CHAIRMAN S STATEMENT THE YEAR IN REVIEW 2005 was a significant year of achievements for the Group and the Company.The Company was successfully listed on MESDAQ Market of the Bursa Malaysia Securities Berhad on 1 June 2005. The dedication and commitment of the group has successfully positioned itself as one of the leading cleanroom specialists in Malaysia. On behalf of the Board of Directors, I am pleased to present the Annual Report and Audited Financial Statements of the Group and the Company for the financial year ended 31 December 2005. FINANCIAL REVIEW Against the backdrop of higher oil prices and softening market sentiment, the Group registered revenue of RM26.85 million for the financial year ended 31 December 2005, an 82.28 % increase over the RM14.73 million achieved in the previous year. The Group's pre-tax profit for the year under review was RM2.27 million, comfortably surpassing the previous year's level of RM1.69 million by 34.32 % or RM0.58 million. After accounting for tax and minority interest, the net profit attributable to shareholders of the Company was RM1.72 million for the financial year ended 31 December 2005 compared to RM1.42 million for the financial year ended 31 December 2004. The profit was the result of the Group's policy of constantly focusing on its core competency in the provision of design and integration of cleanroom system, which accordingly was one of the main contributors to the Group's revenue. Paid-up capital stood at RM9.80 million, an increase of RM9.38 million over the previous financial year of RM0.42 million. As at 31 December 2005, the Group's net assets recorded an increase of RM13.72 million at RM20.45 million over the previous year of RM6.73 million. Initial Public Offering ( IPO ) Exercise The listing and quotation of the entire and issued and paid-up share capital of the Company on the MESDAQ Market of Bursa Malaysia Securities Berhad on 1 June 2005 augurs well for the Group's expansion plan. The response to the IPO was overwhelming. For the 5,000,000 shares made available for public subscription, a total of 18,334 applications for 154,244,300 shares with a value of RM58,612,834 were received from the Malaysian Public, representing an overall oversubscription rate of 29.85 times. The Company has successfully raised RM9.95 million via the public issue of 26.18 million shares of 10 sen each at 38 sen per share from the IPO exercise. 08 The prospectus launching ceremony on 27 April 2005 for its listing exercise.
CHAIRMAN S STATEMENT (Cont d) OUTLOOK FOR 2006 The forthcoming financial year will be challenging to the Group due to high oil prices which could fuel worldwide inflationary pressure and increase the Group's costs and erode profits. The focus for the forthcoming year will be to increase the Group's earning capacity by diversifying its products and services and exploring new markets in the South East Asia region. In light of the challenges ahead, the Group will strive to enhance its competitiveness and operational efficiency. As part of the Group's plan to diversify its products and services, during the fourth quarter of 2005, the Group has successfully secured an exclusive right from Gerflor sa, a public company incorporated in France, to distribute Gerflor flooring products in Peninsular Malaysia. This range of products complements the Group's business activities for the cleanroom flooring system and is expected to contribute positively to the Group's results. Gerflor Distributor Certificate Strategic Focus In line with the 9th Malaysian Plan, the biotechnology, petrochemical, research laboratories and healthcare sectors are expected to grow in the foreseeable future. The Group, with its niche products and services specifically targeting these sectors as well as having a strong management team well entrenched in these industries, should benefit from this trend. 09 ACKNOWLEDGEMENT AND APPRECIATION On behalf of the Board of Directors, I wish to extend my sincere gratitude and appreciation to the management and staff for their commitment and contribution to the Group's success; to our customers, business associates and most importantly, to our shareholders for their continuing support of the Group. Finally, I would like to express my sincere appreciation and gratitude to my fellow directors for their invaluable contributions and support. Tan Sri Dato Mohamed Noordin bin Hassan Chairman
CORPORATE GOVERNANCE STATEMENT The Board recognises the importance of corporate governance in discharging the Board's stewardship responsibilities and to protect and enhance the shareholders' value. Premised on this, the Board is committed to ensure high standards of corporate governance are practised throughout the Company and to apply the principles and best practices as governed by the Listing Requirements of the MESDAQ Market of Bursa Malaysia Securities Berhad and Guidance Note 2 on Corporate Governance. The Company continuously endeavours to comply with the Malaysian Code on Corporate Governance. The following statement sets out the Company's compliance with the principles of the Code. A) Directors i) The Board The Board is primarily responsible for the strategic directions of the Company. In addition, the Board also oversees the conduct of the Company's business, whereby it devises and puts in place adequate systems of control, focused primarily on mitigation of any foreseeable or potential risk besetting the Company. ii) Board Balance The Board comprises seven directors, of whom three are executive directors (including the executive vice chairman) and four are non-executive directors. More than one third (1/3) of the current Board is represented by Independent Non-Executive Directors who are independent of management and free from any business or other relationship which could interfere with the exercise of independent judgment on the Board's deliberations and decision making, each of whom, brings with him vast and varied experiences, exposure and expertise. The profile of each member of the current Board is set out on pages 5 to 6 of this Annual Report. iii) Board Meetings To ensure that the Quest Group is managed effectively and efficiently, the current Board is scheduled to meet at least four (4) times a year (the Company was listed on the MESDAQ Market of Bursa Malaysia Securities Berhad on 1 June 2005 and two meetings was scheduled subsequent to its listing during the financial year), with additional meetings being convened when necessary. Besides that, the Board also approves matters through the circulation of Directors' Circular Resolution in accordance with the Articles of Association. 10
