COMPANY NO GUAN CHONG BERHAD Incorporated

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					COMPANY NO. 646226 - K

GUAN CHONG BERHAD
(Incorporated in Malaysia)




CONTENTS                                   Page


1.     CORPORATE INFORMATION                 1-2

2.     DIRECTORS' REPORT                     3-7

3.     STATEMENT BY DIRECTORS                 8

4.     STATUTORY DECLARATION                  9

5.     INDEPENDENT AUDITORS' REPORT        10-11

6.     BALANCE SHEETS                        12

7.     INCOME STATEMENTS                     13

8.     STATEMENTS OF CHANGES IN EQUITY     14-15

9.     CASH FLOW STATEMENTS                16-17

10.    NOTES TO THE FINANCIAL STATEMENTS   18-52
COMPANY NO. 646226 - K

GUAN CHONG BERHAD
(Incorporated in Malaysia)




                             CORPORATE INFORMATION

BOARD OF DIRECTORS           EXECUTIVE CHAIRMAN
                             DATO DR. MOHAMAD MUSA BIN MD. JAMIL

                             MANAGING DIRECTOR
                             TAY HOE LIAN

                             EXECUTIVE DIRECTOR
                             TAY HOW SIK @ TAY HOW SICK
                             HIA CHENG

                             INDEPENDENT NON-EXECUTIVE DIRECTOR
                             TAY PUAY CHUAN
                             TAN AH LAI

                             NON-INDEPENDENT NON-EXECUTIVE DIRECTOR
                             MAJ GEN (R) DATO PAHLAWAN AMIRUDIN MAHMUD BIN ALADAD KHAN

                             ALTERNATE DIRECTOR
                             TEY CHI @ TAY CHIN CHUAN, JP (Alternate Director to TAY HOE LIAN)
                             TAY HOW YEH (Alternate Director to TAY HOW SIK @ TAY HOW SICK)

AUDIT COMMITTEE              CHAIRMAN
                             TAN AH LAI

                             MEMBERS
                             TAY PUAY CHUAN
                             MAJ GEN (R) DATO PAHLAWAN AMIRUDIN MAHMUD BIN ALADAD KHAN

NOMINATION COMMITTEE         CHAIRMAN
                             TAY PUAY CHUAN

                             MEMBER
                             MAJ GEN (R) DATO PAHLAWAN AMIRUDIN MAHMUD BIN ALADAD KHAN

REMUNERATION COMMITTEE       CHAIRMAN
                             DATO DR. MOHAMAD MUSA BIN MD. JAMIL

                             MEMBERS
                             TAY PUAY CHUAN
                             MAJ GEN (R) DATO PAHLAWAN AMIRUDIN MAHMUD BIN ALADAD KHAN

COMPANY SECRETARY            PANG KAH MAN (f)
                             MIA 18831

AUDITORS                     SC LIM, NG & CO. (AF 0681)
                             CHARTERED ACCOUNTANTS
                             8 (2nd Floor), Jalan Pesta 1/1
                             Taman Tun Dr. Ismail 1, Jalan Bakri
                             84000 Muar, Johor Darul Takzim




                                                     1
COMPANY NO. 646226 - K

GUAN CHONG BERHAD
(Incorporated in Malaysia)




                              CORPORATE INFORMATION - (cont'd)


SOLICITORS                    CHEE SIAH LE KEE & PARTNERS
                              NIK SAGHIR & ISMAIL
                              PHILIP TEOH & CO

PRINCIPAL BANKERS             AMBANK (M) BERHAD
                              HONG LEONG BANK BERHAD
                              HSBC BANK MALAYSIA BERHAD
                              MALAYAN BANKING BERHAD
                              OCBC BANK (MALAYSIA) BERHAD
                              PUBLIC BANK BERHAD
                              RHB BANK BERHAD
                              STANDARD CHARTERED BANK MALAYSIA BERHAD

SHARE REGISTRAR               SYMPHONY SHARE REGISTRARS SDN. BHD.
                              Level 26, Menara Multi Purpose
                              Capital Square
                              No. 8, Jalan Munshi Abdullah
                              50100 Kuala Lumpur
                              TEL : 603-27212222
                              FAX : 603-27212530

REGISTERED OFFICE             8 (1st Floor), Jalan Pesta 1/1
                              Taman Tun Dr. Ismail 1, Jalan Bakri
                              84000 Muar, Johor Darul Takzim
                              TEL : 606-9541705
                              FAX : 606-9527328

PRINCIPAL PLACE OF BUSINESS   PLO 273, Jalan Timah 2
                              Kawasan Perindustrian Pasir Gudang
                              81700 Pasir Gudang, Johor Darul Takzim

STOCK EXCHANGE LISTING        MAIN BOARD OF BURSA MALAYSIA SECURITIES BERHAD




                                                     2
COMPANY NO. 646226 - K

GUAN CHONG BERHAD
(Incorporated in Malaysia)                                                                      DIRECTORS’ REPORT




The Directors have pleasure in submitting their report together with the audited financial statements of the Group and
of the Company for the financial year ended 31 December 2008.


PRINCIPAL ACTIVITIES

The principal activities of the Company are investment holding and provision of management services. The principal
activities of its subsidiaries are disclosed in Note 5 to the financial statements.

There have been no significant changes in the nature of these principal activities during the financial year.


RESULTS
                                                                                             Group          Company
                                                                                               RM                 RM
Profit for the financial year                                                               7,306,803           2,704,326

Attributable to:
Equity holders of the Company                                                               6,979,702           2,704,326
Minority interests                                                                            327,101                 -

                                                                                            7,306,803           2,704,326


In the opinion of the Directors, the results of the operations of the Group and of the Company during the financial year
were not substantially affected by any item, transaction or event of a material and unusual nature.


DIVIDENDS

Dividends paid or declared by the Company since the end of the previous financial year were as follows :

(i)   A final tax-exempt dividend of 2.0% equivalent to 0.5 sen per share amounting to RM 1,200,000 in respect of the
      financial year ended 31 December 2007 was approved by the shareholders during the Annual General Meeting
      held on 26 June 2008 and subsequently paid on 25 July 2008. The payment was made to the shareholders
      whose names appeared in the Company’s Record of Depositors on 16 July 2008.

(ii) A first interim tax-exempt dividend of 2.0% equivalent to 0.5 sen per share amounting to RM 1,200,000 in respect
     of the financial year ended 31 December 2008 was declared on 27 November 2008 and subsequently paid on 29
     December 2008. The payment was made to the shareholders whose names appeared in the Company’s Record
     of Depositors on 18 December 2008.

(iii) A first interim tax-exempt dividend of 2.0% equivalent to 0.5 sen per share amounting to RM 1,200,000 in respect
      of the financial year ending 31 December 2009 was declared on 28 February 2009 and subsequently paid on 16
      March 2009. The payment was made to the shareholders whose names appeared in the Company’s Record of
      Depositors on 6 March 2009.

The Board of Directors do not recommend the payment of any final dividend in respect of the financial year ended 31
December 2008.


RESERVES AND PROVISIONS

There were no material transfers to or from reserves and provisions during the financial year save as disclosed in the
financial statements.

                                                                3
COMPANY NO. 646226 - K

GUAN CHONG BERHAD
(Incorporated in Malaysia)                                                               DIRECTORS’ REPORT




SIGNIFICANT EVENTS DURING THE FINANCIAL YEAR

(a) On 12 June 2008, Guan Chong Berhad (“GCB”) incorporated a wholly-owned subsidiary in the Federal Territory
    of Labuan, Malaysia known as GCB Oversea Holdings Corporation (“GCBOHC”). The authorised share capital of
    GCBOHC is 10,000 ordinary shares with a par value of USD 1.00 each and its issued and paid-up share capital
    is 1 ordinary share of USD 1.00 each.

(b) At Annual General Meeting held on 26 June 2008, the shareholders of the Company approved the termination of
    the existing Employee Share Option Scheme (“ESOS”) with effect from 30 June 2008. As a result, the equity
    amounts recognised in the share option reserve were reversed upon the termination.

(c) On 22 August 2008, the Company’s wholly-owned subsidiary, GCB Oversea Holdings Sdn. Bhd. (“GCBOH”),
    incorporated a subsidiary in Germany known as GCB Cacao GmbH (“GCB Cacao”) and subscribed 25,000 new
    ordinary shares of Euro 1.00 each at par for cash. As a result, GCB Cacao became a wholly-owned subsidiary of
    GCBOH to undertake the manufacturing and distributing activities of premium cocoa ingredients for European
    market.

    On 9 September 2008, GCBOH had transferred the entire share capital in GCB Cacao of 25,000 ordinary shares
    of Euro 1.00 each to GCBOHC.


ISSUE OF SHARES AND DEBENTURES

There was no issue of shares and debentures during the financial year.


OPTIONS GRANTED OVER UNISSUED SHARES

No options were granted by the Company to any person to take up unissued shares of the Company during the
financial year. The scheme of ESOS had been terminated with effect from 30 June 2008.


HOLDING COMPANY

The Company is a subsidiary of Guan Chong Resources Sdn. Bhd., a company incorporated in Malaysia, which is
also regarded by the Directors as the ultimate holding company.


DIRECTORS OF THE COMPANY

The Directors who served since the date of last report are :

Dato Dr. Mohamad Musa Bin Md. Jamil
Tay Hoe Lian
Tay How Sik @ Tay How Sick
Hia Cheng
Tay Puay Chuan
Tey Chi @ Tay Chin Chuan, JP                    (Alternate Director to Tay Hoe Lian)
Tay How Yeh                                     (Alternate Director to Tay How Sik @ Tay How Sick)
Tan Ah Lai
Maj Gen (R) Dato Pahlawan Amirudin Mahmud Bin Aladad Khan

In accordance with Articles 81 of the Company’s Articles of Association, Dato Dr. Mohamad Musa Bin Md. Jamil and
Mr. Tay How Sik @ Tay How Sick retire at the forthcoming Annual General Meeting and being eligible, offer
themselves for re-election.



                                                               4
COMPANY NO. 646226 - K

GUAN CHONG BERHAD
(Incorporated in Malaysia)                                                                       DIRECTORS’ REPORT




DIRECTORS' INTERESTS

According to the register of directors’ shareholdings, the interests of the Directors in office at the end of the financial
year in the shares of the Company and its related corporations during the financial year were as follows :

The Company
                                                                     Number of Ordinary Shares of RM 0.25 Each
                                                              Balance At                                       Balance At
                                                              01.01.2008       Bought           Sold           31.12.2008
Dato Dr. Mohamad Musa Bin Md. Jamil - Direct                     50,000               -                -          50,000
                                    - Indirect (1)           23,000,000               -                -      23,000,000
Tay Hoe Lian                        - Direct                  5,959,846               -                -       5,959,846
                                    - Indirect (2)          124,890,000               -                -     124,890,000
Tay How Sik @ Tay How Sick                                    3,019,925               -                -       3,019,925
Hia Cheng                           - Direct                  1,578,990               -                -       1,578,990
                                    - Indirect (3)            1,016,000               -                -       1,016,000
Tay Puay Chuan                                                   20,000               -                -          20,000
Tey Chi @ Tay Chin Chuan, JP        - Direct                  2,152,865               -                -       2,152,865
                                    - Indirect (4)            1,872,012               -                -       1,872,012
Tay How Yeh                         - Direct                  2,979,923               -                -       2,979,923
                                    - Indirect (5)              280,100               -                -         280,100

Notes :

(1) Deemed interest by virtue of his shareholding in Misi Galakan Sdn. Bhd..
(2) Deemed interest by virtue of his shareholding in GCR and his wife, Yap Kim Hong’s shareholding in the
    Company.
(3) Deemed interest by virtue of his wife, Wong Saow Lai’s shareholding in the Company.
(4) Deemed interest by virtue of his wife, Tan Bak Keng @ Tan Ka Guek’s shareholding in the Company.
(5) Deemed interest by virtue of his wife, Chan Lee Yin’s shareholding in the Company.

Holding Company – Guan Chong Resources Sdn. Bhd. (“GCR”)
                                                                     Number of Ordinary Shares of RM 1.00 Each
                                                              Balance At                                       Balance At
                                                              01.01.2008       Bought           Sold           31.12.2008
Tay Hoe Lian                                                      19,000              -                -           19,000
Tay How Sik @ Tay How Sick                                        13,934              -                -           13,934
Hia Cheng                                                          5,000              -                -            5,000
Tay How Yeh                                                       13,933              -                -           13,933

By virtue of his interest in the shares of GCR, Mr. Tay Hoe Lian is also deemed to have an interest in the shares of all
the subsidiaries of GCR to the extent that GCR has an interest.

Other than as disclosed above, none of the other Directors in office at the end of the financial year had any interest in
shares of the Company and its related corporations during the financial year.




                                                                 5
COMPANY NO. 646226 - K

GUAN CHONG BERHAD
(Incorporated in Malaysia)                                                                          DIRECTORS’ REPORT




DIRECTORS’ BENEFITS

Since the end of the previous financial year, no Director of the Company has received or become entitled to receive
any benefit (other than a benefits included in the aggregate amount of emoluments received or due and receivable by
the Directors or the fixed salaries of full time employees of the Company as disclosed in Note 19 to 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 save as
disclosed in Note 24 to the financial statements.

During and at the end of the financial year, no arrangements subsisted to which the Company was a party, whereby
the Directors of the Company might acquire benefits by means of the acquisition of shares in, or debentures of, the
Company or any other body corporate.


OTHER STATUTORY INFORMATION

(a)   Before the balance sheets and the income statements of the Group and of the Company were made out, the
      Directors took reasonable steps :

      (i)     to ascertain that proper action had been taken in relation to the writing off of bad debts and the making
              of allowance for doubtful debts and have satisfied themselves that all known bad debts had been written
              off and that adequate allowance had been made for doubtful debts ; and

      (ii)    to ensure that any current assets which were unlikely to realise their values as shown in the accounting
              records in the ordinary course of business had been written down to an amount which they might be
              expected so to realise.

