the has a legally enforceable right to offset and intends to settle either on a net basis or to realise the asset and settle the liability simultaneously. MITHRIL 39

3 2.2 Summary of Significant Accounting Policies (cont d) (h) Financial Instruments (cont d) (i) Cash and Cash Equivalents For the purposes of the cash flow statements, cash and cash equivalents include cash on hand and at bank and deposits at call, net of outstanding bank overdrafts. (ii) Other Non-current Investments Non-current investments other than investments in subsidiaries and investment properties are stated at cost less impairment losses. On disposal of an investment, the difference between net disposal proceeds and its carrying amount is recognised in profit or loss. (iii) Receivables Receivables are carried at anticipated realisable values. Bad debts are written off when identified. An estimate is made for doubtful debts based on a review of all outstanding amounts as at the balance sheet date. (iv) Payables Payables are stated at the fair value of the consideration to be paid in the future for goods and services received. (v) Interest Bearing Loans and Borrowings All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. (vi) Convertible Loan Stocks and Preference Shares The Convertible Loan Stocks and Preference Shares are regarded as compound instruments, consisting of a liability component and an equity component. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for equivalent loan stocks and preference shares. The difference between the proceeds of issue of the convertible loan stocks and preference shares and the fair value assigned to the liability component, representing the conversion option is included in equity. The liability component is subsequently stated at amortised cost using the effective interest rate method until extinguished on conversion or redemption whilst the value of the equity component is not adjusted in subsequent periods. Attributable transaction costs are apportioned and deducted directly from the liability and equity component based on their carrying amounts at the date of issue. Under the effective interest rate method, the interest expense on the liability component is calculated by applying the prevailing market interest rate for equivalent loan stocks and preference shares to the instrument at the date of issue. The difference between this amount and the interest paid is added to the carrying value of the convertible loan stocks and preference shares. (vii) Equity Instruments Ordinary shares are classified as equity. Dividends on ordinary shares are recognised in equity in the period in which they are declared. (i) Leases (i) Clasification A lease is recognised as a finance lease if it transfers substantially to the all the risks and rewards incidental to ownership. Leases of land and buildings are classified as operating or finance leases in the same way as leases of other assets and the land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification. All leases that do not transfer substantially all risks and rewards are classified as operating leases, with the following exceptions: - Property held under operating leases that would otherwise meet the definition of an investment property is classified as an investment property on a property-by-property basis and, if classified as investment property, is accounted for as if held under a finance lease (Note 2.2(d)); and - Land held for own use under an operating lease, the fair value of which cannot be measured separately from the fair value of a building situated thereon at the inception of the lease, is accounted for as being held under a finance lease, unless the building is also clearly held under an operating lease. MITHRIL 40

4 2.2 Summary of Significant Accounting Policies (cont d) (i) Leases (cont d) (ii) Finance Leases - the as Lessee Assets acquired by way of hire purchase or finance leases are stated at an amount equal to the lower of their fair values and the present value of the minimum lease payments at the inception of the leases, less accumulated depreciation and impairment losses. The corresponding liability is included in the balance sheet as borrowings. In calculating the present value of the minimum lease payments, the discount factor used is the interest rate implicit in the lease, when it is practicable to determine; otherwise, the Company s incremental borrowings rate is used. Any initial direct costs are also added to the carrying amount of such assets. Lease payments are apportioned between the finance costs and the reduction of the outstanding liability. Finance costs, which represent the difference between the total leasing commitments and the fair value of the assets acquired, are recognised in the profit or loss over the term of the relevant lease so as to produce a constant periodic rate of charge on the remaining balance of the obligations for each accounting period. The depreciation policy for leased assets is in accordance with that for depreciable property, plant and equipment as described in Note 2.2(c). (iii) Operating Leases - the as Lessee Operating lease payments are recognised as an expense on a straight-line basis over the term of the relevant lease. The aggregate benefit of incentives provided by the lessor is recognised as a reduction of rental expense over the lease term on a straight-line basis. In the case of a lease of land and buildings, the minimum lease payments or the up-front payments made are allocated, whenever necessary, between the land and the buildings elements in proportion to the relative fair values for leasehold interests in the land element and buildings element of the lease at the inception of the lease. The up-front payments represent prepaid lease payments and are amortised on a straight-line basis over the lease terms. (iv) Operating Leases - the as Lessor Assets leased out under operating leases are presented on the balance sheets according to the nature of the assets. Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease (Note 2.2(n)(ii)). (j) Income Tax Income tax on the profit or loss for the year comprises current and deferred tax. Current tax is the expected amount of income taxes payable in respect of the taxable profit for the year and is measured using the tax rates that have been enacted at the balance sheet date. Deferred tax is provided for, using the liability method. In principle, deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised for all deductible temporary differences, unused tax losses and unused tax credits to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, unused tax losses and unused tax credits can be utilised. Deferred tax is measured at the tax rates that are expected to apply in the period when the asset is realised or the liability is settled, based on tax rates that have been enacted or substantively enacted at the balance sheet date. Deferred tax is recognised as income or an expense and included in the profit or loss for the period, except when it arises from a transaction which is recognised directly in equity, in which case the deferred tax is also recognised directly in equity, or when it arises from a business combination that is an acquisition, in which case the deferred tax is included in the resulting goodwill or the amount of any excess of the acquirer s interest in the net fair value of the acquiree s identifiable assets, liabilities and contingent liabilities over the cost of the combination. MITHRIL 41