CORPORATE GOVERNANCE STATEMENT (Cont d) The details of the Director s attendances for the Board Meetings are set out below:- No. of meetings Name of Director attended during the % financial year Tan Sri Dato' Mohamed Noordin bin bin Hassan 2/2 100 Wong Peng Yew 2/2 100 Sim Keng Siong 2/2 100 Lim Foo Seng 2/2 100 Md Hilmi Bin Datuk Hj Md Noor 2/2 100 Shinichi Yamamoto 2/2 100 Low Siew Ping (Resigned on 15 November 2005) 1/2 50 M.Eswaran A/L K.Mahendran (Resigned 0/2 0 on 15 November 2005) Looi Kem Loong (Appointed with effect from Not Applicable NA 20 January 2006) iv) Supply of Information and Access to Advice The Board shall be provided with comprehensive board papers on a timely manner prior to board meetings. This is to ensure and enable the members of the Board to discharge their duties and responsibilities competently in a well-informed manner. All members of the Board have unhindered access to the advice and services of the Company Secretaries, and where necessary, may seek independent professional advisers for advice for the purpose of discharging their statutory and fiduciary duties. Every director also has unrestricted access to all information with regard to the activities of Quest Group. v) Directors Training 11 vi) Upon the listing of the Company on the MESDAQ Market of Bursa Malaysia Securities Berhad, all the Directors had attended the Mandatory Accreditation Programme pursuant to Bursa Malaysia Securities Berhad guidelines on Training for Directors. The Directors will continue to attend the Continuing Education Programme prescribed by Bursa Malaysia Securities Berhad to further enhance their skills and knowledge in the latest statutory and regulatory requirements to assist them in discharging their duties as Directors. Re-election of Directors The Company's Articles of Association requires one-third of the Directors to retire by rotation and seek re-election at each Annual General Meeting and that all Directors shall retire at least once in three years. Directors over seventy years of age are required to submit themselves for re-appointment annually in accordance with Section 129(6) of the Companies Act, 1965. However, notwithstanding the above and in accordance with the Company's Articles of Association, the Managing Director of the Company will not be subject to retirement by rotation and he shall, subject to the provisions of any contract between him and the Company be subject to the same provisions as to resignation and removal as the other Directors of the Company and if he ceases to hold the office of Director for any cause he shall immediately cease to be a Managing Director.
CORPORATE GOVERNANCE STATEMENT (Cont d) vii) Board Committee The Board has set up several of the following Committees to assist the Board in discharging their duties and decision making:- (a) Audit Committee The Audit Committee comprises three (3) Independent Non-Executive Directors and one (1) Executive Director, as follows:- Chairman : Md Hilmi Bin Datuk Hj Md Noor (Independent Non-Executive Director) Members : Shinichi Yamamoto (Independent Non-Executive Director) Looi Kem Loong (Independent Non-Executive Director) Lim Foo Seng (Executive Director) The Audit Committee Report is set out on pages 15 to 17 of this Annual Report. (b) Nomination Committee The Nomination Committee comprises the following members:- Chairman : Shinichi Yamamoto (Independent Non-Executive Director) Members : Tan Sri Dato Mohamed Noordin bin Hassan (Non-Executive Director) Md Hilmi Bin Datuk Hj Md Noor (Independent Non-Executive Director) The terms of reference of the Nomination Committee are as follows:- To regularly review the Board structure, size and composition. To recommend candidates for the approval of the Board to fill Board vacancies. 12 To annually review the required mix of skills and experience and other qualities and competence which non-executive directors should bring to the Board. To annually assess the effectiveness of the Board as a whole, the committee of the Board and contributions of each individual director of the Board.
CORPORATE GOVERNANCE STATEMENT (Cont d) (c) Remuneration Committee The Company has an established framework of principles to evaluate performance and reward for executive directors. Remuneration packages for the executive directors are formulated to be competitive and realistic, emphasis being placed on performance, with aims to attract, motivate and retain executive directors of caliber to the Group. For non-executive directors, the level of remuneration commensurates with the level of responsibilities undertaken by them to the Company. The Remuneration Committee comprises the following members:- Chairman : Tan Sri Dato' Mohamed Noordin bin Hassan (Non-Executive Director) Members : Shinichi Yamamoto (Independent Non-Executive Director) Md Hilmi Bin Datuk Hj Md Noor (Independent Non-Executive Director) The terms of reference of the Remuneration Committee are as follows:- B) Directors Remuneration To review and determine, at least once annually, adjustments to the remuneration package, including benefits in kind, of each Executive Director, taking into account the performance of the individual, the inflation price index, and where necessary, information from independent sources on remuneration packages for equivalent jobs in the industry. To review and determine the quantum of performance related bonuses, benefits-inkind and Employee Share Options, if available, to be given to the Executive Directors. To consider and execute the renewal of the service contracts of Executive Directors as and when due, as well as the service contracts and remuneration package for newly appointed Executive Director(s) prior to their appointment. The Directors are satisfied that the current level of remuneration is in line with the responsibilities expected. 13 The aggregate Directors' remuneration paid or payable to all Directors of the Company categorized into appropriate components for the financial year ended 31 December 2005 are as follows:- Amount of Remuneration Non-Executive Executive Total RM Directors Directors 0-50,000 4-4 50,000-100,000-1 1 100,000-150,000-2 2 150,000-200,000-1 1