(b)   At the date of this report, the Directors are not aware of any circumstances :

      (i)     which would render the amount write off for bad debts or the amount of the allowance for doubtful debts
              in the financial statements of the Group and of the Company inadequate to any substantial extent ; or

      (ii)    which would render the values attributed to current assets in the financial statements of the Group and
              of the Company misleading ; or

      (iii)   which have arisen which render adherence to the existing method of valuation of assets or liabilities of
              the Group and of the Company misleading or inappropriate ; or

      (iv)    not otherwise dealt with in this report or financial statements of the Group and of the Company which
              would render any amount stated in the financial statements misleading.

(c)   At the date of this report, there does not exist :

      (i)     any charge on the assets of the Group and of the Company which has arisen since the end of the
              financial year and which secures the liabilities of any other person ; or

      (ii)    any contingent liability in respect of the Group and of the Company which has arisen since the end of
              the financial year.

(d)   In the opinion of the Directors :

      (i)     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 will or may affect the ability of the
              Group and of the Company to meet their obligations as and when they fall due ; and

      (ii)    no item, transaction or event of a material and unusual nature has arisen in the interval between the
              end of the financial year and the date of this report which is likely to affect substantially the results of the
              operations of the Group and of the Company for the financial year in which this report is made.


                                                                   6
COMPANY NO. 646226 - K

GUAN CHONG BERHAD
(Incorporated in Malaysia)                                                                       DIRECTORS’ REPORT




AUDITORS

The auditors, Messrs. SC Lim, Ng & Co., have expressed their willingness to continue in office.


Signed on behalf of the Board in accordance with a resolution of the Directors :




..........................................................................................
TAY HOE LIAN
Director




..........................................................................................
TAY HOW SIK @ TAY HOW SICK
Director




Muar, Johor Darul Takzim
Date : 15 April 2009




                                                                                             7
COMPANY NO. 646226 - K

GUAN CHONG BERHAD
(Incorporated in Malaysia)




STATEMENT BY DIRECTORS
Pursuant to Section 169(15) of the Companies Act, 1965

We, the undersigned, being two of the Directors of Guan Chong Berhad, do hereby state that, in the opinion of the
Directors, the financial statements set out on pages 12 to 52 are drawn up in accordance with applicable Financial
Reporting Standards and the Companies Act, 1965 in Malaysia so as to give a true and fair view of the state of affairs
of the Group and of the Company at 31 December 2008 and of the results and cash flows of the Group and of the
Company for the financial year ended on that date.


Signed on behalf of the Board in accordance with a resolution of the Directors :




.................................................................................
TAY HOE LIAN
Director




.................................................................................
TAY HOW SIK @ TAY HOW SICK
Director




Muar, Johor Darul Takzim
Date : 15 April 2009




                                                                                    8
COMPANY NO. 646226 - K

GUAN CHONG BERHAD
(Incorporated in Malaysia)




STATUTORY DECLARATION
Pursuant to Section 169(16) of the Companies Act, 1965

I, HIA CHENG, the Director primarily responsible for the financial management of Guan Chong Berhad, do solemnly
and sincerely declare that the financial statements set out on pages 12 to 52 are to the best of my knowledge and
belief, 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 the abovenamed HIA CHENG                  }
at Muar in the state of Johor                }
Darul Takzim on 15 April 2009                }




                                                           ……………………………………………………………………
                                                           HIA CHENG

Before me :
Commissioner for Oaths




                                                               9
COMPANY NO. 646226 - K

GUAN CHONG BERHAD
(Incorporated in Malaysia)                                                     INDEPENDENT AUDITORS’ REPORT




To the members of
GUAN CHONG BERHAD


REPORT ON THE FINANCIAL STATEMENTS

We have audited the financial statements of Guan Chong Berhad, which comprise the balance sheets at 31
December 2008 of the Group and of the Company, and the income statements, statements of changes in equity and
cash flow statements of the Group and of the Company for the financial year then ended, and a summary of
significant accounting policies and other explanatory notes, as set out on pages 12 to 52.

Directors’ Responsibility For The Financial Statements

The Directors of the Company are responsible for the preparation and fair presentation of these financial statements
in accordance with applicable Financial Reporting Standards and the Companies Act, 1965 in Malaysia. This
responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair
presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting
and applying appropriate accounting policies; and making accounting estimates that are reasonable in the
circumstances.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit
in accordance with the approved standards on auditing in Malaysia. Those standards require that we comply with
ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements
are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial
statements. The procedures selected depend on our judgment, including the assessment of risks of material
misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we
consider internal control relevant to the Company’s preparation and fair presentation of the financial statements in
order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness
of accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as
evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.

Opinion

In our opinion, the financial statements have been properly drawn up in accordance with applicable Financial
Reporting Standards and the Companies Act, 1965 in Malaysia so as to give a true and fair view of the financial
position of the Group and of the Company at 31 December 2008 and of their financial performance and cash flows for
the financial year then ended.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

In accordance with the requirements of the Companies Act, 1965 in Malaysia, we also report the following :

(a) In our opinion, the accounting and other records and the registers required by the Act to be kept by the Company
    and its subsidiaries of which we have acted as auditors have been properly kept in accordance with the
    provisions of the Act.

(b) We have considered the financial statements and the auditors’ reports of all the subsidiaries of which we have
    not acted as auditors, which are indicated in Note 5 to the financial statements.

                                                               10
COMPANY NO. 646226 - K

GUAN CHONG BERHAD
(Incorporated in Malaysia)                                                 INDEPENDENT AUDITORS’ REPORT




REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS – (cont’d)

(c) 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 financial statements of the Group and we have received satisfactory information and
    explanations required by us for those purposes.

(d) The auditors’ reports on the financial statements of the subsidiaries did not contain any qualification or any
    adverse comment made under Section 174(3) of the Act.

OTHER MATTERS

This report is made solely to the members of the Company, as a body, in accordance with Section 174 of the
Companies Act, 1965 in Malaysia and for no other purpose. We do not assume responsibility to any other person for
the content of this report.




...........................………………………………………
SC LIM, NG & CO.
No. AF 0681
Chartered Accountants




...........................………………………………………
NG KIM KIAT
No. 2074/10/10 (J)
Partner




Muar, Johor Darul Takzim
Date : 15 April 2009




                                                            11
COMPANY NO. 646226 - K

GUAN CHONG BERHAD                                                                                           BALANCE SHEETS
(Incorporated in Malaysia)                                                                                 At 31 December 2008




                                                                       Group                               Company
                                               Note           2008              2007               2008              2007
                                                               RM                RM                RM                RM
ASSETS
Non-Current Assets
Property, plant and equipment                    3         106,619,837       106,144,914               -                 -
Prepaid lease payments                           4           5,641,076         5,844,596               -                 -
Investment in subsidiaries                       5                 -                 -          34,468,464        34,468,460
Investment in associate                          6           4,740,009         4,610,433               -                 -
Deferred tax asset                               7                 -             194,601               -             194,601

                                                           117,000,922       116,794,544        34,468,464        34,663,061
Current Assets
Inventories                                      8         139,031,997       121,173,592               -                 -
Trade and other receivables                      9          74,203,514        64,912,711        47,335,656        47,441,004
Bank and cash balances                                       3,670,873         3,740,735            28,987           171,212

                                                           216,906,384       189,827,038        47,364,643        47,612,216

TOTAL ASSETS                                               333,907,306       306,621,582        81,833,107        82,275,277

EQUITY AND LIABILITIES
Share capital                                   10          60,000,000         60,000,000       60,000,000        60,000,000
Reserves                                        11          38,729,892         34,928,297       21,807,107        22,223,525

Equity Attributable to Equity Holders                       98,729,892         94,928,297       81,807,107        82,223,525
   of the Company
Minority interests                                           1,763,504          1,436,403                  -                -

TOTAL EQUITY                                               100,493,396         96,364,700       81,807,107        82,223,525

Non-Current Liabilities
Bank borrowings                                 12          12,394,503         11,178,176                  -                -
Hire purchase payables                          13             489,140            670,618                  -                -
Deferred tax liabilities                         7          12,893,642         11,788,415                  -                -

                                                            25,777,285         23,637,209                  -                -
Current Liabilities
Trade and other payables                        14          31,708,582        52,917,685                26,000        51,752
Bank borrowings                                 12         175,149,993       133,079,711                   -             -
Hire purchase payables                          13             425,222           521,631                   -             -
Tax liabilities                                                352,828           100,646                   -             -

                                                           207,636,625       186,619,673                26,000        51,752

TOTAL LIABILITIES                                          233,413,910       210,256,882                26,000        51,752

TOTAL EQUITY AND LIABILITIES                               333,907,306       306,621,582        81,833,107        82,275,277


                             The accompanying notes form an integral part of the financial statements


                                                                  12
COMPANY NO. 646226 - K

GUAN CHONG BERHAD                                                                                      INCOME STATEMENTS
(Incorporated in Malaysia)                                                     For The Financial Year Ended 31 December 2008




                                                                          Group                                Company
                                                 Note            2008                2007               2008             2007
                                                                 RM                   RM                 RM              RM
REVENUE                                           15          694,334,528         464,110,512       2,400,000       28,489,800

COST OF SALES                                                (648,805,264)        (430,099,619)                -                -

GROSS PROFIT                                                   45,529,264          34,010,893       2,400,000       28,489,800

OTHER INCOME                                                    4,145,902            7,935,861          874,634           27,454

SELLING AND DISTRIBUTION EXPENSES                             (12,318,592)         (10,859,991)                -                -

ADMINISTRATIVE EXPENSES                                        (7,158,842)          (6,555,426)         (390,923)     (655,615)

OTHER EXPENSES                                                (13,011,944)            (487,583)                -      (232,590)

OPERATING PROFIT                                               17,185,788          24,043,754       2,883,711       27,629,049

FINANCE COSTS                                     16           (8,650,717)          (7,580,840)             (942)               -

SHARE OF RESULTS OF ASSOCIATE                      6            1,197,557            1,156,289                 -                -

PROFIT BEFORE TAX                                 17            9,732,628          17,619,203       2,882,769       27,629,049

TAX EXPENSE                                       20           (2,425,825)          (3,311,142)         (178,443)   (5,955,150)

PROFIT FOR THE FINANCIAL YEAR                                   7,306,803          14,308,061       2,704,326       21,673,899

ATTRIBUTABLE TO :
EQUITY HOLDERS OF THE COMPANY                                   6,979,702          14,211,770       2,704,326       21,673,899
MINORITY INTERESTS                                                327,101              96,291             -                -

                                                                7,306,803          14,308,061       2,704,326       21,673,899

EARNINGS PER ORDINARY SHARE                       21
   - Basic (Sen)                                                        2.91                5.92

   - Diluted (Sen)                                                      N/A                 5.87




                             The accompanying notes form an integral part of the financial statements




                                                                  13
COMPANY NO. 646226 – K

GUAN CHONG BERHAD                                                                                                                       STATEMENTS OF CHANGES IN EQUITY
(Incorporated in Malaysia)                                                                                                        For The Financial Year Ended 31 December 2008




Group
                                                                       Attributable To Equity Holders Of The Company

                                                                                 Non-Distributable                Distributable

                                                                                Foreign
                                                                                Currency           Share                             Total
                                                                                Translation        Options         Retained          Shareholders'      Minority
                                       Note   Share Capital    Share Premium    Reserve            Reserve          Profits          Equity            Interests      Total Equity
                                                    RM              RM                 RM              RM             RM                   RM            RM               RM
At 1 January 2007                                 60,000,000        7,718,018          (177,352)       480,496       20,274,318          88,295,480      1,326,038      89,621,518

Acquisition of subsidiaries                              -                -                 -                -                -                 -          150,000         150,000

Foreign currency translation reserve                     -                -            109,799               -                -             109,799            -           109,799
Net loss not recognised in the
  consolidated income statements                         -                -            109,799               -                -             109,799            -           109,799

Share options granted under ESOS                         -                -                 -          240,248                -             240,248            -           240,248

Profit for the financial year                            -                -                 -                -       14,211,770          14,211,770         96,291      14,308,061

Dividends                              22                -                -                 -                -       (7,929,000)         (7,929,000)      (135,926)     (8,064,926)

At 31 December 2007                               60,000,000        7,718,018           (67,553)       720,744       26,557,088          94,928,297      1,436,403      96,364,700

Foreign currency translation reserve                     -                -             (57,363)             -                -             (57,363)           -           (57,363)
Net loss not recognised in the
  consolidated income statements                         -                -             (57,363)             -                -             (57,363)           -           (57,363)
Share options granted under ESOS                         -                -                 -         (720,744)               -            (720,744)           -          (720,744)
Profit for the financial year                            -                -                 -                -        6,979,702           6,979,702        327,101       7,306,803
Dividends                              22                -                -                 -                -       (2,400,000)         (2,400,000)           -        (2,400,000)

At 31 December 2008                               60,000,000        7,718,018          (124,916)             -       31,136,790          98,729,892      1,763,504     100,493,396




                                               The accompanying notes form an integral part of the financial statements


                                                                                  14
COMPANY NO. 646226 – K

GUAN CHONG BERHAD                                                                                              STATEMENTS OF CHANGES IN EQUITY
(Incorporated in Malaysia)                                                                               For The Financial Year Ended 31 December 2008




Company
                                                                                              Attributable To Equity Holders Of The Company

                                                                                             Non-Distributable              Distributable

                                                                                                       Share Options
                                                  Note         Share Capital     Share Premium           Reserve           Retained Profits   Total Equity

                                                                    RM                  RM                    RM                 RM               RM

At 1 January 2007                                                  60,000,000           7,718,018                480,496            39,864       68,238,378

Share options granted under ESOS                                           -                   -                 240,248               -            240,248

Profit for the financial year                                              -                   -                     -          21,673,899       21,673,899

Dividends                                          22                      -                   -                     -          (7,929,000)      (7,929,000)

At 31 December 2007                                                60,000,000           7,718,018                720,744        13,784,763       82,223,525

Share options granted under ESOS                                           -                   -              (720,744)                -           (720,744)