5 2.2 Summary of Significant Accounting Policies (cont d) (k) Provisions Provisions are recognised when the has a present obligation as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount can be made. Provisons are reviewed at each balance sheet date and adjusted to reflect the current best estimate. Where the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as finance cost. (l) Employee Benefits (i) Short Term Benefits Wages, salaries and social security contributions are recognised as an expense in the year in which the associated services are rendered by employees. Short term accumulating compensated absences such as paid annual leave are recognised when services are rendered by employees that increase their entitlement to future compensated absences. Short term non-accumulating compensated absences such as sick leave are recognised when the absences occur. (ii) Defined Contribution Plans Defined contribution plans are post-employment benefit plans under which the pays fixed contributions into separate entities or funds and will have no legal or constructive obligation to pay further contributions if any of the funds do not hold sufficient assets to pay all employee benefits relating to employee services in the current and preceding financial years. Such contributions are recognised as an expense in the profit or loss as incurred. As required by law, the make such contributions to the Employees Provident Fund ( EPF ). (iii) Equity Compensation Benefits The Mithril Berhad Employee Share Options Scheme ( ESOS ), an equity-settled share-based compensation plan, allows the s employees to acquire ordinary shares of the Company. No compensation cost or obligation is recognised as the ESOS were granted before 31 December When the options are exercised, equity is increased by the amount of the proceeds received, net of any directly attributable transaction costs. (iv) Termination Benefits Termination benefits are payable when employment is terminated before the normal retirement date or whenever an employee accepts voluntary redundancy in exchange for these benefits. The recognises termination benefits as a liability and an expense when it is demonstrably committed to either terminate the employment of current employees according to a detailed plan without possibility of withdrawal or providing termination benefits as a result of an offer made to encourage voluntary redundancy. (m) Foreign Currencies (i) Functional and Presentation Currency The individual financial statements of each entity in the are measured using the currency of the primary economic environment in which the entity operates ( the functional currency ). The consolidated financial statements are presented in Ringgit Malaysia (), which is also the Company s functional currency. (ii) Foreign Currency Transactions In preparing the financial statements of the individual entities, transactions in currencies other than the entity s functional currency (foreign currencies) are recorded in the functional currencies using the exchange rates prevailing at the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are translated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not translated. Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are included in profit or loss for the period. MITHRIL 42