CORPORATE GOVERNANCE STATEMENT (Cont d) C) Relations with Shareholders The Company recognises the importance of timely and regular dissemination of information to shareholders of the Company via the annual report to shareholders, quarterly financial reports and the various announcements made during the year. These will enable the shareholders and members of the public to have an overview of the Group's performance and operations. The AGM also provides an opportunity for the shareholders to seek and clarify any issues relevant to the Company. Shareholders are encouraged to meet and communicate with the Board at AGM and to vote on all resolutions. D) Accountability and Audit i) Financial Reporting The Directors aim to provide a balanced and meaningful assessment of the Company's financial performance and prospects, primarily through the annual report and quarterly financial statements. The Directors are also responsible for ensuring that the annual financial statements are prepared in accordance with the provision of the Companies Act, 1965 and the applicable Approved Accounting Standards in Malaysia. A statement by the Directors of their responsibilities in the preparation of financial statements is set out in the ensuring section. ii) Statement of Directors; Responsibility in respect of the Financial Statements The Malaysian Company Law requires the Directors to prepare financial statements for each financial year, which give true and fair view of the state of affairs of the Company and of the results and cash flow of the Company for that period. In preparing those financial statements, the Directors are required to:- a) select suitable accounting policies and then apply them consistently; b) state whether applicable accounting standards have been followed; c) make judgements and estimates that are reasonable and prudent; and d) prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business. iii) iv) The Directors are responsible for keeping proper accounting records, which disclose with reasonable accuracy, at any time, the financial position of the Company. The Directors are also responsible for safeguarding the assets of the Company and for taking reasonable steps for the prevention and detection of fraud and irregularities. The Directors have prepared the annual financial statements in compliance with the Companies Act, 1965. Internal Control The Board acknowledges that it is responsible for maintaining a sound system of internal control, which provides reasonable assessment of effective operations, internal controls and compliance with laws and regulations as well as with internal procedures and guidelines. A statement on internal control of the Company is set out on pages 18 to 19 of this Annual Report. Relationship with the auditors Through the Audit Committee, the Company shall establish a transparent and appropriate relationship with the Company's auditors, which enable the auditors to highlight to the Audit Committee and the Board, matters that require the Board's attention. 14
AUDIT COMMITTEE REPORT 1. Composition and Designation of Audit Committee The Audit Committee currently comprises the following members:- Chairman : Md Hilmi Bin Datuk Hj Md Noor (Independent Non-Executive Director) Members : Shinichi Yamamoto (Independent Non-Executive Director) Looi Kem Loong (Independent Non-Executive Director) Lim Foo Seng (Executive Director) 2. Terms of Reference a) Composition of Audit Committee The Committee shall be appointed from amongst the Board of Directors and shall comprise at least three (3) members whereby at least one member of the Committee:- i) must be a member of the Malaysian Institute of Accountants; or ii) if he/she is not a member of the Malaysian Institute of Accountants, he/she must have at least three years' working experience and:- a) he must have passed the examinations specified in Part I of the 1st Schedule of the Accountants Act 1967; or b) he must be a member of one of the associations of accountants specified in Part II of the 1st Schedule of the Accountants Act 1967. iii) fulfills such other requirements as may be prescribed by the Bursa Securities. The majority of the Committee members must be Independent Directors and in the event of any vacancy with the result that the number of members is reduced to below three (3), the vacancy must be filled within 3 months. 15 b) Chairman The Chairman, who shall be elected by the Audit Committee, must be an independent director. c) Secretary The Company Secretary shall be the Secretary of the Committee and shall be responsible, in conjunction with the Chairman, for drawing up the agenda and circulating it prior to each meeting. The Secretary shall also be responsible for keeping the minutes of meetings of the Committee and circulating them to the Committee Members. d) Meetings The quorum for a meeting shall be two (2) members, provided that the majority of the members present at the meeting shall be independent directors. The external auditors have the right to appear at any meeting of the Audit Committee and shall appear before the Committee when required to do so by the Committee. The external auditors may also request a meeting if they consider it necessary.
