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                      Contents
                      2 Corporate Profile /            29   Statement of Directors
                         Group Structure               30   Auditors’ Report
                      4 12 Months Milestone            31   Balance Sheets
 ANNUAL REPORT 2005   6 Letter to Shareholders         32   Consolidated Income Statement
                      10 Board of Directors            33   Statements of Changes in Equity
                      12 Management Team               34   Consolidated Cash Flow Statement
                      15 Operations Review             35   Notes to Financial Statements
                      17 Corporate Governance Report   65   Statistics of Shareholdings
                      25 Financial Statements          77   Notice of Annual General Meeting
                      26 Report of the Directors       81   Proxy Form
Our Vision
Our goals:
To seek and provide innovative, dynamic, reliable and competitive solutions to the
entire aspect of the water cycle.




Our objective:
To strengthen our presence in existing markets by giving quality products and solutions
to our customers. We intend to introduce new products to meet the changing and
expanding market demands.


The change in the market is an opportunity to grow; we intend to penetrate other new
markets and fields where our expertise and products are in demand. We are geared to
meet new challenges and stay abreast with new technology for further growth and
expansion as well as to maintain our strength in our present market.




                                                                      Pan Asian Water Solutions Limited   1
                                                                                    Annual Report 2005
Corporate Profile                                                              Group Structure
Today, Pan Asian Water Solutions Limited is more than                          Head office:
an integrated water piping systems solutions provider                          Pan Asian Water Solutions Limited
supporting primarily the water purification and wastewater                     16, Jalan Besut
treatment infrastructure development industry in the                           Singapore 619569
Southeast Asian region.                                                        Tel: 65-6268 7227
                                                                               Fax: 65-6268 9679
As part of our strategy for growth to expand beyond our                        Email: pawater@panasian.com.sg
capability in manufacturing and supplying of piping                            Website : www.pawater.com.sg
systems, we leverage on our newly acquired subsidiary,
Tricaftan Environmental Technology Pte. Ltd. and our strong                    Subsidiaries:
market network to undertake mechanical and electrical                          Pan Asian Engineering Pte. Ltd.
engineering projects in water, industrial and wastewater                       16, Jalan Besut
treatment plants. We are able to deliver a total solution from                 Singapore 619569
engineering design, equipment procurement to construction                      Tel: 65-6268 7227
work for our customers.                                                        Fax: 65-6268 9679
                                                                               E-mail: paengrg@panasian.com.sg
Today, we are home to approximately 70 employees in
more than 8 offices across Asian regions. Across all its                       Pan Asian Water Solutions (HK) Limited
operations in Asia, Pan Asian is the preferred local partner                   Rm 1707 17/F Multifield Plaza
to our customers because of its quality products and                           3-7A Prat Avenue, TST Kowloon
excellent services.                                                            Hong Kong
                                                                               Tel: 852-2376 2992
                                                                               Fax: 852-2376 2662
                                                                               E-mail: pamhk@netvigator.com




                                         United Kingdom


                                                                                                           Japan
                                                                                        Shanghai
                                          United Arab Emirates
                                                                                Nepal
                                                                              Cambodia         Hong Kong
                                                                                              Vietnam
                                                                  Sri Lanka
                                                                                           Malaysia
                                                                              Singapore
                                                                                             Indonesia
                                                                 Mauritius




            Major Markets / Offices

            Other Markets




2    Pan Asian Water Solutions Limited
     Annual Report 2005
 PA Water Solutions (Shanghai) Limited                           Tricaftan Environmental Technology Pte. Ltd.
 11-04 Super Ocean Finance Center Building                       1 Sophia Road
 2067 Yan An Road (West)                                         #06-05 Peace Centre
 Shanghai 200335                                                 Singapore 228149
 PR China                                                        Tel: 65-6334 8933
 Tel: 86-21 6295 1208                                            Fax: 65-6334 8922
 Fax: 86-21 6295 1308                                            Website: www.tricaftan.com.sg
 E-mail: enquiry@pawater.com.cn                                  E-mail: tri_ent@pacific.net.sg

 PT Pan Asian Water Solutions                                    Representative offices:
 Komp Roxy Mas Blok D2/15                                        Pan Asian Water Solutions Limited
 Jl K H Hasyim Ashari 13                                         34 Dang Tat, Tan Dinh Ward
 Jakarta 10150                                                   Dist. 1 Ho Chi Minh City
 Indonesia                                                       Vietnam
 Tel: 62-21 63 07 259                                            Tel/Fax: 848-846 8959
 Fax: 62-21 63 85 83 53                                          E-mail: panasian.vietnam@hcm.vnn.vn
 E-mail: enquiry@panasian.co.id