6 2.2 Summary of Significant Accounting Policies (cont d) (n) Revenue Recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the and the revenue can be measured reliably. The following specific recognition criteria must also be met before revenue is recognised: (i) Sale of Goods Revenue is recognised net of sales taxes and upon transfer of significant risks and rewards of ownership to the buyers. Revenue is not recognised to the extent where there are significant uncertainties regarding recovery of the consideration due, associated costs or the possible return of goods. (ii) Rental Income Rental income from investment property is recognised on a straight-line basis over the term of the lease. (iii) Management Fees Management fees are recognised when services are rendered. (iv) Construction Contracts Revenue from construction contracts is accounted for by the stage of completion method as described in Note 2.2(e). (v) Interest Income Interest income is recognised on an accrual basis using the effective interest method. (o) Non-current Assets Held for Sale Non-current assets are classified as held for sale if their carrying amount will be recovered princintpally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition subject only to terms that are usual and customary. Immediately before classification as held for sale, the measurement of the non-current assets is brought up-to-date in accordance with applicable FRSs. Then, on initial classification as held for sale, non-current assets are measured in accordance with FRS 5 that is at the lower of carrying amount and fair value less costs to sell. Any differences are included in profit or loss. 2.3 Changes in Accounting Policies and Effects Arising from Adoption of New and Revised Financial Reporting Standards (FRSs), Amendments to FRSs and IC Interpretations (i) Adoption of new and revised Financial Reporting Standards (FRSs), Amendments to FRSs and IC Interpretations On 1 July 2007, the and the Company adopted the following revised FRSs and amendments to FRSs: FRSs, Amendments to FRSs and IC Interpretations Effective for financial periods beginning on or after FRS 6 Exploration for and Evaluation of Mineral 1 January 2007 Resources Amendment to Employee Benefits - Actuarial Gains and Losses, 1 January 2007 FRS Plans and Disclosures FRS 124 Related Party Disclosures 1 January 2007 FRS 107 Cash Flow Statements 1 July 2007 FRS 111 Construction contracts 1 July 2007 FRS 112 Income Taxes 1 July 2007 FRS 118 Revenue 1 July 2007 FRS 119 Employee Benefits 1 July 2007 FRS 120 Accounting for Government Grants 1 July 2007 and Disclosure MITHRIL 43

7 2.3 Changes in Accounting Policies and Effects Arising from Adoption of New and Revised Financial Reporting Standards (FRSs), Amendments to FRSs and IC Interpretations (cont d) (i) Adoption of new and revised Financial Reporting Standards (FRSs), Amendments to FRSs and IC Interpretations (cont d) FRSs, Amendments to FRSs and IC Interpretations Effective for financial periods beginning on or after Amendment to The Effects of Changes in Foreign Exchange 1 July 2007 FRS 121 Rates - Investment in a Foreign Operation FRS 126 Accounting and Reporting by Retirement 1 July 2007 Benefits Plans FRS 129 Financial Reporting in Hyperinflationary 1 July 2007 Economies FRS 134 Interim Financial Reporting 1 July 2007 FRS 137 Provisions, Contingent Liabilities and 1 July 2007 Contingent Assets IC Interpretation 1 Changes in Existing Decommissioning, 1 July 2007 Restoration and Similar Liabilities IC Interpretation 2 Members Shares in Co-operative Entities and 1 July 2007 Similar Instruments IC Interpretation 5 Rights to Interests arising from 1 July 2007 Decommissioning, Restoration and Environmental Rehabilitation Funds IC Interpretation 6 Liabilities arising from Participating in 1 July 2007 a Specific Market - Waste Electrical and Electronic Equipment IC Interpretation 7 Applying the Restatement Approach under 1 July 2007 FRS Financial Reporting in Hyperinflationary Economies IC Interpretation 8 Scope of FRS 2 1 July 2007 The above new and revised FRSs, amendments to FRSs and IC Interpretations are expected to have no significant impact on the financial statements of the and of the Company upon their initial application. (ii) New Standard that is not yet effective At the date of authorisation of these financial statements, FRS 139 : Financial Instruments : Recognition and Measurement was issued with effective date on or after 1 January The and the Company are exempted from disclosing the possible impact, if any, to the financial statements upon the initial application of FRS Significant Accounting Estimates and Judgements (a) Critical Judgements Made in Applying Accounting Policies The following are the judgements made by management in the process of applying the s accounting policies that have the most significant effect on the amounts recognised in the financial statements. (i) Provision for obsolete and slow-moving inventories Inventories are stated at the lower of cost and net realisable value. The assesses slow-moving and obsolete inventories on an annual basis. Significant judgement is required in determining the net realisable value of the slow-moving and obsolete inventories, which includes an estimation of the recoverable value from customers. In making the judgement, the relies on current market developments, evidence of demand for the slow-moving inventories as well as the ability to sell the inventories to willing customers at a discounted price. MITHRIL 44