AUDIT COMMITTEE REPORT (Cont d) e) Rights The Audit Committee shall: (i) (ii) (iii) (iv) (v) (vi) have explicit authority to investigate any matter within its terms of reference; have the resources which it needs to perform its duties; have full and unrestricted access to any information which it requires in the course of performing its duties; have unrestricted access to the chief executive officer and chief financial officer; have direct communication channels with the external and internal auditors (if any); and be able to obtain independent professional or other advice in the performance of its duties at the cost of the Company. f) Duties The duties of the Audit Committee shall include a review of: (i) the nomination of external auditors; (ii) the adequacy of existing external audit arrangements, with particular emphasis on the scope and quality of the audit; (iii) the effectiveness of the internal control and management information systems; (iv) the internal audit findings and implementation status of recommendations made by internal auditors; (v) the quarterly reports and year-end financial statements of the Company with both the external auditors and senior management; (vi) the external auditor's audit report; (vii) any management letter sent by the external auditors to the Company and the management's response to such letter; (viii) any letter of resignation from the Company's external auditors; (ix) the assistance given by the Company's officers to the external auditors; (x) all areas of significant financial risk and the arrangements in place to contain these risks to acceptable levels; and (xi) all related party transactions and potential conflict of interest situations. 3. Summary of Activities The Audit Committee is scheduled to meet at least four (4) times a year (the Company was listed on the MESDAQ Market of Bursa Malaysia Securities Berhad on 1 June 2005 and the Audit Committee met twice subsequent to its listing during the financial year), with additional meetings being convened when necessary. Details of the attendances during the year under review are as follows:- No. of meetings Name of Director attended during the % financial year Lim Foo Seng 2/2 100 Md Hilmi Bin Datuk Hj Md Noor 2/2 100 Shinichi Yamamoto 2/2 100 M.Eswaran A/L K.Mahendran (Resigned 0/2 0 on 15 November 2005) Looi Kem Loong (Appointed with effect from Not Applicable NA 20 January 2006) 16
AUDIT COMMITTEE REPORT (Cont d) During the year under review, the following were the activities of the Audit Committee: 1. Reviewed the quarterly financial results and ensured that the financial reporting and disclosure requirements of relevant authorities had been complied with, focusing particularly on: 1.1 changes in or implementation of major accounting policies and practices; 1.2 the going concern assumption 1.3 significant and unusual events; and 1.4 compliance with accounting standards and other legal requirements; 2. Reviewed the related party transactions and conflict of interest situation that may arise within the company or group including any transactions, procedures or course of conduct that raises questions of management integrity which were incurred during the financial year in the ordinary course of business. 3. Reviewed the audit strategy and plan of External Auditors. 4. Internal Audit Function During the financial year, the Company does not have an internal audit department and the Audit Committee relied on discussions with the senior management and executive directors, review of quarterly financial statements and input from the external auditors to discharge its duties. The Executive Directors through their daily involvement in the business operations and attendance at operational and management level meetings, monitor the Company's policies and procedures. Any significant unresolved matters, requiring the Board of Directors' intervention will be reported by the Executive Directors accordingly. 17
STATEMENT ON INTERNAL CONTROL INTRODUCTION The Malaysian Code on Corporate Governance stipulates that the Board of Directors of listed companies should maintain a sound system of internal control to safeguard shareholders' investments and the Group's assets. Below is the Board of Directors' Statement on Internal Control which has been prepared with reference to the Bursa Securities Statement on Internal Control: Guidance for Directors of Public Listed Companies. RESPONSIBILITIES The Board of Directors recognises the importance of a sound system of internal control and effective risk management practices to good corporate governance.the Board affirms its overall responsibility for maintaining sound systems of internal control within the Group covering financial, operational, compliance and risk management issues, and for reviewing regularly the adequacy and effectiveness of such systems within the Group. Sound systems of internal control will help to safeguard the Group's assets and shareholders' investment. The Board, in the discharge of its stewardship responsibilities, is committed to identify key risks to which companies within the Group are exposed and will introduce appropriate systems progressively to manage such risks. Notwithstanding that, there are, however, limitations inherent in any system of internal control, and such system is designed to manage rather than eliminate the risk that may impede the achievement of business objectives. It should be appreciated that it could therefore only provide reasonable and not absolute assurance against material misstatement of management or financial information or financial losses or frauds. It should be further noted that the cost of control procedures should not exceed the benefits to be derived from such procedures. KEY ELEMENTS OF INTERNAL CONTROL Some of the key control procedures have been embedded in the operations of the business with sufficient assurance mechanism to safeguard the assets of the Group and to preserve shareholders' investment. The following key elements ensure that the proper control regime is maintained: Audit Committee The Audit Committee reviews the Group's accounting and reporting policies and practices, and the adequacy and effectiveness of the systems of internal control. The Audit Committee also ensures that there is continuous effort by management to address and resolve areas where control weaknesses exist. The Audit Committee reviews the quarterly results of the Group and recommends adoption of such results to the Board before announcement to Bursa Securities is made. Risk Management The Board is committed to identify business and other risks that are inherent in the sector the Group operates and to ensure the implementation of appropriate control mechanism to manage these risks. In assisting it to discharge its duties and responsibilities, the Board, through the Audit Committee and senior management, will formalized a risk management framework as an ongoing process for identifying, evaluating and managing significant risks faced by the Group. Once the risk management framework is formalized, the Board will regularly review the processes. 18