Profit for the financial year                                              -                   -                     -           2,704,326        2,704,326

Dividends                                          22                      -                   -                     -          (2,400,000)      (2,400,000)

At 31 December 2008                                                60,000,000           7,718,018                    -          14,089,089       81,807,107




                                   The accompanying notes form an integral part of the financial statements




                                                                      15
COMPANY NO. 646226 - K

GUAN CHONG BERHAD                                                               CASH FLOW STATEMENTS
(Incorporated in Malaysia)                                  For The Financial Year Ended 31 December 2008




                                                      Group                            Company

                                      Note     2008              2007           2008             2007
                                                RM               RM              RM              RM
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax                             9,732,628        17,619,203      2,882,769     27,629,049
Adjustments for :
Allowance for doubtful debts                        -             170,632            -               -
Amortisation of prepaid lease payments           68,068            68,068            -               -
Bad debts recovered                              (4,604)              -              -               -
Bad debts written off                           722,869           260,652            -               -
Depreciation                                  7,340,096         5,914,103            -               -
Dividend income                                     -                 -       (2,400,000)    (28,453,800)
Gain on disposal of property, plant and
   equipment                                    (27,769)         (242,994)             -                -
Property, plant and equipment written off        20,284             6,000              -                -
Reversal of allowance for doubtful debts       (372,101)              -                -                -
Reversal of union case claim                        -            (349,616)             -                -
Reversal of share options granted under
   ESOS                                         (720,744)             -         (720,744)            -
Share of profit of associate                  (1,197,557)      (1,156,289)           -               -
Share options granted under ESOS                     -            240,248            -           240,248
Sub-lease rental                                 259,190          259,191            -               -
Unrealised (gain)/loss on foreign exchange      (997,346)      (1,477,865)      (139,021)        228,769
Write-down of inventories                        676,455              -              -               -
Write-off of inventory                             1,908              -              -               -
Interest expenses                              7,545,026        6,701,296            -               -
Interest income                                 (313,269)        (571,424)        (4,181)        (27,454)

OPERATING PROFIT/(LOSS) BEFORE WORKING
  CAPITAL CHANGES                            22,733,134        27,441,205       (381,177)        (383,188)

Changes In Working Capital
Inventories                                  (18,536,768)     (17,332,272)           -               -
Trade and other receivables                  (10,241,331)     (19,063,726)       260,527     (11,420,555)
Trade and other payables                     (20,499,728)      19,037,437        (25,752)         10,846

CASH (ABSORBED INTO)/GENERATED FROM
   OPERATIONS                                (26,544,693)      10,082,644       (146,402)    (11,792,897)
Dividends received                                   -                -        2,400,000      22,326,474
Interest paid                                 (7,545,026)      (6,701,296)           -               -
Interest received                                313,269          571,424          4,181          27,454
Tax paid                                        (873,815)      (1,377,350)           -          (117,400)

NET CASH (USED IN)/FROM OPERATING
  ACTIVITIES                                 (34,650,265)       2,575,422      2,257,779     10,443,631

FORWARD                                      (34,650,265)       2,575,422      2,257,779     10,443,631




                                                 16
COMPANY NO. 646226 - K

GUAN CHONG BERHAD                                                                                 CASH FLOW STATEMENTS
(Incorporated in Malaysia)                                                    For The Financial Year Ended 31 December 2008




                                                                            Group                            Company
                                                   Note          2008                 2007          2008                2007
                                                                 RM                   RM                RM               RM
FORWARD                                                      (34,650,265)            2,575,422     2,257,779           10,443,631

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of subsidiaries                                             -                    -               -            (94,002)
Subscription of shares in a subsidiary                                  -                    -                   (4)   (2,256,000)
Proceeds from issuance of new shares to
   minority shareholders in a subsidiary                                -             150,000                -                 -
Proceeds from disposal of property, plant
   and equipment                                                   95,285         1,103,200                  -                 -
Purchase of property, plant and equipment      3(b)            (7,843,660)      (36,137,511)                 -                 -
Payment for the sub-leases of land and
   warehouses                                                    (123,738)            (379,300)              -                 -
Interim capital distribution from an associate                  1,067,981              863,217               -                 -

NET CASH (USED IN) INVESTING ACTIVITIES                        (6,804,132)      (34,400,394)                     (4)   (2,350,002)

CASH FLOWS FROM FINANCING ACTIVITIES
Net movements in short-term borrowings                        43,202,845            26,086,347           -                    -
Drawdown of term loans                                         6,700,000            15,321,036           -                    -
Repayment of hire purchase payables                             (692,387)           (1,279,340)          -                    -
Repayment of term loans                                       (4,223,320)           (2,324,661)          -                    -
Dividends paid                                                (2,400,000)           (7,929,000)   (2,400,000)          (7,929,000)
Dividend paid to minority shareholders of
  a subsidiary                                                          -             (135,926)              -                 -

NET CASH FROM/(USED IN) FINANCING
  ACTIVITIES                                                  42,587,138            29,738,456    (2,400,000)          (7,929,000)

NET INCREASE/(DECREASE) IN CASH AND
  CASH EQUIVALENTS                                              1,132,741           (2,086,516)     (142,225)            164,629

EFFECT ON EXCHANGE RATE CHANGES                                  (102,480)            109,799                -                 -

CASH AND CASH EQUIVALENTS AT THE
  BEGINNING OF FINANCIAL YEAR                                  (1,184,540)            792,177           171,212             6,583

CASH AND CASH EQUIVALENTS AT THE
  END OF FINANCIAL YEAR                              23          (154,279)          (1,184,540)          28,987          171,212




                             The accompanying notes form an integral part of the financial statements




                                                                  17
COMPANY NO. 646226 - K

GUAN CHONG BERHAD                                                       NOTES TO THE FINANCIAL STATEMENTS
(Incorporated in Malaysia)                                                Financial Year Ended 31 December 2008




1.   CORPORATE INFORMATION

     The principal activities of the Company are investment holding and provision of management services. The
     principal activities of its subsidiaries are disclosed in Note 5. There have been no significant changes in the
     nature of these principal activities during the financial year.

     The Company was incorporated in Malaysia as a public limited liability company. It is domiciled in Malaysia and
     is listed on the Main Board of Bursa Malaysia Securities Berhad.

     The Company is a subsidiary of Guan Chong Resources Sdn. Bhd., a company incorporated in Malaysia, which
     is also regarded by the Directors as the ultimate holding company.

     The address of the registered office of the Company is 8 (1st Floor), Jalan Pesta 1/1, Taman Tun Dr. Ismail 1,
     Jalan Bakri, 84000 Muar, Johor Darul Takzim. Its principal place of business is located at PLO 273, Jalan Timah
     2, Kawasan Perindustrian Pasir Gudang, 81700 Pasir Gudang, Johor Darul Takzim.

     These financial statements were authorised for issue by the Board of Directors in accordance with a resolution of
     the Directors on 15 April 2009.


2.   SIGNIFICANT ACCOUNTING POLICIES

     2.1 Basis of Preparation

         (a) The financial statements of the Group and of the Company have been prepared in accordance with
             applicable Financial Reporting Standards (“FRSs”) and the Companies Act, 1965 in Malaysia. At the
             beginning of current financial year, the Group and the Company had adopted new and revised FRSs
             which are mandatory for financial periods beginning on or after 1 July 2007 as disclosed fully in Note
             2.3.

         (b) The financial statements of the Group and of the Company have been prepared on historical cost basis
             unless otherwise disclosed in summary of significant accounting policies.

         (c) The preparation of financial statements requires management to make judgments, estimates and
             assumptions that affect the application of accounting policies and the reported amounts of assets,
             liabilities, income and expenses. Actual results may differ from these estimates.

              Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
              estimates are recognised in the period in which the estimate is revised and in any future periods
              affected.

              In particular, information about significant areas of estimation uncertainty and critical judgments in
              applying accounting policies that have the most significant effect on the amount recognised in the
              financial statements are disclosed in Note 2.5.

         (d) The financial statements of the Group and of the Company presented in Ringgit Malaysia (“RM”) and all
             values are rounded to the nearest RM, unless otherwise stated.




                                                              18
COMPANY NO. 646226 - K

GUAN CHONG BERHAD                                                          NOTES TO THE FINANCIAL STATEMENTS
(Incorporated in Malaysia)                                                   Financial Year Ended 31 December 2008




2.   SIGNIFICANT ACCOUNTING POLICIES – (cont’d)

     2.2 Summary of Significant Accounting Policies

        (a) Subsidiaries and Basis of Consolidation

             (i)   Subsidiaries

                   Subsidiaries are entities over which the Group has the ability to control the financial and operating
                   policies so as to obtain benefits from their activities. The existence and effect of potential voting
                   rights that are currently exercisable or convertible are considered when assessing whether the
                   Group has such power over another entity.

                   In the Company’s separate financial statements, investments in subsidiaries are stated at cost less
                   impairment losses. On disposal of such investments, the difference between net disposal proceeds
                   and their carrying amounts is included in the income statements.

             (ii) Basis of Consolidation

                   The consolidated financial statements comprise the financial statements of the Company and its
                   subsidiaries at the balance sheet date. The financial statements of the subsidiaries are prepared for
                   the same reporting date as the Company.

                   Subsidiaries are consolidated from the date of acquisition, being the date on which the Group
                   obtains control, and continue to be consolidated until the date that such control ceases. In
                   preparing the consolidated financial statements, intragroup balances, transactions and unrealised
                   gains or losses are eliminated in full. Uniform accounting policies are adopted in the consolidated
                   financial statements for like transactions and events in similar circumstances.

                   Acquisitions of subsidiaries are accounted for using the purchase method. The purchase method of
                   accounting involves allocating the cost of the acquisition to the fair value of the assets acquired and
                   liabilities and contingent liabilities assumed at the date of acquisition. The cost of an acquisition is
                   measured as the aggregate of the fair values, at the date of exchange, of the assets given,
                   liabilities incurred or assumed, and equity instruments issued, plus any costs directly attributable to
                   the acquisition.

                   Any excess of the cost of acquisition over the Group’s interests in the net fair value of the
                   identifiable assets, liabilities and contingent liabilities represents goodwill.

                   Any excess of the Group’s interests in the net fair value of the identifiable assets, liabilities and
                   contingent liabilities over the cost of acquisition is recognised immediately in the income
                   statements.

                   Minority interests represent the portion of profit or loss and net assets in subsidiaries not held by
                   the Group. It is measured at the minorities’ share of the fair value of the subsidiaries’ identifiable
                   assets and liabilities at the acquisition date and the minorities’ share of changes in the subsidiaries’
                   equity since then.

        (b) Property, plant and equipment and depreciation

             All items of property, plant and equipment are initially recorded at cost. Subsequent costs are included
             in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is
             probable that future economic benefits associated with the item will flow to the Group and the cost of
             the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other
             repairs and maintenance are charged to the income statements during the financial period in which they
             are incurred.


                                                                 19
COMPANY NO. 646226 - K

GUAN CHONG BERHAD                                                        NOTES TO THE FINANCIAL STATEMENTS
(Incorporated in Malaysia)                                                 Financial Year Ended 31 December 2008




2.   SIGNIFICANT ACCOUNTING POLICIES – (cont’d)

     2.2 Summary of Significant Accounting Policies – (cont’d)

         (b) Property, plant and equipment and depreciation – (cont’d)

             When significant parts of an item of property, plant and equipment have different useful lives, they are
             accounted for as separate items (major components) of property, plant and equipment.

             Subsequent to initial recognition, property, plant and equipment are stated at cost less accumulated
             depreciation and impairment losses, if any. The policy for the recognition and measurement of
             impairment losses is in accordance with Note 2.2(c).

             Capital work-in-progress is not depreciated until the asset is ready for its intended use.

             Depreciation of other property, plant and equipment is provided for on the straight-line basis to write off
             the cost of each asset to its residual value over the estimated useful life, at the following annual rates :

                Factory buildings and renovation                                                           5-60 years
                Plant, machinery, tools and equipment                                                      5.0-12.5%
                Motor vehicles                                                                            16.0-20.0%
                Furniture, fittings and office equipm ent                                                  8.0-40.0%

             The residual values, useful lives 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 property,
             plant and equipment.

             An item of property, plant and equipment is derecognised upon disposal or when no future economic
             benefits are expected from its use or disposal. The difference between the net disposal proceeds, if any
             and the net carrying amount is recognised in the income statements.

         (c) Impairment of non-financial assets

             The carrying amounts of assets except for inventories and deferred tax assets are reviewed for
             impairment when there is an indication that the assets might be impaired. Impairment is measured by
             comparing the carrying amounts of the assets with their recoverable amounts. The recoverable amount
             is the higher of an asset’s net selling price and its 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 unit.

             An impairment loss is charged to the income statements immediately, unless the asset is carried at
             revalued amount. Any impairment loss of a revalued asset is treated as a revaluation decrease to the
             extent of previously recognised revaluation surplus for the same asset.

             Subsequent increase in the recoverable amount of an asset is treated as reversal of the previous
             impairment loss and is recognised to the extent of the carrying amount of the asset that would have
             been determined (net of amortisation and depreciation) had no impairment loss been recognised. The
             reversal is recognised in the income statements immediately, unless the asset is carried at revalued
             amount. A reversal of an impairment loss on a revalued asset is credited directly to revaluation surplus.
             However, to the extent that an impairment loss on the same revalued asset was previously recognised
             as an expense in the income statements, a reversal of that impairment loss is recognised as income in
             the income statements.




                                                               20
COMPANY NO. 646226 - K

GUAN CHONG BERHAD                                                         NOTES TO THE FINANCIAL STATEMENTS
(Incorporated in Malaysia)                                                  Financial Year Ended 31 December 2008




2.   SIGNIFICANT ACCOUNTING POLICIES – (cont’d)

     2.2 Summary of Significant Accounting Policies – (cont’d)

         (d) Leases

             (i)   Classification

                   A lease is recognised as a finance lease if it transfers substantially to the Group 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 lease of other assets and the land and buildings elements of a lease of
                   land and buildings are considered separately for the purposes of a lease classifications. All leases
                   that do not transfer substantially all the risks and rewards are classified as operating lease.