8 2.4 Significant Accounting Estimates and Judgements (cont d) (a) Critical Judgements Made in Applying Accounting Policies (cont d) (i) Provision for obsolete and slow-moving inventories (cont d) As at the balance sheet date, the estimated a recoverable amount equivalent to 30% of the carrying value of its slow-moving and obsolete inventories. In the event that the recoverable amount is 10% lower than management s estimates, the s loss before tax will increase by approximately 650,000. (ii) Determination of the Company s functional currency under FRS 121 Functional currency is the currency of the primary economic environment in which the operates. An entity s functional currency reflects the underlying transactions, events and conditions that are relevant to it. As required by FRS The Effects of Changes in Foreign Exchange Rates, the has assessed and determined its functional currency to be Ringgit Malaysia ( ) on the basis that sales prices of its products are influenced by and not United States Dollars ( USD ) and Great Britain Pounds ( GBP ), which are the currencies that the uses for purchasing some of its raw materials and invoicing most of its customers. The s sales price setting process is determined based on an analysis of costs and relevant margins based on. In addition, the effects of foreign exchange movements in other currencies are not passed on to the customers via price increases as any unfavourable impact arising from foreign exchange movements is absorbed by the. (iii) Estimated impairment of plant and machinery and moulds Plant and machinery and moulds are allocated to cash generating units ( CGU ) for the purpose of impairment testing, which is undertaken at the lowest level at which the plant and machinery and moulds are being used. Impairment testing is performed annually by the Company according to the accounting policies by comparing the recoverable amounts of the CGUs with the carrying amount of the net assets allocated to the CGU, including the attributable plant and machinery and moulds. The recoverable amounts of the CGUs were determined based on the value-in-use calculation. The calculations use pre-tax cash flow projections based on financial budgets covering a five year period. Cash flows beyond the five year period are extrapolated using estimated perpetual growth rate. The key assumptions used in the valuein-use calculation for the CGU are as follows: - Average business growth rate 5% - Perpetual growth rate (for terminal value) 5% - Pre-tax discount rate 9.5% If the estimated average business growth rate and perpetual growth rate had been 1% lower than management s estimate and if the pre-tax discount rate had been higher than management s estimate by 1%, the recoverable amounts of the CGU will still be higher than the CGU s net assets and therefore there will not be any impairment on the plant and machinery and moulds. The management has determined the growth rate based on past performance and their expectations of market development. The discount rate used is pre-tax and reflects the s overall weighted average cost of capital. (b) Key Sources of Estimation Uncertainty The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. (i) Impairment of goodwill The determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value-in-use of the cash-generating units ( CGU ) to which goodwill is allocated. Estimating value-in-use amount requires management to make an estimate of the expected future cash flows from the CGU and also to choose a suitable discount rate in order to calculate the present value of those cash flows. The carrying amount of goodwill as at 30 June 2008 was 15,732,975 (2007: 16,815,128). Further details are disclosed in Note 16. MITHRIL 45

9 2.4 Significant Accounting Estimates and Judgements (cont d) (b) Key Sources of Estimation Uncertainty (cont d) (ii) Depreciation of property, plant and equipment The cost of property, plant and equipment except for freehold land are depreciated on a straight line basis over the assets useful lives up to its residual value. Management reviews the residual values, useful lives and depreciation method at the end of each financial year end and ensures consistency with previous estimates and patterns of consumptions of the economic benefits that embodies the items in these assets. Changes in useful lives and residual values of these assets may result in revision of future depreciation charges. (iii) Income tax and deferred tax assets Judgement is involved in determining the provision for income taxes. There are certain transactions and computations for which the ultimate tax determination is uncertain during the ordinary course of business. The and the Company recognises liabilities for expected tax issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recognised, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. 3. REVENUE Company Sale of goods 30,930,063 40,539, Rental income from investment properties 6,800,000 6,800,000 6,800,000 6,800,000 Construction contracts - 288, Management fees 42,000 45,000 28,000 45,000 37,772,063 47,673,065 6,828,000 6,845, COST OF SALES Company Cost of inventories sold 31,107,514 40,487, Construction contract costs - 398, ,107,514 40,885, OTHER OPERATING INCOME Company Interest income 393, , , ,869 Fire insurance claim - 3,890, Write back of overprovision of liabilities - 1,831, Doubtful debts recovered 7,375 38, Sundry income 628, , ,029,408 6,355, , ,86 MITHRIL 46