STATEMENT ON INTERNAL CONTROL (Cont d) Reporting and Review The Group has in place a management reporting mechanism whereby financial information is generated for senior management review in a timely manner. The Group Managing Director meets regularly with the Executive Director and senior management to review, discuss and resolve operational, financial, corporate and business issues. Other Risks and Control Processes In addition to the above, the Group also has in place the following key elements: An organisation structure, with clearly defined authority limits and reporting mechanism to higher levels of management and to the Board, which supports the maintenance of a strong control environment. Specific responsibilities have delegated to the relevant Board committees, all of which have formalised terms of reference. These committees have the authority to examine all matters within their scope and report to the Board with their recommendations. Conclusion The system of internal control is satisfactory and has not resulted in any material losses, contingencies or uncertainties that would require disclosure in the Group's annual report. The Group continues to take measures to strengthen the internal control environment. 19
ADDITIONAL DISCLOSURES Status Of The Utilisation Of The Initial Public Offer Proceeds As at 31 December 2005, the status of utilisation of the proceeds for Quest Group is summarised below:- Purpose Approved Utilisation for Cumulative Unutilised Utilisation the current utilisation as at balance financial year 31 December ended 31 2005 December 2005 Unutilised: RM'000 RM'000 RM'000 RM'000 Capital Expenditure 2000 1000 1000 1000 Working Capital 5948 1584 1584 4364 R&D expenses 500 - - 500 Listing expenses 1500 1364 1364 136* 9,948 3948 3948 6000 * The unutilised balance of the budgeted listing expenses as at 31 December 2005 will be utilised for working capital purposes. Material Contracts Involving Directors' And Substantial Shareholders' Interest There were no material contracts entered by the Company or its subsidiaries involving directors' and substantial shareholders' interest in the financial year ended 31 December 2005. Variation of Results There were no significant variations between the audited results for the financial year and the unaudited results previously announced. Non-Audit Fees There were no other fees paid by the Company to external auditors for the financial year ended 31 December 2005 other than the statutory audit fees as disclosed in Note 7 of the financial statements. Profit Forecast/Profit Guarantee The Company did not issue any profit forecast in any public documents during the current financial year. 20
FINANCIAL REPORT RUBY QUEST BHD. (412406-T) (Incorporated in Malaysia) Contents Directors' Report 22-25 Statement by the Directors 26 Statutory Declaration 26 Report of the Auditors 27 21 Income Statements 28 Balance Sheets 29 Statements of Changes in Equity 30-31 Cash Flow Statements 32 Notes to the Financial Statements 33-62
Directors Report The directors have pleasure in submitting their report and the audited financial statements of the Group and the Company for the financial year ended 31 December 2005. Principal Activities The principal activities of the Company are investments holding and the provision of management services. The principal activities of the subsidiaries are described in Note 14 to the financial statements. There have been no significant changes in the nature of these activities during the financial year. The Company has its domicile in Malaysia. Its registered office is situated at No.6, Jalan Salung 33/26, Seksyen 33, Shah Alam Technology Park, 40460 Shah Alam, Selangor Darul Ehsan. Financial Results Group Company RM RM Profit / (Loss) after taxation 1,715,871 (22,009) Reserves and Provisions All material transfers to or from reserves and provisions during the year are shown in the financial statements. Share Capital (a) Allotment of shares for the acquisition of subsidiaries On 6 January 2005, the Company allotted and issued 21,724 fully paid new ordinary shares of RM1.00 each as purchase consideration for acquisition of Envair Mecs Engineering Sdn. Bhd. On the same date, the Company also allotted and issued 54,843 fully paid new ordinary shares of RM1.00 each as purchase consideration for acquisition of Envair Technology Sdn. Bhd. (b) Conversion of 3% convertible redeemable preference shares ("CRPS") On 6 January 2005, 66,666 of CRPS were converted into ordinary shares of the Company on the basis of one (1) CRPS for one (1) ordinary share of RM1.00 each. (c) Bonus issue On 6 January 2005, the Company made a bonus issue of 6,688,755 ordinary shares of RM1.00 each on the basis of approximately sixty eight (68) new ordinary shares of RM1.00 each for every five (5) existing ordinary shares of RM1.00 each as at the entitlement date. (d) Share split After the completion of the above-mentioned Acquisition, Conversion of CRPS and bonus issue, the Company undertook a share split exercise by subdividing every one (1) ordinary shares of RM1.00 each into ten (10) new ordinary shares of RM0.10 each. 22 (e) Public issue The Company undertook a Public Issue of 26,180,000 new ordinary shares of RM0.10 each in the Company at an issue price of RM0.38 each for cash by way of private placement and general offer to the public, eligible directors and employees. The new ordinary shares issued during the year ranked pari passu in all respects with the existing ordinary shares of the Company.
Directors The directors who have held office during the period since the date of the last report are as follows: Wong Peng Yew Tan Sri Mohamed Noordin Bin Hassan (Appointed on 10.1.2005) Md Hilmi Bin Datuk Hj Md Noor (Appointed on 27.1.2005) Lim Foo Seng (Appointed on 28.1.2005) Sim Keng Siong (Appointed on 28.1.2005) Shinichi Yamamoto (Appointed on 28.1.2005) Low Siew Ping (Resigned on 15.11 2005) M. Eswaran A/L K. Mahendran (Appointed on 27.1.2005 & resigned on 15.11.2005) Looi Kem Loong (Appointed on 20.1.2006) Directors Interests The following directors who held office at the end of the financial year had, according to the register required to be kept under Section 134 of the Companies Act, 1965, an interest in shares of the Company as stated below: Number of ordinary shares at RM1 each At 1.1.2005 / date At of appointment Acquired Sold 6.1.2006 Interest in shares of the Company Direct interest: Wong Peng Yew 276,921 3,770,535-4,047,456 Tan Sri Mohamed Noordin Bin Hassan - 487,193-487,193 Lim Foo Seng 15,875 216,153-232,028 Sim Keng Siong - 988,884-988,884 Number of ordinary shares at RM0.10 each 23 Split from At RM1.00 share Acquired Sold 31.12.2005 Interest in shares of the Company Direct interest: Wong Peng Yew 40,474,560-6,729,361 33,745,199 Tan Sri Mohamed Noordin Bin Hassan 4,871,930-1,500,000 3,371,930 Md Hilmi Bin Datuk Hj Md Noor - 50,000-50,000 Lim Foo Seng 2,320,280 - - 2,320,280 Sim Keng Siong 9,888,840 - - 9,888,840 Shinichi Yamamoto - 50,000 30,000 20,000 By virtue of the above directors shareholdings in Ruby Quest Berhad, they are deemed to have an interest in the ordinary shares of companies under the Ruby Quest Berhad's group of companies, to the extent of the Company has an interest.