                                            PAN ASIAN GROUP CHART




                                            Pan Asian Water Solutions Limited


        Pan Asian Water Solutions Limited
          Vietnam Representative Office




Pan Asian Engineering   Pan Asian Water Solutions   PA Water Solutions      PT Pan Asian Water      Tricaftan Environmental
      Pte. Ltd.               (HK) Limited          (Shanghai) Limited           Solutions            Technology Pte. Ltd.
       (100 %)                  (100 %)                  (100 %)                  (100 %)                    (51 %)




                                                                                         Pan Asian Water Solutions Limited    3
                                                                                                       Annual Report 2005
12 Months Milestone




                                                                                                Awarded Singapore Corporate
                                                                                                   Governance (Merit Award)
                                                                                                      by Securities Investors
                                                                                                     Association (Singapore)




                                                                           Acquired 51% shares in
                                                                           Tricaftan Environmental
                                                                               Technology Pte. Ltd.
                                                                                and it is now one of
                                                                                      our subsidiary

                                            Subsidiary office in Jakarta
                                                  “PT Pan Asian Water
                                            Solutions” was established



               Subsidiary office in Shanghai
                        “PAWater Solutions
                  (Shanghai) Limited” was
                                  established




 Awarded Da Den
Dam water supply
project in Vietnam




    27th January                27th January                  10th May           30th September                12th October
            2005                        2005                      2005                     2005                       2005




4    Pan Asian Water Solutions Limited
     Annual Report 2005
purifying processes




                      Pan Asian Water Solutions Limited   5
                                    Annual Report 2005
Letter to Shareholders
Water is the sustenance for life. With limited fresh       Environmental Technology Pte. Ltd. (“Tricaftan”) to
water accessible for human use, every source of            better reflect its focus and direction. This strategic
supply is important. The Group’s ability to provide        acquisition allowed us to scale upstream to provide
comprehensive and integrated services including            more integrated services to design and build treatment
engineering services in the design, supply and             plants. It also strengthened our competitive edge in
integration of specialized equipment and systems used      enabling us to bid for bigger and more comprehensive
in water and wastewater treatment process is a boon        water and wastewater projects in the region.
to the water scarcity problem.
                                                           The Group posted strong results for financial year
Barely into our second year as a listed company, we        ending 31 December 2005. FY05 saw a 49.2% increase
are honored to be one of the four companies from           in revenue, from S$26.2 million in FY04 to S$39.1
SESDAQ to be conferred the SIAS Singapore Corporate        million in FY05. With better management of expenses,
Governance Merit Award 05. This award recognizes the       the Group’s profit before tax increased 55% to S$2.4
Group’s efforts to enhance shareholder value through       million. Cash flow remained positive with cash and cash
good corporate governance.                                 equivalents rising from S$6.7 million in FY04 to S$9.0
                                                           million in FY05. FY05 also saw the completion of the
In 3rd quarter FY05, the Group acquired 51% of Tricaftan   Da Den Dam Vietnam.
Enterprise Pte Ltd. The name was changed to Tricaftan




                                                                Protecting and saving the water
                                                                we drink is a shared responsibility.
                                                                Our responsibility is even greater
                                                                with our expertise knowledge and
                                                                an integrated water industry
                                                                solutions provider.



                                                                Koh Tiam Teng
                                                                Chairman