10 6. FINANCE COSTS Company Interest expense on: Term loans 1,695, , , ,137 Lease 1,357, , Bank overdrafts 207, , RCSLS (Note 26) 3,812,047 3,660,782 3,812,047 3,660,782 ICCPS (Note 27) 63,901 96,438 63,901 96,438 ICULS (Note 28) 634, , , ,066 Other bank borrowings 438, ,377 4,050 - Advance from a subsidiary , ,297 8,209,545 7,184,670 5,845,676 5,291, LOSS BEFORE TAX The following amounts have been included in arriving at the loss before tax: Company Auditors remuneration: - Statutory audit 125, ,000 40,000 40,000 - Other services 5,000 5,000 5,000 5,000 Depreciation of property, plant and equipment (Note 12) 4,801,909 5,984,811 25,581 2,122 Amortisation of prepaid lease payments (Note 13) 201, , Write down of inventories (Note 19) 2,163,873 3,876, Provision for insurance claims - (1,966,072) - - Impairment of goodwill (Note 16) 1,082, Impairment loss on investment in subsidiaries ,307, ,001 Directors fees (Note 9) 120, , , ,000 Rental of premises 1,294,593 1,170, , ,304 Realised (gain)/loss on foreign exchange (66,356) 516, Rental of land 18,000 20, Employee benefit expense (Note 8) 7,922,574 10,872,466 1,312,201 1,418,375 Bad debts written off - 94, Impairment losses of property, plant and equipment: - Mould (Note 12) 235, Plant and machinery (Note 12) 952, Buildings (Note 12) - 843, Impairment loss of prepaid lease payments (Note 13) 586, Loss on disposal of property, plant and equipment 121,968 1,120, Write-off of property, plant and equipment 1,510 11, Late interest charges 1,377,707 1,110, Allowance for doubtful debt 22, ,912 1,456, EMPLOYEE BENEFITS EXPENSE Company Wages and salaries 7,168,048 9,366,710 1,074,610 1,171,305 Contributions to defined contribution plan 496, , , ,480 Termination benefits 26, Other benefits 231, ,659 95,761 93,590 7,922,574 10,872,466 1,312,201 1,418,375 MITHRIL 47

11 8. EMPLOYEE BENEFITS EXPENSE (cont d) Included in employee benefits expense of the and of the Company are executive directors remuneration amounting to 788,270 (2007: 963,715) and 602,880 (2007: 565,427) respectively as further disclosed in Note DIRECTORS REMUNERATION Company Directors of the Company Executive: Salaries and other emoluments 669, , , ,452 Pension costs-defined contribution plan 86,970 99,767 67,080 63,375 Estimated money value of benefits-in-kind 32,300 23,038 19,800 14,600 MITHRIL , , , ,427 Non-Executive: Fees (Note 7) 120, , , ,000 Other emoluments 35,500 40,500 35,500 40, , , , , ,770 1,055, , ,927 Directors of the Subsidiaries Executive: Salaries and other emoluments - 60, Pension costs-defined contribution plan - 7, , ,770 1,122, , ,927 The number of directors of the Company whose total remuneration during the financial year fell within the following bands is as follows: Executive directors: 150, , , , , , Non-executive directors: Below 50, Executive directors of the and the Company have been granted the following number of options under the Employee Share Options Scheme: and Company At 1 July 2007/ ,000 1,250,000 Resignation - (750,000) At 30 June 500, ,000 The share options remain unexercised and had been granted on the same terms and conditions as those offered to other employees of the (Note 30(a)).

12 10. INCOME TAX EXPENSE Company Malaysian income tax: Income tax (Over)/underprovision in prior years (688) 156,472 - (177,170) (688) 156,472 - (177,170) Deferred tax (Note 32): Relating to origination and reversal of temporary differences 286, , , ,210 Relating to changes in tax rates (28,639) (16,689) (28,639) (16,689) Under/(over)provision in prior years 43,405 (3,517) 74,791 (3,517) 301, , , , , , ,810 21,834 Income tax is calculated at the Malaysian statutory tax rate of 26% (2007: 27%) of the estimated assessable profit for the year. Taxation for companies with paid-up capital of 2,500,000 and below are calculated at the rate of 20% on chargeable income of up to 500,000 (2007: 500,000). For chargeable income in excess of 500,000, the statutory tax rate of 26% (2007: 27%) is applicable. The statutory tax rate will be reduced to 25% from the current year s rate of 26%, effective year of assessment A reconciliation of income tax expense applicable to loss before tax at the statutory income tax rate to income tax expense at the effective income tax rate of the and of the Company is as follows: Company Loss before tax (16,878,972) (14,818,823) (29,968,613) (1,240,437) Taxation at Malaysian statutory tax rate of 26% (2007: 27%) (4,388,533) (4,001,082) (7,791,839) (334,918) Effect of changes in tax rates on opening balance of deferred tax (28,639) (16,689) (28,639) (16,689) Effect of differential tax rate of 20% 62, , Effect of income not subject to tax - 250, Effect of expenses not deductible for tax purpose 1,122, ,435 7,791,308 39,488 Deferred tax reversal in respect of loan stocks 509, , , ,640 Deferred tax assets not recognised in respect of current year s tax losses and unabsorbed capital allowances 2,985,142 2,853, Utilisation of previously unrecognised tax losses and unabsorbed capital allowances (3,844) (159,872) - - Under/(over)provision of deferred tax in prior years 43,405 (3,517) 74,791 (3,517) (Over)/underprovision of tax expense in prior years (688) 156,472 - (177,170) Tax expense for the year 301, , ,810 21,834 Tax savings during the financial year arising from: Utilisation of current year tax losses 105, , , ,505 Utilisation of previously unrecognised tax losses 126,993 1,061,084-1,061,084 MITHRIL 49