             (ii) Finance leases

                   Property, plant and equipment acquired under 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 hire purchase payables. In calculating the
                   present value of the minimum lease payment, the discount factor used is the interest rate implicit in
                   the lease, when it is practicable to determine; otherwise, the Group’s incremental borrowing 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
                   fair value of the assets acquired, are recognised in the income statements 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 property, plant and equipment so capitalised are depreciated in accordance with the
                   accounting policy on property, plant and equipment and depreciation in Note 2.2(b).

             (iii) Operating leases

                   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 payment represents prepaid lease
                   payments and are amortised on a straight-line basis over the lease term.

         (e) Investment in associates

             Associates are entities in which the Group has significant influence and that is neither a subsidiary nor
             an interest in a Joint Venture. Significant influences is the power to participate in the financial and
             operating policy decisions of the investee but not in control or joint control over those policies.




                                                                21
COMPANY NO. 646226 - K

GUAN CHONG BERHAD                                                          NOTES TO THE FINANCIAL STATEMENTS
(Incorporated in Malaysia)                                                   Financial Year Ended 31 December 2008




2.   SIGNIFICANT ACCOUNTING POLICIES – (cont’d)

     2.2 Summary of Significant Accounting Policies – (cont’d)

         (e) Investment in associates – (cont’d)

               Investments in associates are accounted for in the consolidated financial statements using the equity
               method of accounting. Under the equity method, the investment in associate is carried in the
               consolidated balance sheets at cost adjusted for post-acquisition changes in the Group’s share of net
               assets of the associate. The Group’s share of the net profit or loss of the associate is recognised in the
               consolidated income statements. Where there has been a change recognised directly in the equity of
               the associate, the Group recognises its share of such changes. In applying the equity method,
               unrealised gains and losses on transactions between the Group and the associate are eliminated to the
               extent of the Group’s interest in the associate. After application of the equity method, the Group
               determines whether it is necessary to recognise any additional impairment loss with respect to the
               Group’s net investment in the associate. The associate is equity accounted for from the date the Group
               obtains significant influence until the date the Group ceases to have significant influence over the
               associate.

               Goodwill relating to an associate is included in the carrying amount of the investment and is not
               amortised. Any excess of the Group’s share of the net fair value of the associate’s identifiable assets,
               liabilities and contingent liabilities over the cost of the investment is excluded from the carrying amount
               of the investment and is instead included as income in the determination of the Group’s share of the
               associate’s profit or loss in the period in which the investment is acquired.

               When the Group’s share of losses in an associate equals or exceeds its interest in the associate,
               including any long-term interests that, in substance, form part of the Group’s net investment in the
               associate, the Group does not recognise further losses, unless it has incurred obligations or made
               payments on behalf of the associate.

               The most recent available audited financial statements of the associates are used by the Group in
               applying the equity method. Where the dates of the audited financial statements used are not
               coterminous with those of the Group, the share of results is arrived at from the last audited financial
               statements available and management financial statements to the end of the accounting period.
               Uniform accounting policies are adopted for like transactions and events in similar circumstances.

               In the Company’s separate financial statements, investment in associates are stated at cost less
               impairment losses.

               On disposal of such investments, the difference between net disposal proceeds and their carrying
               amounts is included in the income statements.

         (f)   Inventories

               Inventories comprising raw materials, work-in-progress, finished goods, stores and supplies are stated
               at the lower of cost and net realisable value. Cost is determined on a first-in-first-out or weighted
               average bases, as applicable.

               The costs of raw materials, stores and supplies comprise the original purchase price plus costs incurred
               in bringing the inventories to their present location whilst the costs of work-in-progress and finished
               goods include the costs of raw materials, packing materials, direct labour and an appropriate proportion
               of production overheads based on normal operating capacity.

               Net realisable value represents the estimated selling price in the ordinary course of business less
               selling and distribution costs and all other estimated costs to completion.



                                                                 22
COMPANY NO. 646226 - K

GUAN CHONG BERHAD                                                            NOTES TO THE FINANCIAL STATEMENTS
(Incorporated in Malaysia)                                                     Financial Year Ended 31 December 2008




2.   SIGNIFICANT ACCOUNTING POLICIES – (cont’d)

     2.2 Summary of Significant Accounting Policies – (cont’d)

         (g) Provisions

               A provision is recognised if, as a result of a past event, the Group has a present legal or constructive
               obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be
               required to settle the obligation. Provisions are determined by discounting the expected future cash
               flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks
               specific to the liability.

         (h) Contingent liabilities

               Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be
               estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of
               economic benefits is remote. Possible obligations, whose existence will only be confirmed by the
               occurance or non-occurance of one or more future events are also disclosed as contingent liabilities
               unless the probability of outflow of economic benefits is remote.

               Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other
               companies within its group, the Company considers these to be insurance arrangements, and accounts
               for them as such, in this respect, the Company treats the guarantee contract as a contingent liability
               until such time as it becomes probable that the Company will be required to make a payment under the
               guarantee.

         (i)   Employee benefits

               (i)   Short-term benefits

                     Wages, salaries, paid annual leave, paid sick leave, bonuses and social security contributions
                     (“SOCSO”) and non-monetary benefits are recognised as expenses in the income statements in
                     the financial year in which the associated services are rendered by employees of the Group.

               (ii) Defined contribution plans

                     As required by law, companies in Malaysia make contributions to the state pension scheme, the
                     Employees Provident Fund (“EPF”). Some of the Group’s foreign subsidiaries make contributions to
                     their respective countries’ statutory pension schemes. Such contributions are recognised as an
                     expense in the income statements as incurred.

         (j)   Income tax

               Tax expense comprises current and deferred tax. Current tax is the expected amount of income taxes
               payable in respect of the taxable profit for the financial year and is measured using the tax rates that
               have been enacted or substantively enacted at the balance sheet date, and any adjustment to tax
               payables in respect of previous year.

               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 future taxable
               profit will be available against which the deductible temporary differences, unused tax losses and
               unused tax credits can be utilised. Deferred tax is not recognised from the initial recognition of an asset
               or liability in a transaction which is not a business combination and at the time of transaction, affects
               neither accounting profit nor taxable profit.



                                                                   23
COMPANY NO. 646226 - K

GUAN CHONG BERHAD                                                          NOTES TO THE FINANCIAL STATEMENTS
(Incorporated in Malaysia)                                                   Financial Year Ended 31 December 2008




2.   SIGNIFICANT ACCOUNTING POLICIES – (cont’d)

     2.2 Summary of Significant Accounting Policies – (cont’d)

         (j)   Income tax – (cont’d)

               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 by
               the balance sheet date. Deferred tax is recognised as income or an expenses and included in the
               income statements 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.

         (k) Revenue recognition

               (i)   Dividend income

                     Dividend income from investments is recognised when the shareholders’ rights to receive payment
                     are established.

               (ii) Sale of goods

                     Revenue from sale of goods is measured at the fair value of the consideration receivable and is
                     recognised when the significant risks and rewards of ownership have been transferred to the
                     buyers.

         (l)   Other income recognition

               (i)   Rental income

                     Rental income is recognised on accrual basis unless collectibility is in doubt, in which case the
                     recognition of such income is suspended. Subsequent to suspension, income is recognised on the
                     receipt basis until all arrears have been paid.

               (ii) Interest income

                     Interest income is recognised on a time proportion basis that reflects the effective yield on the
                     asset.

         (m) Research and development expenditure

               Research and development expenditure is charged to the income statements in the financial year in
               which it is incurred except insofar as it relates to a clearly defined project which the benefits therefrom
               can reasonably be regarded as assured. Expenditure so deferred is limited to the value of the future
               benefit and is stated at cost incurred less grants received, if any. Such deferred expenditure shall be
               amortised through the income statements over the period of the project, upon commencement of
               commercial production.

         (n) Functional and foreign currencies

               (i)   Functional and presentation currency

                     The financial statements of the Group and of the Company are measured using the currency of the
                     primary economic environment in which the entities operate (“the functional currency”). The
                     financial statements are presented in Ringgit Malaysia (“RM”), which is also the Company’s
                     functional currency.



                                                                 24
COMPANY NO. 646226 - K

GUAN CHONG BERHAD                                                        NOTES TO THE FINANCIAL STATEMENTS
(Incorporated in Malaysia)                                                 Financial Year Ended 31 December 2008




2.   SIGNIFICANT ACCOUNTING POLICIES – (cont’d)

     2.2 Summary of Significant Accounting Policies – (cont’d)

         (n) Functional and foreign currencies – (cont’d)

             (ii) Transactions and balances in foreign currencies

                   Transactions in foreign currencies during the financial year are converted into Ringgit Malaysia at
                   rates of exchange ruling at the dates of transactions unless hedged by forward foreign exchange
                   contracts, in which case the rates specified in such forward foreign exchange contracts are used.
                   Monetary assets and liabilities in foreign currencies at the balance sheet date are translated into
                   Ringgit Malaysia at rates of exchange ruling at that date unless hedged by forward foreign
                   exchange contracts, in which case the rates specified in such forward foreign exchange contracts
                   are used.

                   All gains or losses arising from the settlement of foreign currency transactions and from translating
                   foreign monetary assets and liabilities are taken into the income statements.

             (iii) Translation of foreign currency financial statements

                   For consolidation purposes, the assets and liabilities of foreign entities are translated into RM at
                   rates of exchange ruling at the balance sheet date. Income statements items are translated at rates
                   of exchange ruling at the dates of transactions. The translation differences arising therefrom are
                   taken up and reflected in the foreign exchange fluctuation reserve.

                   Goodwill arising from the acquisition of a foreign entity and fair value adjustments to the carrying
                   amounts of assets and liabilities acquired, where applicable are translated at rate of exchange
                   ruling at the date of transaction.

         (o) Segment reporting

             A segment is a distinguishable component of the Group that is engaged either in providing products or
             services (business segment), or in providing products or services within a particular economic
             environment (geographical segment), which is subject to risks and rewards that are different from those
             of other segments.

         (p) Financial instruments

             Financial instruments are recognised in the balance sheets when the Group has become a party to the
             contractual provisions of the instrument.

             Financial instruments are classified as liabilities or equity in accordance with the substance of the
             contractual arrangement. Interest, dividends and gains and losses relating to a financial instrument
             classified as liability are reported as expense or income. Distributions to holders of financial instruments
             classified as equity are charged directly to equity. Financial instruments are offset when the Group has
             a legally enforceable right to set off the recognised amounts and intends either to settle on a net basis,
             or to realise the asset and settle the liability simultaneously.

             (i)   Receivables

                   Receivables are carried at anticipated realisable value. All known bad debts are written off in the
                   period in which they are identified. An allowance is made for doubtful debts based on estimates of
                   possible losses which may arise from non-collection of certain receivable amounts.




                                                               25
COMPANY NO. 646226 - K

GUAN CHONG BERHAD                                                        NOTES TO THE FINANCIAL STATEMENTS
(Incorporated in Malaysia)                                                 Financial Year Ended 31 December 2008




2.   SIGNIFICANT ACCOUNTING POLICIES – (cont’d)

     2.2 Summary of Significant Accounting Policies – (cont’d)

         (p) Financial instruments – (cont’d)

             (ii) Cash and cash equivalents

                 Cash and cash equivalents comprise deposits, bank and cash balances and highly liquid
                 investments that are readily convertible to cash with insignificant risks of changes in value, net of
                 outstanding bank overdrafts, if any.

             (iii) Payables

                 Payables are stated at cost which is the fair value of the consideration to be paid in the future for
                 goods and services received.

             (iv) Bank borrowings

                 Bank borrowings are recorded at the amount of proceeds received, net of transaction costs.

                 Borrowing costs directly incurred in financing the acquisition, construction or production of
                 qualifying assets are capitalised, until such time that the assets are ready for their intended use. All
                 other borrowing costs are charged to the income statements in the period they are incurred.

             (v) Equity instruments

                 Ordinary shares are classified as equity. Dividends on ordinary shares are recognised in equity in
                 the period in which they are declared.

                 The transaction costs of an equity transaction, other than in the context of a business combination,
                 are accounted for as a deduction from equity, net of tax. Equity transaction costs comprise only
                 those incremental external costs directly attributable to the equity transaction which would
                 otherwise have been avoided. Cost of issuing equity securities in connection with a business
                 combination is included in the cost of acquisition.

             (vi) Derivative financial instruments

                 The Group uses derivative financial instruments in the form of forward foreign exchange contracts
                 to hedge its exposure to foreign exchange arising from operating activities. In accordance with its
                 treasury policy, the Group does not hold or issue derivative financial instruments for trading
                 purposes.

                 Derivative financial instruments are not recognised in the financial statements on inception.

                 The underlying foreign currency assets or liabilities are translated at their respective hedged
                 exchange rates and all exchange gains or losses are recognised as income or expense in the
                 income statements in the same period as the exchange differences on the underlying hedged
                 items. Exchange gains and loses arising on contracts entered into as hedges of anticipated future
                 transactions are deferred until the date of such transaction, at which time they are included in the
                 measurement of such transactions.