Directors Interests (cont'd) Number of 3% Convertible Redeemable Preference Shares ("CRPS") at RM1 each Converted At date of to ordinary At appointment shares 31.12.2005 Interest in shares of the Company Direct interest: Tan Sri Dato' Mohamed Noordin Bin Hassan 33,333 (33,333) - Directors Benefits Since the end of the previous financial year, no director has received or become entitled to receive any benefit (other than those 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. Neither during nor at the end of the financial year was the Company a party to any arrangements whose object is to enable the directors to acquire benefits by means of acquisition of shares in or debentures of the Company or any other body corporate. Other Statutory Information Before the income statements and balance sheets of the Group and the Company were made out, the directors took reasonable steps: (a) (b) to ascertain that proper action had been taken in relation to the writing off of bad debts and the making of provision for doubtful debts and had satisfied themselves that all known bad debts had been written off and that adequate provision had been made for doubtful debts; and to ensure that any current assets, other than debts, which were unlikely to realise in the ordinary course of business their values as shown in the accounting records of the Group and the Company had been written down to an amount which they might be expected so to realise. At the date of this report, the directors are not aware of any circumstances: (a) (b) which would render the amounts written off for bad debts or the amount of the provision for doubtful debts in the financial statements of the Group and the Company inadequate to any substantial extent; or which would render the values attributed to current assets in the financial statements of the Group and 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 the Company misleading or inappropriate. 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 the Company to meet their obligations as and when they fall due. At the date of this report, there does not exist: (a) (b) any charge on the assets of the Group and the Company which has arisen since the end of the financial year which secures the liability of any other person; or any contingent liability of the Group and the Company which has arisen since the end of the financial year. 24
Other Statutory Information (cont'd) At the date of this report, the directors are not aware of any circumstances not otherwise dealt with in this report or the financial statements which would render any amount stated in the financial statements misleading. In the opinion of the directors: (a) the results of the Group's and the Company s operations during the financial year were not 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 the operations of the Group and the Company for the financial year in which this report is made. Auditors The auditors,yong & Leonard (formerly known as K. K.Yong & Co.), have expressed their willingness to continue in office. Signed in accordance with a resolution of the Board of Directors: WONG PENG YEW Director SIM KENG SIONG Director Date : 14 April 2006 25
Statement by Directors Pursuant to Section 169 (15) of the Companies Act, 1965 We, Wong Peng Yew and Sim Keng Siong, being two of the directors of Ruby Quest Bhd., do hereby state that, in the opinion of the directors, the financial statements set out on pages 7 to 38 are drawn up so as to give a true and fair view of the state of affairs of the Group and of the Company as at 31 December 2005 and of the results and cash flows of the Group and of the Company for the year ended on that date in accordance with applicable MASB Approved Accounting Standards in Malaysia and the provisions of the Companies Act, 1965. Signed in accordance with a resolution of the Board of Directors : WONG PENG YEW Director SIM KENG SIONG Director Date : 14 April 2006 Statutory Declaration Pursuant to Section 169 (16) of the Companies Act, 1965 I, Lim Foo Seng, being the director primarily responsible for the financial management of Ruby Quest Bhd., do solemnly and sincerely declare that the financial statements set out on pages 7 to 38 are, in my opinion, correct and I make this solemn declaration conscientiously believing the same to be true, and by virtue of the provisions of the Statutory Declarations Act, 1960. Subscribed and solemnly declared by ) Lim Foo Seng ) at Petaling Jaya in the state of Selangor Darul Ehsan) on 14 April 2006 ) LIM FOO SENG Before me, 26 Commissioner For Oaths
Report of the Auditors to the members of RUBY QUEST BHD. (412406-T) We have audited the financial statements set out on pages 7 to 38. These financial statements are the responsibility of the Company s directors. It is our responsibility to form an independent opinion, based on our audit, on the financial statements and to report our opinion to you, as a body, in accordance with Section 174 of the Companies Act 1965 and for no other purpose. We do not assume responsibility to any other person for the content of this report. We conducted our audit in accordance with approved Approved Standards on Auditing in Malaysia. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the directors, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. In our opinion: (a) the financial statements have been properly drawn up in accordance with the provisions of the Companies Act, 1965 and applicable MASB Approved Accounting Standards in Malaysia so as to give a true and fair view of : (i) (ii) the financial position of the Group and the Company as at 31 December 2005 and of the result and the cash flow of the Group and the Company for the year then ended; and the matters required by Section 169 of the Companies Act 1965 to be dealt with in the financial statements; and (b) the accounting and other records and the registers required by the Act to be kept by the Group and the Company have been properly kept in accordance with the provisions of the Act. The names of the subsidiaries of which we have not acted as auditors are disclosed in Note 14 to the financial statements. We have considered the financial statements of these subsidiaries and the auditors reports thereon. We are satisfied that the financial statements of the subsidiaries that have been consolidated with the Company's financial statements are in form and content appropriate and proper for the purposes of the preparation of the consolidated financial statements and we have received satisfactory information and explanations as required by us for these purposes. The auditors' report on the financial statements of the subsidiaries were not subject to any qualification and did not include any adverse comment made under subsection (3) of Section 174 of the Act. 27 YONG & LEONARD (formerly known as K. K. Yong & Co) Firm Number : AF 0075 Chartered Accountants 14 April 2006 LEONG POOI WAH Approval Number: 2228/03/08(J) Partner of the firm