13 11. LOSS PER SHARE (a) Basic Basic loss per share amounts are calculated by dividing loss for the year attributable to ordinary equity holders of the by the weighted average number of ordinary shares in issue during the financial year Loss attributable to ordinary equity holders of the Company () (17,180,032) (15,174,299) Weighted average number of ordinary share in issue 109,976, ,976,472 Basic loss per share (sen) (16) (14) (b) Diluted The effects on the basic loss per share for the financial year arising from the assumed conversion of the RCSLS, ICCPS, ICULS, Warrants B and ESOS, as disclosed in Note 26, 27, 28 and 30 are anti-dilutive. Accordingly, the diluted loss per share for the financial year has not been presented. 12. PROPERTY, PLANT AND EQUIPMENT Office Equipment, Land and Plant and Furniture Motor Buildings* Machinery Moulds and Fittings Vehicles Total At 30 June 2008 Cost or Valuation At 1 July 2007 At cost 1,534, ,686 14,709,160 4,963,093 1,023,088 22,447,742 At valuation 25,588,553 19,576, ,165,053 27,123,268 19,794,186 14,709,160 4,963,093 1,023,088 67,612,795 Additions 18, , ,147 42, ,263 1,568,188 Disposals - (7,814,137) (796,828) (7,629) (297,228) (8,915,822) Write-off - - (316) (2,157) - (2,473) Revaluation surplus 336, ,242 Reclassified as held for sale (3,626,500) (3,626,500) Elimination of accumulated depreciation upon revaluation (184,795) (184,795) At 30 June ,666,765 12,574,189 14,676,163 4,995, ,123 56,787,635 Representing: At cost 1,441, ,689 14,676,163 4,995, ,123 22,763,135 At valuation 22,225,000 11,799, ,024,500 At 30 June ,666,765 12,574,189 14,676,163 4,995, ,123 56,787,635 MITHRIL 50

14 12. PROPERTY, PLANT AND EQUIPMENT (cont d) Office Equipment, Land and Plant and Furniture Motor Buildings* Machinery Moulds and Fittings Vehicles Total At 30 June 2008 Accumulated depreciation and impairment At 1 July ,583,951 3,059,398 6,915,847 2,805, ,667 14,927,656 Depreciation charge for the year: Recognised in income statement (Note 7) 691,164 2,863, , , ,189 4,801,909 Capitalised in construction cost (Note 21) , ,991 Disposals - (5,579,453) (593,513) (313) (240,853) (6,414,132) Write-off - - (34) (929) - (963) Impairment losses recognised in income statement (Note 7) - 952, , ,188,262 Impairment losses recognised in equity 2,480,000 4,288, ,768,974 Reclassified as held for sale (1,823,735) (1,823,735) Elimination of accumulated depreciation upon revaluation (184,795) (184,795) At 30 June ,746,585 5,584,490 7,428,018 3,206, ,003 19,451,167 Net carrying amounts At cost 135,053 1,132,628 7,248,145 1,789, ,120 10,694,270 At valuation 20,785,127 5,857, ,642,198 At 30 June ,920,180 6,989,699 7,248,145 1,789, ,120 37,336,468 MITHRIL 51