                                                               26
COMPANY NO. 646226 - K

GUAN CHONG BERHAD                                                         NOTES TO THE FINANCIAL STATEMENTS
(Incorporated in Malaysia)                                                  Financial Year Ended 31 December 2008




2.   SIGNIFICANT ACCOUNTING POLICIES – (cont’d)

     2.3 Changes in Accounting Policies and Effects Arising from Adoption of New/Revised Financial
         Reporting Standards (“FRSs”), Amendments to FRSs and Issues Committee (“IC”) Interpretations

         On 1 January 2008, the Group and the Company adopted the following FRSs, amendment to FRS, and IC
         Interpretations which are mandatory for financial period beginning on or after 1 July 2007 :

         FRS 107                   :   Cash Flow Statements
         FRS 111                   :   Construction Contracts
         FRS 112                   :   Income Taxes
         FRS 118                   :   Revenue
         FRS 120                   :   Accounting for Government Grants and Disclosures of Government Assistance
         FRS 134                   :   Interim Financial Reporting
         FRS 137                   :   Provisions, Contingent Liabilities and Contingent Assets
         Amendment to FRS 121      :   The Effects of Changes in Foreign Exchange Rates – Net Investment in a
                                       Foreign Operation
         IC Interpretation 1       :   Changes in Existing Decommissioning, Restoration and Similar Liabilities
         IC Interpretation 2       :   Members’ Shares in Co-operative Entities and Similar Instruments
         IC Interpretation 5       :   Rights to Interests arising from Decommissioning, Restoration and
                                       Environmental Rehabilitation Funds
         IC Interpretation 6       :   Liabilities arising from Participating in a Specific Market – Waste Electrical and
                                       Electronic Equipment
         IC Interpretation 7       :   Applying the Restatement Approach under FRS 129 2004 – Financial Reporting
                                       in Hyperinflationary Economies
         IC Interpretation 8       :   Scope of FRS 2

         The adoption of the above FRSs, amendment to FRS and IC Interpretations does not have a significant
         impact on the Group and the Company.

     2.4 New Standards and IC Interpretations that are Not Yet Effective

         At the date of authorisation of these financial statements, the following FRSs and IC Interpretations have
         been issued but not yet effective, and therefore have not been applied by the Group and the Company :

                                                                                        Effective for financial periods
                                                                                                 beginning on or after

         FRS 8                     :   Operating Segments                                             1 July 2009
         FRS 4                     :   Insurance Contracts                                            1 January 2010
         FRS 7                     :   Financial Instruments : Disclosures                            1 January 2010
         FRS 139                   :   Financial Instruments : Recognition and Measurement            1 January 2010
         IC Interpretation 9       :   Reassessment of Embedded Derivatives                           1 January 2010
         IC Interpretation 10      :   Interim Financial Reporting and Impairment                     1 January 2010

         The Group and the Company plans to apply the above applicable FRSs and/or IC Interpretations when
         effective.

         The possible impact of applying FRS 7 and FRS 139 on the financial statements upon their initial application
         are not disclosed by virtue of the exemptions given in the respective standards.

         The initial application of the above applicable FRSs and/or IC Interpretations are not expected to have any
         material impact on the financial statements of the Group and of the Company.




                                                               27
COMPANY NO. 646226 - K

GUAN CHONG BERHAD                                                         NOTES TO THE FINANCIAL STATEMENTS
(Incorporated in Malaysia)                                                  Financial Year Ended 31 December 2008




2.   SIGNIFICANT ACCOUNTING POLICIES – (cont’d)

     2.5 Significant Accounting Estimates and Judgments

        Estimates and assumptions concerning the future are made in the preparation of the financial statements.
        They affect the application of the Group’s and the Company’s accounting policies, reported amounts of
        assets, liabilities, income and expenses, and disclosure made. They are assessed on an ongoing basis and
        are based on experience and relevant factors, including expectations of future events that are believed to be
        reasonable under the circumstances.

        (a) 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 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 property, plant and equipment

                   The Group determines whether property, plant and equipment are impaired on an annual basis.
                   This requires an estimation of the value-in-use of the cash-generating units (“CGU”) to which
                   property, plant and equipment are allocated. Estimating the value-in-use requires the Group to
                   make an estimate of the expected future cash flow from the CGU and also to choose a suitable
                   discount rate in order to calculate the present value of those cash flows.

             (ii) Depreciation of property, plant and equipment

                   Property, plant and equipment are depreciated on a straight-line method over their useful lives.
                   Management estimates the useful lives of these assets to be within 3 to 20 years except for factory
                   buildings which are depreciated over its remaining lease terms between 19 to 60 years.

                   Changes in the expected level of usage and technological developments could impact the
                   economic useful lives and the residual values of these assets, therefore future depreciation
                   charges could be revised.

             (iii) Income taxes

                   Significant judgment is required in determining the capital allowances and deductibility of certain
                   expenses during the estimation of the provision for income taxes. There are many transactions and
                   calculations for which the ultimate tax determination is uncertain during the ordinary course of
                   business. The Group recognises liabilities for tax based on estimates of assessment of the tax liability
                   due. Where the final tax outcome of these matters is different from the amounts that were initially
                   recorded, such differences will impact the income tax and deferred tax provision in the period in which
                   such determination is made.

        (b) Critical judgments made in applying accounting policies

             Management is of the opinion that the instances of application of judgment are not expected to have a
             significant effect on the amounts recognised in the financial statements, apart from those involving
             estimates.




                                                                28
COMPANY NO. 646226 - K

GUAN CHONG BERHAD                                                              NOTES TO THE FINANCIAL STATEMENTS
(Incorporated in Malaysia)                                                       Financial Year Ended 31 December 2008




3. PROPERTY, PLANT AND EQUIPMENT

   Group - At 31 December 2008
                                                                               Furniture,
                              Factory         Plant,                           fittings
                              buildings and   machinery, tools   Motor         and office     Capital work-
                              renovation      and equipment      vehicles      equipment      in-progress        Total
                                   RM               RM                RM           RM              RM             RM
   At Cost
   At 1 January 2008           23,842,331        110,416,576     4,546,700       3,011,302        4,883,962    146,700,871
   Additions                      145,987          1,647,868       534,556         197,340        5,380,825      7,906,576
   Disposals                          -              (10,000)     (168,164)         (6,090)             -         (184,254)
   Reclassification               782,483          8,290,129           -               -         (9,072,612)           -
   Write-off                          -                  -             -          (327,725)             -         (327,725)
   Foreign exchange
      differences                       -                 -                -            -            (3,757)        (3,757)

   At 31 December 2008         24,770,801        120,344,573     4,913,092       2,874,827        1,188,418    154,091,711

   Less : Accumulated
            Depreciation
   At 1 January 2008            2,421,331         35,222,355     1,530,419       1,381,852              -       40,555,957
   Charge for the financial
      year                        724,120          5,812,252       550,694         253,030              -        7,340,096
   Disposals                          -               (3,200)     (111,894)         (1,644)             -         (116,738)
   Write-off                          -                  -             -          (307,441)             -         (307,441)

   At 31 December 2008          3,145,451         41,031,407     1,969,219       1,325,797              -       47,471,874

   Carrying Amounts
   At 31 December 2008         21,625,350         79,313,166     2,943,873       1,549,030        1,188,418    106,619,837




                                                                 29
COMPANY NO. 646226 - K

GUAN CHONG BERHAD                                                                  NOTES TO THE FINANCIAL STATEMENTS
(Incorporated in Malaysia)                                                           Financial Year Ended 31 December 2008




3. PROPERTY, PLANT AND EQUIPMENT – (cont’d)

    Group - At 31 December 2007
                                                                                    Furniture,
                               Factory         Plant,                               fittings
                               buildings and   machinery, tools    Motor            and office     Capital work-
                               renovation      and equipment       vehicles         equipment      in-progress       Total
                                    RM               RM                 RM              RM              RM            RM
    At Cost
    At 1 January 2007           19,065,753         84,151,232      4,192,973          2,113,410         232,864    109,756,232
    Additions                    1,322,914         16,869,211        719,120            901,498      18,462,309     38,275,052
    Disposals                     (955,414)               -         (365,393)            (3,606)            -       (1,324,413)
    Reclassification             4,409,078          9,402,133            -                  -       (13,811,211)           -
    Write-off                          -               (6,000)           -                  -               -           (6,000)

    At 31 December 2007         23,842,331        110,416,576      4,546,700          3,011,302       4,883,962    146,700,871

    Less : Accumulated
             Depreciation
    At 1 January 2007            2,030,026         30,608,578      1,362,569          1,104,888               -     35,106,061
    Charge for the financial
       year                         540,752         4,613,777           481,261         278,313               -      5,914,103
    Disposals                      (149,447)              -            (313,411)         (1,349)              -       (464,207)

    At 31 December 2007          2,421,331         35,222,355      1,530,419          1,381,852               -     40,555,957

    Carrying Amounts
    At 31 December 2007         21,421,000         75,194,221      3,016,281          1,629,450       4,883,962    106,144,914


    (a) Motor vehicles of the Group with carrying amounts of RM 1,592,408 (2007 : RM 2,223,320) are acquired under
        hire purchase instalment plans (Note 13).

    (b) Purchase of property, plant and equipment are as follows :

                                                                                                      Group And Company
                                                                                                       2008          2007
                                                                                                       RM             RM
         Aggregate cost of property, plant and equipment                                             7,906,576     38,275,052
         Finance via hire purchase                                                                    (414,500)    (1,128,100)
         Unpaid balance included in sundry payables (Note 14(c))                                      (657,857)    (1,009,441)
         Cash paid in respect of acquisitions in previous financial year                             1,009,441            -

         Cash paid during the financial year                                                         7,843,660     36,137,511


    (c) There is no property, plant and equipment in the Company throughout the current and previous financial years.




                                                                  30
COMPANY NO. 646226 - K

GUAN CHONG BERHAD                                                        NOTES TO THE FINANCIAL STATEMENTS
(Incorporated in Malaysia)                                                 Financial Year Ended 31 December 2008




4.   PREPAID LEASE PAYMENTS
                                                                                                      Group
                                                                                              2008             2007
                                                                                              RM                RM
     Balance at the beginning of financial year                                           5,844,596           5,792,555
     Add : Payment for sub-leases                                                           123,738             379,300

                                                                                          5,968,334           6,171,855
     Less : Amortisation of prepaid lease payments                                          (68,068)            (68,068)
           Sub-lease rental                                                                (259,190)           (259,191)

     Balance at the end of financial year                                                 5,641,076           5,844,596

     Analysed as :
     Leasehold land                                                                       3,744,751           3,812,819
     Sub-leases of land and warehouses                                                    1,896,325           2,031,777

     Balance at the end of financial year                                                 5,641,076           5,844,596


5.   INVESTMENT IN SUBSIDIARIES
                                                                                                     Company
                                                                                              2008             2007
                                                                                              RM                RM
     Unquoted shares - at cost                                                            34,468,464        34,468,460


     The details of subsidiaries and the equity interest held by the Company are shown as below :

     Name of Company               Country Of Incorporation        Principal Activities               Equity Interest
                                                                                                     2008        2007
     Guan Chong Cocoa              Malaysia                        Producing cocoa-derived           100%        100%
       Manufacturer Sdn. Bhd.                                      food ingredients.

     Guan Chong Trading            Malaysia                        Dormant.                          100%        100%
      Sdn. Bhd.

     Enrich Mix Sdn. Bhd.          Malaysia                        Producing blended                 51%          51%
                                                                   cocoa-derived food
                                                                   ingredients.

     GCB Foods Sdn. Bhd.           Malaysia                        Manufacturing, marketing          94%          94%
                                                                   and promotion of cocoa
                                                                   related products.

     GCB Marketing Sdn. Bhd.       Malaysia                        Marketing and promotion           94%          94%
                                                                   activities of chocolate
                                                                   related products and
                                                                   confectionaries.


                                                              31
COMPANY NO. 646226 - K

GUAN CHONG BERHAD                                                         NOTES TO THE FINANCIAL STATEMENTS
(Incorporated in Malaysia)                                                  Financial Year Ended 31 December 2008




5.   INVESTMENT IN SUBSIDIARIES – (cont’d)

     Name of Company                Country Of Incorporation        Principal Activities               Equity Interest
                                                                                                       2008       2007
     GCB Oversea Holdings           Malaysia                        Investment holding.                100%      100%
      Sdn. Bhd.

     GCB America, Inc. *            United States of America        Purchases and                      100%      100%
                                                                    distributes of cocoa-
                                                                    derived food ingredients.

     GCB Oversea Holdings           Federal Territory of            Investment holding.                100%         -
      Corporation *                 Labuan, Malaysia

     Subsidiary of
     GCB Oversea Holdings Corporation
     GCB Cacao GmbH *               Germany                         Manufacturing and                  100%         -
                                                                    distributing of premium
                                                                    cocoa ingredients.

     * Audited by firm other than SC Lim, Ng & Co.


6.   INVESTMENT IN ASSOCIATE
                                                                                                       Group
                                                                                                2008            2007
                                                                                                RM               RM
     Unquoted shares - at cost                                                                3,590,652        3,590,652
     Add : Share of post-acquisition profit                                                   3,380,605        2,183,048

                                                                                               6,971,257       5,773,700
     Less : Interim capital distribution received                                             (2,231,248)     (1,163,267)

                                                                                              4,740,009        4,610,433

     Represented by :
     Group's share of net assets other than goodwill                                          2,082,771        1,788,542
     Goodwill on acquisition                                                                  2,897,611        2,897,611
     Foreign currency translation reserve                                                      (240,373)         (75,720)

                                                                                              4,740,009        4,610,433




                                                               32
COMPANY NO. 646226 - K

GUAN CHONG BERHAD                                                         NOTES TO THE FINANCIAL STATEMENTS
(Incorporated in Malaysia)                                                  Financial Year Ended 31 December 2008




6.   INVESTMENT IN ASSOCIATE – (cont’d)

     (a) The details of associate, which is incorporated in United States of America, are as follows :

          Associate                                    Principal Activity                            Equity Interest
                                                                                                    2008           2007
          Carlyle Cocoa Co, LLC. *                     Manufacture of cocoa powder.                 49%            49%

          * Held through GCB America, Inc.