Income Statement for year ended 31 December 2005 Group Company 2005 2004 2005 2004 Note RM RM RM RM Revenue 4 26,847,059 14,730,126 - - Operating expenses 5 (24,769,043) (13,026,965) (79,244) (9,426) Other operating income 8 338,948 79,189 137,288 41,373 Other operating expenses 9 (5,219) - (40,000) - Profit from operations 2,411,745 1,782,350 18,044 31,947 Share of results of associates (612) (24,922) - - Finance costs 10 (139,001) (65,477) - - Profit before taxation 2,272,132 1,691,951 18,044 31,947 Taxation 11 (556,261) (271,226) (40,053) (6,753) Net profit / (loss) for the year 1,715,871 1,420,725 (22,009) 25,194 Earnings per share (RM) - Basic 12 (a) 0.02 4.21 - Diluted 12 (b) 0.02 3.67 28 The annexed notes form an integral part of these financial statements
Balance Sheets as at 31 December 2005 Group Company 2005 2004 2005 2004 Note RM RM RM RM Non-Current Assets Plant and equipment 13 1,417,387 474,616 - - Investments in subsidiaries 14 - - 7,256,959 863,002 Investments in associates 15-2,546-60,000 Deferred tax assets 16 38,069 19,127 - - Goodwill on consolidation 17 175,703 91,370 - - 1,631,159 587,659 7,256,959 923,002 Current Assets Amount due from customers 18-72,500 - - Inventories 19 2,568,056 1,944,848 - - Trade debtors 20 17,413,407 2,283,922 - - Other debtors, deposits and prepayments 2,228,170 459,791 11,617 84,480 Amount due from subsidiaries 14 - - 4,171,177 - Amount due from associates 15-186,805 - - Tax refundable 98,660 20,167-6,300 Deferred expenditure 21-411,505-411,505 Placement with licensed banks 22 7,839,808 3,317,880 6,000,000 1,999,980 Cash and bank balances 1,187,304 209,629 6,202 7,985 31,335,405 8,907,047 10,188,996 2,510,250 Less: Current Liabilities Trade creditors 6,905,652 1,067,834 - - Other creditors and accruals 410,573 187,967 59,652 66,486 Amount due to subsidiaries 14 - - 99,899 822,305 Amount due to associates 15-100,998-100,998 Provision for royalty expenses 23 141,335 100,921 - - Provision for taxation 1,260,849 88,034 17,406 - Borrowings (secured) 24 3,268,037 1,110,238 - - 11,986,446 2,655,992 176,957 989,789 Net Current Assets 19,348,959 6,251,055 10,012,039 1,520,461 Less: Non-Current Liabilities Borrowings (secured) 24 517,299 96,267 - - Deferred tax liabilities 25 15,411 9,807 - - 532,710 106,074 - - 29 20,447,408 6,732,640 17,268,998 2,443,463 Capital and Reserves Share capital 26 9,798,000 414,678 9,798,000 414,678 Share premium reserve 27 7,397,536 1,933,314 7,397,536 1,933,314 Reserves 28-1,782,385 - - Retained profits 3,251,872 2,602,263 73,462 95,471 Shareholders' Equity 20,447,408 6,732,640 17,268,998 2,443,463 The annexed notes form an integral part of these financial statements
Statements of Changes in Equity for the year ended 31 December 2005 Group Non-distributable Distributable Share Share Reserves on Retained capital premium consolidation profits Total (Note 26) (Note 27) (Note 28) RM RM RM RM RM At 1 January 2004 270,012-1,782,385 1,181,538 3,233,935 Issue of ordinary shares 78,000 - - - 78,000 Issue of convertible redeemable preference shares 66,666 1,933,314 - - 1,999,980 Net profit for the year - - - 1,420,725 1,420,725 At 31 December 2004 414,678 1,933,314 1,782,385 2,602,263 6,732,640 Reserve on consolidation arising from acquisitions of subsidiaries - - 1,399,304-1,399,304 Issue of ordinary shares - acquisition of subsidiaries 76,567 1,939,439 - - 2,016,006 - bonus issue 6,688,755 (2,440,804) (3,181,689) (1,066,262) - - public issue 2,618,000 7,330,400 - - 9,948,400 Listing expenses written off - (1,364,813) - - (1,364,813) Net profit for the year - - - 1,715,871 1,715,871 At 31 December 2005 9,798,000 7,397,536-3,251,872 20,447,408 30 The annexed notes form an integral part of these financial statements
Statements of Changes in Equity for the year ended 31 December 2005 Company Non-distributable Distributable Share Share Revaluation Retained capital premium reserve profits Total (Note 26) (Note 27) (Note 28) RM RM RM RM At 1 January 2004 270,012 - - 70,277 340,289 Issue of ordinary shares 78,000 - - - 78,000 Issue of convertible redeemable preference shares 66,666 1,933,314 - - 1,999,980 Net profit for the year - - - 25,194 25,194 At 31 December 2004 414,678 1,933,314-95,471 2,443,463 Surplus on revaluation of investments - - 4,247,951-4,247,951 Issue of ordinary shares: - acquisition of subsidiaries 76,567 1,939,439 - - 2,016,006 - bonus issue 6,688,755 (2,440,804) (4,247,951) - - - public issue 2,618,000 7,330,400 - - 9,948,400 Listing expenses written off - (1,364,813) - - (1,364,813) Net loss for the year - - - (22,009) (22,009) At 31 December 2005 9,798,000 7,397,536-73,462 17,268,998 31 The annexed notes form an integral part of these financial statements