15 12. PROPERTY, PLANT AND EQUIPMENT (cont d) Office Equipment, Land and Plant and Furniture Motor Buildings* Machinery Moulds and Fittings Vehicles Total At 30 June 2007 Cost or Valuation At 1 July 2006 At cost 1,380, ,218 14,136,325 4,617,646 1,023,088 21,500,692 At valuation 27,798,553 19,576, ,375,053 29,178,968 19,919,718 14,136,325 4,617,646 1,023,088 68,875,745 Additions 154, , , ,647-1,305,762 Disposals (2,210,000) (342,865) (2,552,865) Write-off - - (13,647) (2,200) - (15,847) At 30 June ,123,268 19,794,186 14,709,160 4,963,093 1,023,088 67,612,795 Representing: At cost 1,534, ,686 14,709,160 4,963,093 1,023,088 22,447,742 At valuation 25,588,553 19,576, ,165,053 At 30 June ,123,268 19,794,186 14,709,160 4,963,093 1,023,088 67,612,795 Accumulated depreciation and impairment At 1 July ,482 78,228 5,540,798 2,433, ,437 8,914,455 Depreciation charge for the year: Recognised in income statement (Note 7) 1,210,344 3,053,413 1,189, , ,230 5,984,811 Capitalised in construction cost (Note 21) , ,991 Disposals (926,859) (72,243) (999,102) Write-off - - (2,815) (1,668) - (4,483) Impairment losses recognised in income statement (Note 7) 843, ,984 At 30 June ,583,951 3,059,398 6,915,847 2,805, ,667 14,927,656 Net carrying amounts At cost 432, ,873 7,793,313 2,157, ,421 11,042,575 At valuation 25,106,649 16,535, ,642,564 At 30 June ,539,317 16,734,788 7,793,313 2,157, ,421 52,685,139 MITHRIL 52

16 12. PROPERTY, PLANT AND EQUIPMENT (cont d) * Land and Buildings of the Short-Term Freehold Leasehold Land Land and Building Buildings Renovation Total At 30 June 2008 Cost or Valuation At 1 July 2007 At cost ,534,715 1,534,715 At valuation 7,490, ,282 17,174,271-25,588,553 7,490, ,282 17,174,271 1,534,715 27,123,268 Additions ,550 18,550 Revaluation surplus - 24, , ,242 Reclassified as held for sale (2,700,000) (615,000) (200,000) (111,500) (3,626,500) Elimination of accumulated depreciation upon revaluation - (75,987) (108,808) - (184,795) At 30 June ,790, ,338 17,177,662 1,441,765 23,666,765 Representing: At cost ,441,765 1,441,765 At valuation 4,790, ,338 17,177,662-22,225,000 4,790, ,338 17,177,662 1,441,765 23,666,765 Accumulated depreciation and impairment At 1 July , ,565 1,102,047 1,583,951 Depreciation charge for the year - 59, , , ,164 Impairment loss recognised in equity 2,480, ,480,000 Reclassified as held for sale (1,690,000) (82,319) (6,974) (44,442) (1,823,735) Elimination of accumulated depreciation upon revaluation - (75,987) (108,808) - (184,795) At 30 June , ,873 1,306,712 2,746,585 Net carrying amount At cost , ,053 At valuation 4,000, ,338 16,527,789-20,785,127 At 30 June ,000, ,338 16,527, ,053 20,920,180 MITHRIL 53

17 12. PROPERTY, PLANT AND EQUIPMENT (cont d) * Land and Buildings of the Short-Term Freehold Leasehold Land Land and Building Buildings Renovation Total At 30 June 2007 Cost or Valuation At 1 July 2006 At cost ,380,415 1,380,415 At valuation 7,490, ,282 19,384,271-27,798,553 7,490, ,282 19,384,271 1,380,415 29,178,968 Additions , ,300 Disposals - - (2,210,000) - (2,210,000) At 30 June ,490, ,282 17,174,271 1,534,715 27,123,268 Representing: At cost ,534,715 1,534,715 At valuation 7,490, ,282 17,174,271-25,588,553 7,490, ,282 17,174,271 1,534,715 27,123,268 Accumulated depreciation and impairment At 1 July , ,482 Depreciation charge for the year - 98, , ,565 1,210,344 Disposals - - (926,859) - (926,859) Impairment losses recognised in income statement (Note 7) , ,984 At 30 June , ,565 1,102,047 1,583,951 Net carrying amount At cost , ,668 At valuation 7,490, ,943 16,790,706-25,106,649 At 30 June ,490, ,943 16,790, ,668 25,539,317 MITHRIL 54