     (b) The summarised financial information of associate is analysed as follows :

                                                                                                         Group
                                                                                              2008                2007
                                                                                               RM                  RM
          Assets                                                                             5,851,604        6,087,038
          Liabilities                                                                       (1,601,050)      (2,436,953)

          NET ASSETS                                                                         4,250,554           3,650,085

          Share of net assets                                                                2,082,771           1,788,542

          Revenue                                                                           21,453,422       21,151,082

          Profit for the financial year                                                      2,443,999           2,359,778

          Share of results of associate                                                      1,197,557           1,156,289


7.   DEFERRED TAX (ASSETS)/LIABILITIES
                                                                      Group                          Company
                                                           2008                 2007          2008                2007
                                                            RM                  RM             RM                  RM
     At 1 January                                       11,593,814             9,494,967      (194,601)                  -
     Recognised in the income statements :
     - relating to origination/(reversal) of
        temporary differences                             1,723,828            2,395,147      194,601             (194,601)
     - relating to changes in tax rate                     (424,000)            (333,000)         -                    -
     Underprovision in prior year                               -                 36,700          -                    -

     At 31 December                                     12,893,642            11,593,814             -            (194,601)

     Presented after appropriate offsetting as follows :
     Deferred tax assets                                        -               (194,601)            -            (194,601)
     Deferred tax liabilities                            12,893,642           11,788,415             -                 -

                                                        12,893,642            11,593,814             -            (194,601)




                                                                 33
COMPANY NO. 646226 - K

GUAN CHONG BERHAD                                                         NOTES TO THE FINANCIAL STATEMENTS
(Incorporated in Malaysia)                                                  Financial Year Ended 31 December 2008




7.   DEFERRED TAX (ASSETS)/LIABILITIES – (cont’d)

     (a) The components and movements of deferred tax liabilities and assets during the financial year prior to
         offsetting are as follows :

          (i)   Deferred tax liabilities of the Group :
                                                                Excess of capital           Other
                                                                allowances over          temporary
                                                                  depreciation           differences           Total
                                                                        RM                    RM                RM
                At 1 January 2008                                        11,190,227           598,188        11,788,415
                Recognised in the income statements                       1,273,582          (168,355)        1,105,227

                At 31 December 2008                                      12,463,809           429,833        12,893,642

          (ii) Deferred tax assets of the Group :
                                                                                                          Share based
                                                                                                              payment
                                                                                                                RM
                At 1 January 2008                                                                              (194,601)
                Recognised in the income statements                                                             194,601

                At 31 December 2008                                                                                    -

          (iii) Deferred tax assets of the Company :
                                                                                                          Share based
                                                                                                              payment
                                                                                                                RM
                At 1 January 2008                                                                              (194,601)
                Recognised in the income statements                                                             194,601

                At 31 December 2008                                                                                    -


     (b) Deferred tax assets have not been recognised in respect of the following items :

                                                                                                     Group
                                                                                             2008              2007
                                                                                              RM                RM
          Unused capital allowances                                                         3,822,000         2,836,000
          Unused tax losses                                                                 2,030,000           688,000

                                                                                            5,852,000         3,524,000


         Subject to the agreement of the Inland Revenue Board, the unused capital allowance and unused tax losses
         are available indefinitely for offset against future taxable profits of the respective entities within the Group,
         subject to no substantial change in shareholdings of those entities under the Income Tax Act, 1967 and
         guidelines issued by the tax authority.



                                                                34
COMPANY NO. 646226 - K

GUAN CHONG BERHAD                                                      NOTES TO THE FINANCIAL STATEMENTS
(Incorporated in Malaysia)                                               Financial Year Ended 31 December 2008




8.   INVENTORIES
                                                                                                   Group
                                                                                        2008                 2007
                                                                                        RM                    RM
     At Cost
     Raw materials                                                                    76,795,230            70,614,466
     Packing materials                                                                 1,316,569               348,462
     Work-in-progress                                                                  8,943,432             6,500,582
     Finished goods                                                                   34,067,072            40,784,892
     Stores and supplies                                                               3,333,019             2,925,190

                                                                                     124,455,322           121,173,592
     At Net Realisable Value
     Finished goods                                                                   14,576,675                    -

                                                                                     139,031,997           121,173,592


     The write-down of inventories to net realisable value amounting to RM 676,455 (2007 : RM Nil) is included in the
     cost of sales.


9.   TRADE AND OTHER RECEIVABLES
                                                            Group                              Company
                                                    2008              2007              2008                 2007
                                                     RM                RM                RM                   RM
     Trade Receivables
     Amount due from associate                       247,018            84,464                 -                    -
     Amount due from affiliated companies
        (Note 24)                                  1,458,063         1,856,738                 -                    -
     Other trade receivables                      67,576,133        58,348,715                 -                    -
     Less : Allowance for doubtful debts                 -            (376,704)                -                    -

                                                  69,281,214        59,913,213                 -                    -
     Other Receivables
     Amount due from subsidiaries                        -                 -          47,240,172            47,413,677
     Deposits                                        518,010           306,107            52,000                   -
     Prepaid expenses                              2,586,548         1,423,686               -                     -
     Sundry receivables                            1,817,742         3,269,705            43,484                27,327

                                                   4,922,300         4,999,498        47,335,656            47,441,004

                                                  74,203,514        64,912,711        47,335,656            47,441,004




                                                               35
COMPANY NO. 646226 - K

GUAN CHONG BERHAD                                                         NOTES TO THE FINANCIAL STATEMENTS
(Incorporated in Malaysia)                                                  Financial Year Ended 31 December 2008




9.   TRADE AND OTHER RECEIVABLES – (cont’d)

     (a) The Group’s normal trade terms range from cash against documents to 90 days (2007 : cash against
         documents to 90 days) from the date of invoices. Other credit terms are assessed and approved on a case-
         by-case basis.

     (b) The amount due from subsidiaries is unsecured, interest free and is repayable on demand.

     (c) Other information on financial risks of trade and other receivables are disclosed in Note 30.


10. SHARE CAPITAL
                                                                                           Group And Company
                                                                                           2008              2007
                                                                                            RM               RM
     Authorised :
     Ordinary shares of RM 0.25 each                                                    100,000,000      100,000,000

     Issued and fully paid :
     Ordinary shares of RM 0.25 each                                                     60,000,000       60,000,000


     The holders of ordinary shares are entitled to receive dividends as declared by the Company and are entitled to
     one (1) vote per share at meetings of the Company. All ordinary shares rank equally with regard to the
     Company’s residual assets.


11. RESERVES
                                                                 Group                             Company
                                                         2008             2007              2008             2007
                                                         RM                RM               RM               RM
     Non-Distributable
     Share premium                                      7,718,018         7,718,018        7,718,018       7,718,018
     Share options reserve                                    -             720,744              -           720,744
     Foreign currency translation reserve                (124,916)          (67,553)             -               -

                                                        7,593,102         8,371,209        7,718,018       8,438,762
     Distributable
     Retained profits                                 31,136,790         26,557,088      14,089,089       13,784,763

                                                      38,729,892         34,928,297      21,807,107       22,223,525


     (a) Share Premium

         Share premium represents the resultant premium arising from the issue of new shares pursuant to the public
         issue. Deferred expenditure amounting to RM 1,881,982 has been offset against the share premium
         account.

     (b) Share Option Reserve

         Share option reserve represents the cumulative value of options cost recognised in the financial statements.
         The Company’s Employees Share Option Scheme had been terminated with effect from 30 June 2008. As a
         result, the equity amounts recognised in the share option reserve were reversed upon the termination.


                                                                36
COMPANY NO. 646226 - K

GUAN CHONG BERHAD                                                        NOTES TO THE FINANCIAL STATEMENTS
(Incorporated in Malaysia)                                                 Financial Year Ended 31 December 2008




11. RESERVES – (cont’d)

    (c) Foreign Currency Translation Reserve

        The foreign currency translation reserve comprises all foreign exchange differences arising from the
        translation of the financial statements of foreign subsidiary.

    (d) Retained Profits

        Finance Act 2007 (Act 683) introduced a single tier company income tax system with effect from the Year of
        Assessment 2008. As such, the Section 108 balance at 31 December 2007 will be available to the Company
        until such time the balance is fully utilised or upon expiry on 31 December 2013, whichever is earlier unless
        it opts to disregard the Section 108 balance to pay single tier dividends.

        The Company did not elect for the irrevocable option to disregard the available Section 108 balance. Subject
        to the agreement of the Inland Revenue Board, at 31 December 2008 and 2007, the Company has sufficient
        Section 108 balance under Finance Act 2007 (Act 683), and the balance in tax exempt income account to
        frank the payment of dividends out of its entire profits without incurring additional tax liability.


12. BANK BORROWINGS
                                                                                                 Group
                                                                                         2008              2007
                                                                                          RM                RM
    CURRENT
    Secured - Bank overdrafts                                                           3,825,152          4,925,275
            - Bankers' acceptances                                                     26,550,000                -
            - Term loans                                                                3,655,075          2,394,722
            - Trade loans                                                             140,619,766        125,759,714
            - Revolving credit                                                            500,000                -

                                                                                      175,149,993        133,079,711
    NON-CURRENT
    Secured - Term loans                                                               12,394,503         11,178,176

                                                                                      187,544,496        144,257,887

    TOTAL BORROWINGS
    Secured - Bank overdrafts                                                           3,825,152          4,925,275
            - Bankers' acceptances                                                     26,550,000                -
            - Term loans                                                               16,049,578         13,572,898
            - Trade loans                                                             140,619,766        125,759,714
            - Revolving credit                                                            500,000                -

                                                                                      187,544,496        144,257,887


    (a) The bank borrowings are secured by the following :

        (i)   Debenture incorporating fixed and floating charges over a subsidiary’s assets, both present and future ;

        (ii) Negative pledge ; and

        (iii) Corporate guarantee by the Company.


                                                               37
COMPANY NO. 646226 - K

GUAN CHONG BERHAD                                                      NOTES TO THE FINANCIAL STATEMENTS
(Incorporated in Malaysia)                                               Financial Year Ended 31 December 2008




12. BANK BORROWINGS – (cont’d)

    (b) The bank overdrafts are interest bearing at 7.3% to 8.3% (2007 : 7.5% to 8.3%) per annum whilst the
        bankers’ acceptances and trade loans are interest bearing at 1.6% to 6.1% (2007 : 3.5% to 6.1%) per
        annum.

    (c) The term loans are interest bearing at 5.5% to 8.5% (2007 : 5.5% to 8.5%) per annum and are repayable by
        60 to 96 monthly instalments. At the end of the financial year, they are repayable as follows :

                                                                                                   Group
                                                                                            2008            2007
                                                                                            RM               RM
         Current
         Not later than one year                                                        3,655,075           2,394,722
         Non-Current
         Later than one year and not later than two years                               3,867,209           2,538,574
         Later than two years and not later than five years                             8,527,294           8,400,990
         Later than five years                                                                -               238,612

                                                                                       12,394,503          11,178,176

                                                                                       16,049,578          13,572,898


    (d) Other information on financial risks of bank borrowings are disclosed in Note 30.


13. HIRE PURCHASE PAYABLES
                                                                                                   Group
                                                                                            2008             2007
                                                                                            RM               RM
    Minimum hire purchase payments :
    Not later than one year                                                                  457,385         560,526
    Later than one year and not later than two years                                         319,532         294,680
    Later than two years and not later than five years                                       189,290         419,062

                                                                                             966,207        1,274,268
    Less : Unexpired term charges                                                            (51,845)         (82,019)

                                                                                             914,362        1,192,249

    Principal amount outstanding :
    Current
    Not later than one year                                                                  425,222         521,631
    Non-Current
    Later than one year and not later than two years                                         303,982         269,064
    Later than two years and not later than five years                                       185,158         401,554

                                                                                             489,140         670,618

                                                                                             914,362        1,192,249



                                                              38
COMPANY NO. 646226 - K

GUAN CHONG BERHAD                                                            NOTES TO THE FINANCIAL STATEMENTS
(Incorporated in Malaysia)                                                     Financial Year Ended 31 December 2008




13. HIRE PURCHASE PAYABLES – (cont’d)

    The effective interest rates of hire purchase payables are ranging from 3.7% to 7.3% (2007 : 3.7% to 7.3%) per
    annum.


14. TRADE AND OTHER PAYABLES
                                                                     Group                         Company
                                                         2008                 2007          2008             2007
                                                          RM                   RM            RM              RM
    Trade Payables
    Amount due to affiliated company (Note 24)            435,981               247,907            -                -
    Other trade payables                               23,766,437            42,751,652            -                -

                                                       24,202,418            42,999,559            -                -
    Other Payables
    Amount due to affiliated company (Note 24)            247,731                69,897          -               -
    Amount due to directors                                 1,105                 1,105          -               -
    Accrued expenses                                    3,166,165             3,149,772       26,000          51,752
    Sundry payables                                     4,091,163             6,697,352          -               -

                                                        7,506,164             9,918,126       26,000          51,752

                                                       31,708,582            52,917,685       26,000          51,752


    (a) The normal trade terms granted to the Group range from cash against documents to 60 days (2007 : cash
        against documents to 60 days) from the date of invoices.

    (b) The amount due to affiliated company and directors are unsecured, interest free and are repayable on
        demand.

    (c) Included in sundry payables of the Group are an amount of RM 657,857 (2007 : RM 1,009,441) payable for
        the purchase of property, plant and equipment (Note 3(b)).

    (d) Other information on financial risks of trade and other payables are disclosed in Note 30.