Cash Flow Statements for the year ended 31 December 2005 Group Company 2005 2004 2005 2004 Note RM RM RM RM Operating Activities Profit before taxation 2,272,132 1,691,951 18,044 31,947 Adjustments for: Share of results of associates 612 24,922 - - Depreciation 283,931 178,200 - - Amortisation of goodwill 22,265 11,557 - - Provision for royalty expenses 40,414 100,921 - - Provision for diminution in value in associate 5,219-40,000 - Plant and equipment written off 2,501 355 - - Gain on disposals of plant and equipment (163,200) - - - Bad debts recoverable (17,386) (3,090) - - Interest income (157,762) (51,742) (137,288) (41,372) Interest expense 139,001 65,477 - - Operating profit / (loss) before working capital changes 2,427,727 2,018,551 (79,244) (9,425) Amount due from customers 72,500 40,500 - - Inventories (140,517) (149,226) - - Debtors (7,967,173) 877,980 79,712 - Creditors 1,141,813 (986,453) 14,344 (76,497) Amount due from subsidiaries - - (4,171,177) - Amount due from associates 186,805 (186,805) - - Amount due to subsidiaries - - (722,406) 332,077 Amount due to associates (100,998) 1,000 (100,998) 1,000 Cash (used in)/generated from operations (4,379,843) 1,615,547 (4,979,769) 247,155 Interest received 135,820 46,457 130,438 37,605 Interest paid (93,976) (51,860) - - Royalty paid - (48,065) - - Tax refunded 27,762 4,640 411 - Tax paid (489,678) (310,698) (16,758) (4,455) Net cash (used in)/generated from (4,799,915) 1,256,021 (4,865,678) 280,305 operating activities Investing Activities 30 (1,538,181) (472,855) (110,000) - Financing Activities 31 8,891,658 2,055,331 8,973,915 1,727,028 Net increase in cash and cash equivalents 2,553,562 2,838,497 3,998,237 2,007,333 Cash and cash equivalents at beginning of year 2,789,615 (48,882) 2,007,965 632 Cash and cash equivalents at end of year 32 5,343,177 2,789,615 6,006,202 2,007,965 The annexed notes form an integral part of these financial statements 32
Notes to the Financial Statements for the year ended 31 December 2005 1. Conversion to Public Company The Company has been converted from a private company to a public company and changed its name from Ruby Quest Sdn. Bhd. to Ruby Quest Berhad on 19 March 2004. 2. Accounting Policies (a) Basis of preparation The financial statements of the Group and the Company have been prepared under the historical cost convention and comply with applicable approved accounting standards in Malaysia and the provisions of the Companies Act, 1965. (b) Property, plant and equipment Plant and equipment are stated at cost less accumulated depreciation and any impairment losses. Depreciation for property, plant and equipment is calculated on a straight line basis to write off the cost of plant and equipment over their estimated useful lives at the following annual rates: Factory shop 2% Motor vehicles 10% - 20% Plant and machineries 20% - 33% Other assets 10% - 15% Freehold land is not depreciated as it has an infinite life. (c) Subsidiaries Subsidiaries are those companies in which the Group has power to exercise control over the financial and operating policies so as to obtain benefits from their activities. Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. 33 Subsidiaries are consolidated using the acquisition method of accounting. Under the acquisition method of accounting, the results of subsidiaries acquired or disposed of are included from the date of acquisition up to the date of disposal. At the date of acquisition, the fair values of the subsidiaries' net assets are determined and these values are reflected in the consolidated financial statements. The difference between the cost of acquisition over the Group's share of the fair value of the identifiable net assets of the subsidiary acquired at the date of acquisition is reflected as goodwill or reserve on consolidation. Goodwill is capitalised and amortised over ten years through the income statements. Intra-group transactions, balances and unrealised gains on transactions are eliminated. Unrealised losses are also eliminated unless cost cannot be recovered.
2. Accounting Policies (cont'd) (d) Associates Associates are enterprises in which the Group exercises significant influence, but which it does not control. Significant influence is the power to participate in the financial and operating policy decisions of the associates but not the power to exercise control over those policies. Investments in associates are accounted for in the consolidated financial statements by the equity method of accounting. Equity accounting involves recognising the Group's share of the post acquisition results of associates in the income statement and its share of post acquisition movements within reserves in reserves. The cumulative post acquisition movements are adjusted against the cost of the investment and includes goodwill on acquisition (net of accumulated amortisation). Equity accounting is discontinued when the carrying amount of the investment in an associate reaches zero, unless the Group has incurred obligations or made payments on behalf of the associate. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group's interest in the associates; unrealised losses are also eliminated unless the transaction provides evidence on impairment of the asset transferred. Where necessary, in applying the equity method, adjustments are made to the financial statements of associates to ensure consistency of accounting policies with those of the Group. (e) Impairment of assets The carrying amounts of the Group's and of the Company's assets are reviewed at each balance sheet date to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, impairment is measured by comparing the carrying values of the assets with their recoverable amounts. Recoverable amount is the higher of net selling price and value in use, which is measured by reference to discounted future cash flows. Recoverable amounts are estimated for individual assets or, if it is not possible, for the cash-generating units to which the assets belong. The impairment loss is charged to the income statement and any subsequent increase in recoverable amount is recognised in the income statement. (f) Finance lease Leases of plant and equipment where the Group assumes substantially all the benefits and risks of ownership are classified as finance leases. 34 Finance leases are capitalised at the inception of the lease at the lower of the fair value of the leased property or the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in borrowings. The interest element of the finance charge is charged to the income statement over the lease period. Plant and equipment under acquired finance lease is depreciated over the estimated useful life of the asset. Where there is no reasonable certainty that the ownership will be transferred to the Company, the asset is depreciated over the shorter of the lease term and its estimated useful life.