18 12. PROPERTY, PLANT AND EQUIPMENT (cont d) Motor Office Vehicles Equipment Total Company At 30 June 2008 Cost At 1 July ,620 10,620 Addition 149, ,263 At 30 June ,263 10, ,883 Accumulated depreciation At 1 July ,033 3,033 Depreciation charge for the year (Note 7) 23,459 2,122 25,581 At 30 June ,459 5,155 28,614 Net carrying amount At 30 June ,804 5, ,269 At 30 June 2007 Cost At 1 July 2006/30 June ,620 10,620 Accumulated depreciation At 1 July Depreciation charge for the year (Note 7) - 2,122 2,122 At 30 June ,033 3,033 Net carrying amount At 30 June ,587 7,587 (a) Included in property, plant and equipment of the are plant and machinery with net carrying amount of 4,195,758 (2007: 5,354,318) held under hire purchase and finance lease arrangements. (b) The net carrying amount of the s property, plant and equipment pledged as securities for borrowings (Note 24) are 25,623,683 (2007: 31,368,999). (c) The net carrying amount of temporarily idle equipment of the amounting to Nil (2007: 6,999,303) had been disposed during current financial year. (d) Details of independent professional valuations of property, plant and equipment owned by the as at 30 June 2008 are as follows: Year of Description of Property, Valuation Basis of Valuation valuation Plant and Equipment Amount 2008 Freehold land 4,000,000 Market value 2008 Buildings 2,857,662 Market value 2007 Buildings 14,320,000 Market value 2008 Short term leasehold land and building 257,338 Market value 2008 Plant and machinery 4,836,000 Market value 26,271,000 MITHRIL 55

19 12. PROPERTY, PLANT AND EQUIPMENT (cont d) Freehold land, short-term leasehold land and buildings, buildings, plant and machinery were last revalued on 30 June 2008 by PPC International Sdn. Bhd.. Valuations were made on the basis of market value for existing use basis. Market value is defined as the estimated amount for which the asset or an interest in a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm s length transaction after proper marketing wherein the parties had acted knowledgeably, prudently and without compulsion. Had the revalued property, plant and equipment been carried at historical costs the net carrying amount of these property, plant and equipment that would have been included in the financial statements of the as at 30 June would be as follows: Freehold land 3,128,996 3,315,700 Short term leasehold land and building 201, ,383 Buildings 19,503,329 20,076,864 Plant and machinery 13,045,532 15,842, PREPAID LEASE PAYMENTS At 1 July 2007/2006 3,894,074 4,101,447 Amortisation for the year (Note 7) (201,292) (207,373) Impairment losses recognised in income statement (Note 7) (586,362) - Reclassified as held for sale (507,420) - At 30 June 2,599,000 3,894,074 Analysed as: Short term leasehold land 2,314,000 2,492,000 Short term leasehold land and buildings 285,000 1,402,074 2,599,000 3,894,074 (a) Leasehold land and building with an aggregate carrying value of 2,439,000 (2007: 3,394,542) are pledged as securities for borrowings (Note 24). (b) Details of independent professional valuation of leasehold land and building owned by the as at 30 June 2008 are as follows: Year of Description of Property, Valuation Basis of Valuation valuation Plant and Equipment Amount 2007 Short term leasehold land 2,670,000 Market value 2008 Short term leasehold land and buildings 285,000 Market value 2,955,000 MITHRIL 56

20 13. PREPAID LEASE PAYMENTS (cont d) Had the revalued leasehold land and building been carried at historical costs the net carrying amount of these leasehold land and building that would have been included in the financial statements of the as at 30 June would be as follows: Leasehold land 912, ,398 Leasehold land and buildings 871,364 1,361, INVESTMENT IN SUBSIDIARIES Company Unquoted shares at cost 43,847,539 43,847,539 Less: Accumulated impairment losses (27,822,076) (515,001) 16,025,463 43,332,538 (a) Details of the subsidiaries, all of which are incorporated in Malaysia, are as follows: Equity Interest Name of Subsidiaries Held (%) Principal Activities Held by the Company Mithril Saferay Sdn. Bhd. * Manufacturing and trading of polyurethane products Mithril Clay Manufacturing Investment holding and manufacturing Sdn. Bhd. (formerly known and trading of bricks as Mithril Clay Manufacturing Berhad) α Mithril FRP Industries Sdn. Bhd Manufacturing and trading of fibre reinforced plastic products and fabrication of luxury yachts Mithril Management Services Sdn. Bhd Property management and related services Mithril Marketing Sdn. Bhd Trading and distribution of bricks and building materials Mithril Clay Industries Sdn. Bhd Property investment Mithril PVC Sdn. Bhd Dormant Mithril Polymers Sdn. Bhd Dormant Mithril Realty Sdn. Bhd Dormant Mithril FRP Sdn. Bhd Dormant MITHRIL 57