                                                                39
COMPANY NO. 646226 - K

GUAN CHONG BERHAD                                                       NOTES TO THE FINANCIAL STATEMENTS
(Incorporated in Malaysia)                                                Financial Year Ended 31 December 2008




15. REVENUE

    Revenue of the Group and of the Company comprises the followings :

                                                              Group                           Company
                                                  2008                  2007           2008             2007
                                                   RM                    RM            RM               RM
    Dividend income                                       -                    -      2,400,000     28,453,800
    Management fee income                                 -                    -            -           36,000
    Invoiced value of goods sold net of
       discounts and returns                   694,334,528            464,110,512             -                -

                                               694,334,528            464,110,512     2,400,000     28,489,800


16. FINANCE COSTS
                                                              Group                           Company
                                                   2008                 2007           2008             2007
                                                    RM                   RM            RM               RM
    Interest On :
    Bank overdrafts                                  69,935              206,587              -                -
    Bankers' acceptances                            281,866              344,760              -                -
    Hire purchase                                    48,230               59,454              -                -
    Term loans                                    1,002,473              431,552              -                -
    Trade loans                                   6,119,128            5,651,767              -                -
    Revolving credit                                 23,394                7,176              -                -

                                                  7,545,026            6,701,296              -                -
    Bank charges                                    134,031              122,579              942              -
    Bank commission                                 888,722              681,816              -                -
    Commitment fee                                   82,938               75,149              -                -

                                                  8,650,717            7,580,840              942              -




                                                              40
COMPANY NO. 646226 - K

GUAN CHONG BERHAD                                                            NOTES TO THE FINANCIAL STATEMENTS
(Incorporated in Malaysia)                                                     Financial Year Ended 31 December 2008




17. PROFIT BEFORE TAX
                                                                    Group                          Company
                                                         2008                2007           2008             2007
                                                          RM                  RM            RM               RM
     This is arrived at after charging :
     Staff costs (Note 18)                              11,900,247          10,082,481        36,000         214,180
     Non-executive directors' remuneration
        (Note 19)                                          78,000              54,360         78,000          54,360
     Auditors' remuneration :
     - statutory audit - current                            95,989              85,781        20,000          18,000
                       - underprovision in prior year          500                 900           -               500
     - other services                                        9,000               9,000         9,000           9,000
     Allowance for doubtful debts                              -               170,632           -               -
     Amortisation of prepaid lease payments                 68,068              68,068           -               -
     Bad debts written off                                 722,869             260,652           -               -
     Depreciation                                        7,340,096           5,914,103           -               -
     Forklift rental                                         3,600               4,600           -               -
     Hostel rental                                          57,825              69,495           -               -
     Incorporation fee                                      47,351               5,156           -               -
     Lease rental                                            6,084                 -             -               -
     Outlet rental                                         186,600             100,100           -               -
     Preliminary expenses                                      -                 4,556           -               -
     Property, plant and equipment written off              20,284               6,000           -               -
     Realised loss on foreign exchange                  12,621,559                 -             -               -
     Research and development expenses                       2,119               6,610           -               -
     Share options granted under ESOS                          -               240,248           -           240,248
     Sub-lease rental                                      259,190             259,191           -               -
     Unrealised loss on foreign exchange                       -                   -             -           228,769
     Write-down of inventories                             676,455                 -             -               -
     Write-off of inventory                                  1,908                 -             -               -
     And crediting :
     Bad debts recovered                                    (4,604)                 -              -                -
     Gain on disposal of property, plant and
        equipment                                          (27,769)           (242,994)          -                -
     Insurance claim                                      (661,784)           (184,845)          -                -
     Interest income                                      (313,269)           (571,424)       (4,181)         (27,454)
     Realised gain on foreign exchange                         -            (4,498,459)      (10,688)             -
     Reversal of allowance for doubtful debts             (372,101)                -             -                -
     Reversal of share options granted under
        ESOS                                              (720,744)                -        (720,744)               -
     Reversal of union case claim                              -              (349,616)          -                  -
     Storage charges income                                 (5,918)                -             -                  -
     Unrealised gain on foreign exchange                  (997,346)         (1,477,865)     (139,021)               -
     Warehouse rental income                              (167,400)           (390,263)          -                  -




                                                               41
COMPANY NO. 646226 - K

GUAN CHONG BERHAD                                                     NOTES TO THE FINANCIAL STATEMENTS
(Incorporated in Malaysia)                                              Financial Year Ended 31 December 2008




18. STAFF COSTS
                                                              Group                          Company
                                                     2008              2007           2008             2007
                                                      RM                RM            RM               RM
     Executive Directors' Remuneration
       (excluding benefits-in-kind) (Note 19)        1,465,435         1,593,616       36,000          214,180
     Other Staff Costs :
     Salaries and other emoluments                   8,442,032         6,706,433             -                -
     EPF                                               762,979           647,551             -                -
     SOCSO                                              86,035            71,368             -                -
     Share options granted under ESOS                      -              59,708             -                -
     Other staff related expenses                    1,143,766         1,003,805             -                -

                                                    10,434,812         8,488,865             -                -

     Total Staff Costs                              11,900,247        10,082,481       36,000          214,180


19. DIRECTORS’ REMUNERATION
                                                              Group                          Company
                                                     2008              2007           2008             2007
                                                      RM                RM            RM               RM
     Directors of the Company
     Executive Directors :
     Bonuses                                          243,000           231,000           -                -
     EPF                                              142,776           133,776           -                -
     Fee                                               36,000            36,000        36,000           36,000
     Salaries                                         981,800           952,800           -                -
     SOCSO                                              1,859             1,860           -                -
     Share options granted under ESOS                     -             178,180           -            178,180

                                                     1,405,435         1,533,616       36,000          214,180
     Non-executive Directors :
     Fee                                               78,000            52,000        78,000           52,000
     Share options granted under ESOS                     -               2,360           -              2,360

                                                       78,000            54,360        78,000           54,360

                                                     1,483,435         1,587,976      114,000          268,540
     Directors of the subsidiaries
     Executive Directors :
     Fee                                               60,000            60,000              -                -

     Total Directors' Remuneration                   1,543,435         1,647,976      114,000          268,540

     Estimated monetary value of benefits-in-kind
     - Executive directors of the Company             109,983           102,100              -                -




                                                         42
COMPANY NO. 646226 - K

GUAN CHONG BERHAD                                                          NOTES TO THE FINANCIAL STATEMENTS
(Incorporated in Malaysia)                                                   Financial Year Ended 31 December 2008




19. DIRECTORS’ REMUNERATION – (cont’d)

    The number of Directors of the Company whose total remuneration during the financial year fell within the following
    bands is analysed as below :

                                                                                           Number Of Directors
                                                                                           2008             2007
     Executive Directors :
     RM        1 - RM 100,000                                                                         2                2
     RM 100,001 - RM 200,000                                                                      -                -
     RM 200,001 - RM 300,000                                                                          2                2
     RM 300,001 - RM 400,000                                                                      -                -
     RM 400,001 - RM 500,000                                                                          2                2

     Non-executive Directors
     RM       1 - RM 50,000                                                                           4                3


20. TAX EXPENSE
                                                                  Group                           Company
                                                        2008              2007            2008              2007
                                                         RM                RM              RM               RM
     (a) Components of tax expense
         Current tax expense :
          - Malaysian income tax                         687,140           849,000              -         6,100,000
          - Foreign income tax                           453,026           285,014              -               -
         (Over)/Underprovision in prior years            (14,169)           78,281          (16,158)         49,751

                                                       1,125,997          1,212,295         (16,158)      6,149,751
        Deferred tax expense :
        - relating to origination/(reversal) of
           temporary differences                       1,723,828          2,395,147        194,601          (194,601)
        - relating to changes in tax rate               (424,000)          (333,000)           -                 -
        Underprovision in prior years                        -               36,700            -                 -

                                                       2,425,825          3,311,142        178,443        5,955,150




                                                             43
COMPANY NO. 646226 - K

GUAN CHONG BERHAD                                                                NOTES TO THE FINANCIAL STATEMENTS
(Incorporated in Malaysia)                                                         Financial Year Ended 31 December 2008




20. TAX EXPENSE – (cont’d)
                                                                        Group                          Company
                                                             2008                2007           2008             2007
                                                              RM                  RM             RM              RM
     (b) Reconciliation of income tax expense
         Profit before tax                                   9,732,628          17,619,203     2,882,769     27,629,049

        Tax at Malaysian statutory income tax rate
            of 26% (2007 : 27%)                              2,530,000           4,757,200       749,500      7,460,000
        Tax effect of different tax rate in subsidiaries :
            - Domestic subsidiaries with
              issued and paid-up share capital of
              RM 2.5 million and below                         (32,000)            (29,700)          -              -
        Effect of share of results of associate                311,300             312,200           -              -
        Tax effect of double deduction relief                 (181,000)           (140,500)          -              -
        Tax effect of non-taxable income                       (70,000)           (232,300)     (624,000)    (1,693,000)
        Tax effect of non-deductible expenses                  330,150             431,000         9,500        138,399
        Tax effect of incentive under pioneer
            status                                            (334,000)         (1,626,500)            -                -
        Deferred tax assets not recognised
            during the financial year                         344,541             216,160         59,601                -
        Effect of changes in tax rate on opening
            balance of deferred tax                           (424,000)           (333,000)            -                -
        Utilisation of unabsorbed capital allowances
            and tax losses                                          -              (28,000)            -                -
        Under/(Over)provision in prior years :
            - current tax expense                              (14,169)             78,281       (16,158)         49,751
            - deferred tax expense                                 -                36,700           -               -
        Others                                                 (34,997)           (130,399)          -               -

                                                             2,425,825           3,311,142       178,443      5,955,150


    The Malaysian statutory tax rates are 26% for year of assessment 2008 and 25% for the subsequent years of
    assessment. Consequently, deferred tax are measured using these tax rates. Certain subsidiaries of the Company
    qualify for the lower statutory tax rate of 20% on the first chargeable income of RM 500,000 (2007 : RM 500,000)
    during the financial year.

    Tax expense for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions. During the
    financial year, the tax rate applicable to subsidiary in United States of America is 43% (2007 : 43%).

    The tax incentives in the form of pioneer status enjoyed by 2 local subsidiaries expired in May and December 2008
    respectively.




                                                                 44
COMPANY NO. 646226 - K

GUAN CHONG BERHAD                                                        NOTES TO THE FINANCIAL STATEMENTS
(Incorporated in Malaysia)                                                 Financial Year Ended 31 December 2008




21. EARNINGS PER ORDINARY SHARE

    (a) Basic Earnings Per Ordinary Shares

        Basic earnings per share is calculated by dividing the profit attributable to ordinary equity holders of the
        Company by the weighted average number of ordinary shares in issue during the financial year.

                                                                                                  Group
                                                                                         2008               2007
                                                                                          RM                 RM
         Profit attributable to ordinary equity holders of the Company                  6,979,702          14,211,770

                                                                                         2008               2007
                                                                                         Units              Units
         Number of ordinary shares in issue at beginning of financial year            240,000,000         240,000,000
         Effect of ordinary shares issued during the financial year                           -                   -

         Weighted average number of ordinary shares in issue                          240,000,000         240,000,000

         Basic earnings per ordinary share (sen)                                                2.91               5.92


    (b) Diluted Earnings Per Ordinary Share

        For the calculation of diluted earnings per ordinary share, the weighted average number of ordinary shares
        in issue during the financial year have been adjusted for the dilutive effect of all potential ordinary shares,
        i.e. share options granted to eligible executive directors and employees pursuant to the ESOS.

                                                                                                  Group
                                                                                         2008               2007
                                                                                          RM                 RM
         Profit attributable to ordinary equity holders of the Company                  6,979,702          14,211,770

                                                                                         2008               2007
                                                                                         Units              Units
         Weighted average number of ordinary shares in issue                              - *             240,000,000
         Effect of Employee Share Options Scheme                                          - *               2,039,914

         Adjusted weighted average number of ordinary shares for
            calculating diluted earnings per ordinary share                               - *             242,039,914

         Diluted earnings per ordinary share (sen)                                        - *                      5.87


        * There is no dilutive effect of the unissued ordinary shares granted to employees pursuant to the
          Company’s Employees Share Option Scheme (“ESOS”) during the financial year as the scheme of ESOS
          had been terminated with effect from 30 June 2008.



                                                              45
COMPANY NO. 646226 - K

GUAN CHONG BERHAD                                                       NOTES TO THE FINANCIAL STATEMENTS
(Incorporated in Malaysia)                                                Financial Year Ended 31 December 2008




22. DIVIDENDS
                                                                                         Group And Company
                                                                                         2008               2007
                                                                                         RM                 RM
    In respect of financial year ended 31 December 2006
    Final tax-exempt dividend of 5.2% equivalent to 1.3 sen per share
       on 240,000,000 ordinary shares of RM 0.25 each                                             -        3,120,000

    In respect of financial year ended 31 December 2007
    First interim tax-exempt dividend of 4.0% equivalent to 1.0 sen per share
       on 240,000,000 ordinary shares of RM 0.25 each                                             -        2,400,000

    Second interim dividend of 5.5% less income tax of 27% equivalent to
      approximately 1.0 sen net per share on 240,000,000 ordinary shares of
      RM 0.25 each                                                                                -        2,409,000

    Final tax-exempt dividend of 2.0% equivalent to 0.5 sen per share
       on 240,000,000 ordinary shares of RM 0.25 each                                   1,200,000                    -

    In respect of financial year ended 31 December 2008
    First interim tax-exempt dividend of 2.0% equivalent to 0.5 sen per share
       on 240,000,000 ordinary shares of RM 0.25 each                                   1,200,000                    -

                                                                                        2,400,000          7,929,000


    On 28 February 2009, the Company declared and approved a first interim tax-exempt dividend of 2.0%
    equivalent to 0.5 sen per share amounting to RM 1,200,000 in respect of the financial year ending 31 December
    2009. The financial statements for the current financial year do not reflect this dividend. This dividend will be
    accounted for in the shareholders’ equity as an appropriation of retained profits in the financial year ending 31
    December 2009.

23. CASH AND CASH EQUIVALENTS

    Cash and cash equivalents included in the cash flow statements comprise the following amounts :

                                                                   Group                              Company
                                                            2008            2007            2008             2007
                                                            RM               RM               RM                RM
    Bank and cash balances                                3,670,873        3,740,735            28,987      171,212
    Bank overdrafts                                      (3,825,152)      (4,925,275)              -            -

                                                           (154,279)      (1,184,540)           28,987      171,212


    Other information on financial risks of cash and cash equivalents are disclosed in Note 30.




                                                              46
COMPANY NO. 646226 - K

GUAN CHONG BERHAD                                                            NOTES TO THE FINANCIAL STATEMENTS
(Incorporated in Malaysia)                                                     Financial Year Ended 31 December 2008




24. RELATED PARTY DISCLOSURES

    (a) For the purpose of these financial statements, parties are considered to be related to the Company if the
        Company has the ability, directly or indirectly, to control the other party or exercise significant influence over
        the other party in making financial or operational decisions, or vice versa, or where the Company and the
        party are subject to common control or common significant influence. Related parties may be individuals or
        other entities. The related parties of the Company are :

        (i)   Holding Company

              Guan Chong Resources Sdn. Bhd.