6   Pan Asian Water Solutions Limited
    Annual Report 2005
Letter to Shareholders (cont’d)
Strategic Acquisition and Alliance                               Other than traditional municipal water treatment
The demand for clean water is ever increasing. To better         projects, the intention to increase the in-house
position itself to meet this demand, the Group has               technological know-how would signify that the Group
scaled upstream from equipment purveyor to one-stop              would be able to leverage on expertise and expand its
water and wastewater treatment solutions provider.               scope to encompass industrial wastewater treatments
                                                                 for industries such as textile, hospitals and many more.
We expanded our scope and portfolio of services to
provide a more comprehensive and value-added
                                                                 Another potential collaboration in progress
chain of services.
                                                                 underpinning the Group’s position is the new service
                                                                 of Combined Sewer Overflows to manage projects on
With the 51% acquisition of Tricaftan, the Group is
                                                                 flood control and other wet weather discharges.
able to strengthen and consolidate its position by
providing one-stop services from engineering and
design of water treatment plants to the supply and               Looking Forward
installation of water piping systems.
                                                                 Water is scarce and hence long-term prospects of the
                                                                 Group are certainly promising.
This move would mean that the Group would be
poised for better growth and afford the Group a more             Locally, Marina Bay will be Singapore’s key focus
competitive edge in the bid for bigger and more                  of development for the next 15 to 20 years. There are
comprehensive projects.                                          plans to convert the current bay into a Business
                                                                 and Finance Centre. Consequently, the recent
The Group is also exploring strategic partnerships               announcement of S$1.5 billion investment to develop
with leading institutions to complement and expand               water infrastructure projects including the impending
its current menu of services.                                    Integrated Resorts and NEWater factories over the
                                                                 next 2 years will indicate further opportunities for
In fact, the Group is finalizing the details of an affiliation   the Group.
with a prestigious high technology research and
development centre. This affiliation will give the Group         In the region, particularly in countries where the Group
access to research and development of state-of-the-              has a presence, water related services and expertise
art technology and engineering expertise to explore new          are in demand – for construction, water supply or
frontiers and augment technologies for sustainable               wastewater treatments. With the Group’s longstanding
supply of water and wastewater treatments and would              portfolio and the recent acquisition of Tricaftan, we are
value-add the current range of services on offer.                able to tender and compete on a wider range of projects.




                                                                                         Pan Asian Water Solutions Limited   7
                                                                                                       Annual Report 2005
Letter to Shareholders (cont’d)
Dividends                                                  Acknowledgement and Appreciation
In view of good performance, the Board of Directors is     We would like to share our success, especially the
proposing a final dividend of 0.5 cents net of tax 20%     SIAS Singapore Corporate Governance Merit Award 05,
per ordinary shares of the Group. The total net dividend   with our clients, business associates, shareholders and
payable will amount to $625,000 (FY2004 : $500,000).       employees. Such accolades will serve to spur us to
Subject to the approval of shareholders at the Annual      achieve higher standards of excellence.
General Meeting, this proposed dividend will be paid
on 30 May 2006.                                            On behalf of our Board of Directors, we would like to
                                                           extend our heartfelt appreciation to all who have
                                                           supported us. We look forward to another good year
                                                           to share with you.




                                                           Koh Tiam Teng
                                                           Chairman




8   Pan Asian Water Solutions Limited
    Annual Report 2005
Pan Asian Water Solutions Limited   9
              Annual Report 2005
Board of Directors - Executive Directors
Koh Tiam Teng                                                      Koh Eddie
Group’s Managing Director and CEO                                  Group’s Executive Director
He is responsible for the overall management and operations        He is in charge of business development, sales and
of our Group including the formulation and implementation          marketing of our export sales operations since 1997. Joining
of our Group’s business strategies and policies, marketing         us in an executive role in 1991, he has more than 14 years of
and charting the growth of our Group since 1991. He is             experience in business development and sales and
instrumental in the business development and operational           marketing of piping systems and related accessories to the
aspects of our business, including negotiating for major           government agencies and private developers. From 1991 to
contracts, attending international trade fairs to assess the       1993, he was our Group’s regional Sales Manager responsible
latest available technologies as well as sourcing for new          for expanding the customer base and market share in Brunei
distributorships in our industry. He joined our Group in 1981      and Indonesia. From 1993 to 1996, his portfolio expanded
and worked through the ranks to the position of Sales              to include the Hong Kong, Malaysia and Indo-China markets.
Manager in our Group where he was responsible for securing         In particular, he was responsible for business development
sales, maintaining client relationships and regular contact        of our distribution business to ADB and World Bank-funded
with our customers and principals as well as securing new          projects. He holds a Bachelor of Engineering from National
distributorships. In 1999, he was one of the top ten finalists     University of Singapore.
in the Entrepreneur of the Year award from the Rotary-ASME
(Association of Small and Medium Enterprises) for
spearheading the growth of our Group. He holds a Bachelor
of Arts from the Nanyang University in Singapore and is
currently the Vice-President of the Singapore Khoh Clan
Association and a Committee Member of the Singapore
Sanitary Ware Importers and Exporters Association.




As a good corporate
citizens to save our
drinking water, we
provide sustainable
solutions to match
the market demand
and needs.