        (ii) Related Companies

              Related companies are companies within Guan Chong Resources Sdn. Bhd. group.

        (iii) Affiliated Companies

              Affiliated companies represent companies in which certain directors of the Company and its subsidiary
              companies, and certain substantial shareholders of the ultimate holding company have financial
              interest, both directly and indirectly.

        (iv) Key Management Personnel

              Key management personnel includes the Group and the Company’s executive and non-executive
              directors and are defined as those persons having authority and responsibility for planning, directing
              and controlling the activities of the Group or the Company either directly or indirectly. Executive and
              non-executive directors’ compensation are disclosed in Note 19.

    (b) The significant related party transactions of the Company, other than key management personnel
        compensation, are as follows :
                                                                         Group                       Company
                                                            2008                 2007         2008             2007
                                                             RM                  RM            RM               RM
         Subsidiaries
         - Dividend income                                           -                  -    2,400,000      28,453,800
         - Management fee income                                     -                  -          -            36,000
         - Sundry expense                                            -                  -        2,706             -

         Related companies
         - Hostel rental                                      14,400              14,400             -                -
         - Transport charges                                  62,121              89,749             -                -

         Associate
         - Sale of goods                                  (5,148,456)        (4,502,795)             -                -

         Affiliated companies
         - Sale of goods                                  (7,992,040)        (9,661,400)             -                -
         - Purchase of goods                               6,975,775          7,044,428              -                -
         - Sale commission                                    54,657                -                -                -


        The Directors are of the opinion that all the above transaction, have been entered into in the normal course
        of business and have been established on terms and conditions that are not materially different from those
        obtainable in transactions with unrelated parties.

                                                                47
COMPANY NO. 646226 - K

GUAN CHONG BERHAD                                                           NOTES TO THE FINANCIAL STATEMENTS
(Incorporated in Malaysia)                                                    Financial Year Ended 31 December 2008




24. RELATED PARTY DISCLOSURES – (cont’d)

    (c) Information regarding outstanding balances arising from related party transactions at 31 December 2008 are
        disclosed in Note 9 and Note 14.

    (d) Compensation Of Key Management Personnel

        The remuneration of directors and other members of key management personnel during the financial year
        was as follows :

                                                                        Group                       Company
                                                             2008                2007        2008                2007
                                                             RM                   RM          RM                  RM
         Short-term employee benefits                    3,356,045              2,824,566    114,000               88,000
         Defined contribution plan (EPF)                   358,927                333,425        -                    -
         Share options granted under ESOS
          - Directors of the Company                                -            178,180            -            180,540
          - Key management of a subsidiary                          -             27,848            -                -

                                                         3,714,972              3,364,019    114,000             268,540

         Included in the total key management
            personnel are :
         Directors' remuneration (Note 19)
            - Directors of the Company                   1,483,435              1,587,976    114,000             268,540
            - Directors of the subsidiaries                 60,000                 60,000        -                   -

                                                         1,543,435              1,647,976    114,000             268,540


        The remuneration of key management personnel are determined by the remuneration committee having
        regard to the performance of individuals and market trends.


25. COMMITMENTS

    (a) Lease Commitments

        At 31 December, the Group has the following outstanding sub-lease rental commitments which are not taken
        up in the financial statements :

                                                                                                        Group
                                                                                             2008                2007
                                                                                              RM                  RM
         Lease rental payable
         Not later than one year                                                              123,738             123,738
         Later than one year and not later than five years                                    494,952             494,952
         Later than five years                                                              1,113,642           1,237,380

                                                                                            1,732,332           1,856,070




                                                               48
COMPANY NO. 646226 - K

GUAN CHONG BERHAD                                                            NOTES TO THE FINANCIAL STATEMENTS
(Incorporated in Malaysia)                                                     Financial Year Ended 31 December 2008




25. COMMITMENTS – (cont’d)

    (b) Capital Commitments

        At 31 December, the Group has the following capital commitments in respect of property, plant and
        equipment :
                                                                                                          Group
                                                                                                  2008              2007
                                                                                                   RM                RM
         Contracted but not provided for                                                          838,100           601,800


26. CONTINGENT LIABILITY

    Corporate Guarantee

    At 31 December 2008, the banking facilities of subsidiaries are guaranteed by the Company. Accordingly, the
    Company is contingently liable to the extent of the outstanding bank overdrafts and trade loans of the said
    subsidiaries at the end of financial year amounting to RM 187,544,496.

    It is not practicable to estimate the fair value of contingent liability reliably due to the uncertainties of timing, costs
    and eventual outcome.


27. MATERIAL LITIGATIONS

    The Company’s wholly-owned subsidiary, Guan Chong Cocoa Manufacturer Sdn. Bhd. (“GCC”), has on 4 April
    2003, made an insurance claim of RM 715,562 against Malaysian Assurance Alliance Berhad (“MAA”) in respect
    of the damages suffered on a shipment of bagged cocoa shipped on the vessel “Pratiwi” from Pantoloan Palu,
    Indonesia to Pasir Gudang, Johor sometime in July 2001. The claimed was dismissed by the High Court on 15
    May 2006. However, GCC had file an appeal notice to the Court of Appeal on 9 June 2006. As at to date, the
    matter is still pending for hearing. The Directors are of opinion that GCC has good cause of action against MAA.


28. SEGMENTAL ANALYSIS

    Segmental analysis is not presented as there are no material segments other than for the manufacturing and
    trading of cocoa-derived food ingredients and cocoa related products and the Group’s operating are carried out
    preliminary in Malaysia.


29. SIGNIFICANT EVENTS DURING THE FINANCIAL YEAR

    (a) On 12 June 2008, Guan Chong Berhad (“GCB”) incorporated a wholly-owned subsidiary in the Federal
        Territory of Labuan, Malaysia known as GCB Oversea Holdings Corporation (“GCBOHC”). The authorised
        share capital of GCBOHC is 10,000 ordinary shares with a par value of USD 1.00 each and its issued and
        paid-up share capital is 1 ordinary share of USD 1.00 each.

    (b) At Annual General Meeting held on 26 June 2008, the shareholders of the Company approved the
        termination of the existing Employee Share Option Scheme (“ESOS”) with effect from 30 June 2008. As a
        result, the equity amounts recognised in the share option reserve were reversed upon the termination.




                                                                  49
COMPANY NO. 646226 - K

GUAN CHONG BERHAD                                                        NOTES TO THE FINANCIAL STATEMENTS
(Incorporated in Malaysia)                                                 Financial Year Ended 31 December 2008




29. SIGNIFICANT EVENTS DURING THE FINANCIAL YEAR – (cont’d)

    (c) On 22 August 2008, the Company’s wholly-owned subsidiary, GCB Oversea Holdings Sdn. Bhd.
        (“GCBOH”), incorporated a subsidiary in Germany known as GCB Cacao GmbH (“GCB Cacao”) and
        subscribed 25,000 new ordinary shares of Euro 1.00 each at par for cash. As a result, GCB Cacao became
        a wholly-owned subsidiary of GCBOH to undertake the manufacturing and distributing activities of premium
        cocoa ingredients for European market.

        On 9 September 2008, GCBOH had transferred the entire share capital in GCB Cacao of 25,000 ordinary
        shares of Euro 1.00 each to GCBOHC.


30. FINANCIAL INSTRUMENTS

    (a) Financial Risk Management Policies

        The Group’s financial risk management policies seek to ensure that adequate financial resources are
        available for the development of the Group’s business whilst managing its risks. The Group operates within
        clearly defined guidelines and the Group’s policies that no trading in derivative financial instruments shall be
        undertaken.

        The main areas of financial risks faced by the Group and the policies in respect of the major areas of
        treasury activities are set out as follows :

        (i)   Interest Rate Risk

              The Group’s primary interest rate risk relates to interest-bearing debts obtained from the financial
              institutions in Malaysia. It has no substantial long term interest-bearing assets at 31 December 2008.
              The investment in financial assets i.e. deposits placed with licensed banks are short-term in nature and
              are not held for speculative purposes. The Group does not hedge interest rate risk but endeavours to
              obtain borrowings at competitive interest rates under the most favourable terms and conditions.

        (ii) Credit Risk

              Credit risk with respect to trade and other receivables is managed through the application of credit
              approvals, credit limits and monitoring procedures. Credit is extended to the customers based upon
              careful evaluation of the customers’ financial position and credit history.

              A concentration of credit risk may exist with respect to trade receivables as the Group is exposed to a
              few major customers. The maximum exposure to credit risk of the Group is represented by the carrying
              amount of each financial asset in the balance sheets.

        (iii) Foreign Exchange Risk

              The Group’s operations are exposed to fluctuation in foreign currencies, mainly Euro (“EUR”), Great
              Britain Pound (“GBP”), Singapore Dollar (“SGD”), United States Dollar (“USD”) and Brunei Dollar
              (“BND”). Foreign currency denominated assets and liabilities together with expected cash flows from
              highly probable purchases and sales give rise to foreign exchange exposures.

              Foreign exchange exposures in transactional currencies other than functional currencies of the
              operating entities are kept to an acceptable level. Material foreign currency transaction exposures are
              hedged, mainly with derivative financial instruments such as forward foreign exchange contracts and
              options.




                                                               50
COMPANY NO. 646226 - K

GUAN CHONG BERHAD                                                         NOTES TO THE FINANCIAL STATEMENTS
(Incorporated in Malaysia)                                                  Financial Year Ended 31 December 2008




30. FINANCIAL INSTRUMENTS – (cont’d)

    (a) Financial Risk Management Policies – (cont’d)

        (iii) Foreign Exchange Risk – (cont’d)

             The net unhedged financial assets and liabilities of the Group that are not denominated in their
             functional currencies are as follows :
                                 Net Financial Assets/(Liabilities) Held In Non-Functional Currencies

                                             Great Britain   Singapore      United States     Brunei
                                  Euro             Pound         Dollar            Dollar     Dollar        Total
                                   RM             RM               RM           RM            RM             RM
             Functional currency
               of the Group
             2008
             Ringgit Malaysia   1,066,737      (7,698,713)    (519,084)     (134,909,178)      2,629     (142,057,609)

             2007
             Ringgit Malaysia      199,687     (2,197,378)    (824,866)     (162,120,151)        -       (164,942,708)


             As at the balance sheet date, the Group has entered into USD/RM (2007 : GBP/USD) currency options
             for a total of USD 75.48 million (2007 : GBP 39.00 million) over the effective period from April 2008 to
             April 2010 (2007 : December 2007 to November 2008) to cover the Group’s sales and purchases
             commitments.

        (iv) Commodity Price Risk

             The manufacturing of the Group’s products requires raw materials such as cocoa beans. The value of
             the Group’s open sales and purchase commitments and inventory of raw materials changes
             continuously in line with cocoa bean price movements in the respective commodity markets. The
             Group’s business nature, to a certain extent, results in a natural hedge between the prices of cocoa
             beans (as raw materials) and manufactured cocoa products.

        (v) Liquidity Risk

             The Group actively manages its debt maturity profile, operating cash flows and the availability of funding
             so as to ensure that all refinancing, repayment and funding needs are met. As part of its overall prudent
             liquidity management, the Group maintains sufficient levels of cash or cash convertible investment to
             meet its working capital requirements. As far as possible, the Group raises committed funding from
             licensed financial institutions and prudently balances its portfolio with some short-term funding so as to
             achieve overall cost effectiveness.




                                                              51
COMPANY NO. 646226 - K

GUAN CHONG BERHAD                                                       NOTES TO THE FINANCIAL STATEMENTS
(Incorporated in Malaysia)                                                Financial Year Ended 31 December 2008




30. FINANCIAL INSTRUMENTS – (cont’d)

    (b) Fair Values

        Recognised Financial Instruments

        The methodologies used in arriving at the fair values of the following financial instruments of the Group are
        as follows :

        (i)   The fair values of cash and cash equivalents, receivables, payables, trade loans and bankers’
              acceptances are considered to approximate their carrying amounts as they are either payable on
              demand or within the normal credit terms or they have short maturity.

        (ii) The fair values of hire purchase payables approximate their carrying amounts as the Group does not
             anticipate the carrying amounts recorded at the balance sheet date to be significantly different from the
             values that would eventually be required for settlement.

        (iii) The fair value of term loan approximates their carrying amount as the interest rates are on floating rate
              basis.

        The fair values of financial assets and liabilities approximate their carrying amounts at 31 December 2008.

        Unrecognised Financial Instruments

        The nominal/notional amounts and net fair value of financial instruments not recognised in the balance
        sheets of the Group and of the Company at the balance sheet date are :

                                                        Amount in          Matures              Total
                                                          foreign            within          notional         Net fair
                                       Currency          currency          one year          amount            value
                                                                           RM                RM               RM
         At 31 December 2008
         Forwards used to hedge          GBP            5,857,949       30,441,645        30,441,645       1,158,345
           anticipated sales             USD            4,720,509       16,195,233        16,195,233        (156,610)

         Forward used to hedge
           anticipated purchases         USD            1,000,000         3,559,000        3,559,000          (95,000)

         At 31 December 2007
         Forwards used to hedge          GBP           12,185,582       82,802,250        82,802,250       2,292,109
           anticipated sales             USD           15,100,000       50,311,200        50,311,200         383,050

         Forward used to hedge
           anticipated purchases         GBP              202,793         1,377,998        1,377,998          (38,145)


        At 31 December 2008, there was unrecognised gain of RM 1,001,735 (2007 : RM 2,675,159) on forward
        contracts used to hedge anticipated sales and unrecognised loss of RM 95,000 (2007 : RM 38,145) on
        forward contracts used to hedge anticipated purchases of the Group and of the Company using the
        exchange rate at balance sheet date.

        The net fair value of a forward foreign exchange contract is the amount that would be receivable/payable on
        termination of the outstanding position arising therefrom and is determined by reference to the difference
        between the contracted rate and forward exchange rate at the balance sheet date applied to a contract of
        similar quantum and maturity profile.

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