                                         From left to right: Koh Eddie and Koh Tiam Teng




10   Pan Asian Water Solutions Limited
     Annual Report 2005
Board of Directors (cont’d)                                -   Independent Non-Executive Directors

Lim Ho Seng                                                         Financing (Singapore) Ltd. In this position, he had overall
                                                                    responsibilities for the operations in Singapore, as well as
Independent Director
                                                                    regional responsibilities for GE related businesses. Mr Ang
He is an Independent Director and Chairman of the Audit
                                                                    is a Fellow of the Institute of Certified Public Accountants of
Committee of the Company. He is the Chairman of Want Want
                                                                    Singapore and holds a Bachelor of Accountancy degree from
Foundation Ltd, Sim Siang Choon Ltd and Baker Technology
                                                                    the University of Singapore. He is also an independent
Limited. He is also an independent director of several
                                                                    director of several other listed companies on the Stock
other public companies listed on the Stock Exchange of
                                                                    Exchange of Singapore.
Singapore. He was the former Chief Executive Officer of NTUC
Fairprice Co-operative Ltd. Mr. Lim is a Fellow of the Institute
of Certified Public Accountants of Singapore, the Certified
Public Accountants, Australia, the Institute of Chartered           Wong Meng Yeng
Secretaries and Administrators and the Singapore Institute          Independent Director
of Directors.                                                       He was appointed as an independent director in July 2004.
                                                                    He graduated from the National University of Singapore in
                                                                    1983 with a Bachelor of Laws (Honours) degree. He has been
                                                                    an advocate and solicitor in Singapore for the past 22 years
Ang Miah Khiang
                                                                    of which the last 16 years were spent as a corporate lawyer.
Independent Director                                                He is currently a director of Alliance LLC, a law corporation
He is currently Executive Director, DP Information Network          he co-founded. Mr. Wong is also an independent director of
Pte Ltd, a business and credit information bureau. Prior to         several other public companies listed on the Stock Exchange
this, he was the Managing Director of GE Commercial                 of Singapore.




                                                           From left to right: Ang Miah Khiang, Lim Ho Seng and Wong Meng Yeng




                                                                                              Pan Asian Water Solutions Limited   11
                                                                                                            Annual Report 2005
Management Team
                                         Lim Choon Hui is our Group Finance Manager. She joined our Group in Oct 2004. She is
                                         responsible for overall financial and accounting control of the Group, liaising with secretarial,
                                         banking and taxation matters, also oversee the human resource, general administration
                                         and IT function. Prior to joining us, Ms. Lim worked in various business industries including
                                         retail, trading, manufacturing, hospital health care, government and charitable organization.
                                         She has more than 30 years working experience covering duties in finance, administration,
                                         operations, human resource and information technology. She holds a bachelor of
                                         Commerce, Accountancy degree from Nanyang University in Singapore. She is a CPA, a
                                         Fellow member of the Institute of Certified Public Accountants of Singapore.




                                         Tan Kok Cheng is our Operations Manager. He joined the Company in 1982 and has more
                                         than 23 years working experience in the Group. He has held various positions in the
                                         Group from warehousing, sourcing and developing, sales and marketing and now taking
                                         the role of Operations Manager on warehousing, logistic, inventory control, pipeline
                                         fabrication and engineering services. He holds pre-university qualification.




                                         Douglas Chee Beng Choon is our Senior Technical Sales Manager. He joined our Group in
                                         1992. He is responsible for the overall sales and marketing and business development of
                                         our Group, focusing primarily in the marketing and promotion of our products and services
                                         to water purification and wastewater treatment plant system providers and public utilities
                                         boards. His responsibilities also include maintaining rapport and regular contact with our
                                         customers and principals, through regular product updates and sharing of best practices
                                         in the piping systems process designs and installation technologies. He holds diplomas
                                         in Management Studies and Electronics and Communications awarded by the Singapore
                                         Institute of Management and Singapore Polytechnic respectively.




                                         Welly Chandra is the Managing Director of our subsidiary Tricaftan Environmental
                                         Technology Pte. Ltd. He has been in the business of water and wastewater treatment since
                                         1987 and been involved in the engineering design for processes within wastewater treatment
                                         facilities – like Dissolved Air Flotation Thickeners, Polymer Preparation System, Rise and
                                         Fall Weirs, Gas Holders, Clarifiers. He started the business of providing Water and
                                         Wastewater Treatment technologies and processes. He obtained his tertiary educations in
                                         United Kingdom BSc., (Hons.) in 1978 MSc. in Mechanical Engineering 1980 and MBA in
                                         1981. He is also a member of the Institute of Engineers, Singapore.




12   Pan Asian Water Solutions Limited
     Annual Report 2005
Management Team (cont’d)
               Steven Phua Chai Dow is our Chief Representative for our Indo-China operation, focusing
               mainly in Vietnam and Cambodia. He is seconded to manage this operation since August
               1998 and is stationed in our Ho Chi Minh City office, Vietnam. He is responsible for
               marketing and business development, focusing primarily in the water and wastewater
               sectors. He travels widely to the provinces to promote businesses. His past working
               experiences were regional sales in water sector for UK company. He graduated with a
               MBA from Henley / Brunel University, UK.




               Harvey Kwan Koon Ho is our Sales Manager in Hong Kong. He joined our Group in 1998.
               He is responsible for the Hong Kong sales and marketing and business development of
               our Group, primarily in the marketing and promotion of our products and services to
               Hong Kong W.S.D., D.S.D., consultants and contractors. His responsibilities include regular
               updates of product information to customers, ensuring prompt delivery to customers and
               monitoring of stock ordering. He holds a Diploma in Mechanical Engineering awarded by
               Seneca College, Toronto, Canada.




               Eric Teo Yew Leong is our General Manager for PA Shanghai Office. He joined our Group
               in July 2004. Eric has more than 20 years of experience in the Building and Construction
               Sector. He is responsible for our Business Operation in China, both the Domestic Market
               and Export Market. His key task is to ensure that the business unit will grow from strength
               to strength and to achieve Company’s Goals. He holds a Diploma in Sales and Marketing
               awarded by the Marketing Institute of Singapore.




               Stephen Wee Kian Peng is our Country Manager of PT. Pan Asian. He is responsible for
               the sales and marketing and business development, focusing primarily on our products
               and services to water purification and wastewater treatment plant system in Indonesia
               market. He joined our group in Dec 2004. Prior to joining the group, he has 15 years
               experience in HVAC markets. He holds a Diploma in Marketing (CIMUK) and Diploma in
               Mechanical Engineering awarded by Ngee Ann Polytechnic of Singapore.




                                                                      Pan Asian Water Solutions Limited   13
                                                                                    Annual Report 2005
                                 Transmission
                                     Pipelines         Raw Water Collection Point




                          Water Purification Plant


     Distribution                                                                     Mechanical &
       Pipelines                                                                         Electronic
                                                                                       Engineering
                                                                                            Design
                                                                        Reprocessed
                                                                        For NEWater
                                                                                                   Project
                                                                                              Coordination
                                                                                            & Management

           Home / Industries                     Reprocessed
                                                 For Industrial Use



     Waste &
        Sewer                                                                               Fabrication
     Pipelines                                                                                  Works




                            Wastewater Treatment Plant
                                                                                               Installation, Testing
                                                                                               & Commissioning

                                                     Discharge to Sea




                    Supporting The Entire Water Cycle



14    Pan Asian Water Solutions Limited
      Annual Report 2005
Operations Review
2005 was a significant year for the Group. Despite intense      Geographical Segments
competition, the Group was able to achieve a 32.8% increase
in profit to S$2.0 million.
                                                                Vietnam
Gross profit increased by 23.6% to S$7.3 million. Cash          Sales revenue in Vietnam leapt from S$3.4 million in FY04 to
and cash equivalent recorded an addition of S$2.3               S$20.5 million in FY05. Much was contributed by the
million compared with FY04. This was mainly due to              completion of Da Den Dam in first half of FY05. The project
operating surplus.                                              comprised supplying of 34km of ductile iron pipes, steel
                                                                pipes and fittings, and transmission of treated clean
The business in the supply of integrated water piping           water from Song Dinh water treatment plant to areas in Phu
system solutions remained strong. Besides supporting            My, Long Son, Long Dien and Long Hai. The project
water purification and wastewater treatment infrastructure      accounted for S$12.3 million revenue. In total, the Group
development in the region, the Group expanded                   undertook almost 20 projects in the country which
its services both vertically and horizontally to include        contributed to the sterling performance.
fabrication and technical consultancy on engineering design
and build services for water treatment, as well as supply       Hong Kong
and installation of water piping systems.                       Hong Kong saw an increase of S$2.3 million in sales
                                                                revenue, from S$2.6 million in FY04 to S$4.9 million in FY05.
                                                                This included the completion of Seawater Cooling Piping
                                                                System project at Kowloon Station to pump sea water for
Business Segments                                               the use of air-conditioning system.

Potable Water                                                   China
The Group remained strong in the potable water business         China continued to play a pivotal role as a procurement base
segment with an increase in revenue of S$15.4 million. This     for the Group. We consistently augment our brand positioning
was due partly to the completion of the Da Dem Dam project      and brand equity of ‘PA’ brand of ductile iron pipes and fittings
in Vietnam.

Wastewater & NEWater
Both business segments saw a mild combined decrease
of S$2.4 million in revenue. The decline was due to
fewer projects available and keener competition.
Nevertheless, with increased in-house expertise and
services, the Group is confident in our bid for more projects
in view of greater potential for wastewater and NEWater
treatment infrastructures.




                                                                                           Pan Asian Water Solutions Limited   15
                                                                                                         Annual Report 2005
Operations Review (cont’d)
with the help of our Shanghai office. In addition, in view of        In addition, the Group recently accepted a leasehold land from
the rapid development and urbanization in China, the                 JTC to consolidate all Singapore’s subsidiaries and
Shanghai office is strategically located to explore and facilitate   operations. Relocating and combining all into one location
opportunities for water and wastewater infrastructure                will lower operating costs and improve efficiency. The
development projects.                                                Group will also be able to service the clients better with
                                                                     manufacturing and engineering services under one roof.
Others
The Group’s presence in Middle East, Cambodia, Brunei
and other countries continued to aid in the overall
performance. The outlook in these countries remains good             Accolade
and the Group is confident that contributions to the top             The Group prides itself as one of the four recipients of the
and bottom line will proliferate.                                    SIAS Singapore Corporate Governance Merit Award 05,
                                                                     SESDAQ category. The award recognizes the Group’s efforts
                                                                     in maintaining a high standard of corporate governance.

Expansion
Headquartered in Singapore with subsidiaries in Hong Kong
and Shanghai; a representative office in Vietnam; and                Prospects
presence in 14 countries, the Group has plans in the pipeline        The climate for real estate and upgrading works in Singapore
to expand its presence to better capture opportunities and           looks promising. With government’s investments into major
service the clients.                                                 projects such as The Downtown at Marina Bay, Integrated
                                                                     Resorts and NEWater facilities, the Group believes that we
In first half of FY05, the Group established a subsidiary office     will benefit from these developments.
in Jakarta – PT Pan Asian Water Solutions. This was to
capitalize on the demand for water treatment projects.               In the region, rapid urbanization and industrialization
                                                                     together with continued expansions of cityscape in many
                                                                     developing nations indicate needs for water supply and
                                                                     wastewater treatments infrastructure developments.

                                                                     With greater capacity to offer integrated engineering, design
                                                                     and build services, the Group is poised to ride the wave.




16   Pan Asian Water Solutions Limited
     Annual Report 2005
Corporate Governance Report
BOARD MATTERS

The Board’s Conduct of its Affairs

Principle 1: Every company should be headed by an effective Board to lead and control of the Company

The Board consists of five members, comprising three independent non-executive directors and two executive directors.
Together, the directors bring a wide range of business, legal and financial experience relevant to the Group.

Koh Tiam Teng           Chairman, Managing Director and Chief Executive Officer
Koh Eddie               Executive Director
Lim Ho Seng             Independent Director
Ang Miah Khiang         Independent Director
Wong Meng Yeng          Independent Director

The Board met five times during the year 2005. The Company’s Articles of Association provide for the Board to convene
meetings via teleconferencing and electronic means. The details of attendance by individual Directors in year 2005 are as
follows:

                                              Number of meetings                        Number of meetings
                                              held while a member                           attended

Koh Tiam Teng                                           5                                         5
Koh Eddie                                               5                                         5
Lim Ho Seng                                             5                                         5
Ang Miah Khiang                                         5                                         5
Wong Meng Yeng                                          5                                         5

The Board is entrusted with the responsibility of the overall management of the Company. The principal functions of the Board
are:

a)      Approving policies, strategies and financial objectives of the Company and monitoring the performance of Management.
b)      Overseeing the processes for evaluating the adequacy of internal controls, risk management, financial reporting and
        compliance.
c)      Approving nominations of board directors, committee members and key personnel.
d)      Approving annual budgets, funding requirements, expansion programme, capital investment, major acquisitions and
        divestments proposals.

The Company has adopted internal guidelines setting forth matters, such as annual budget and transactions relating to
investment, financing, legal and corporate secretarial which require the Board’s approval. The Board will review the guidelines
on a periodical basis to ensure their relevance to the operations of the Company.

Board members are also encouraged to attend seminars and receive training to improve themselves in the discharge of their
duties as directors. The Company works closely with professionals to provide its directors with changes to relevant laws,
regulations and accounting standards.




                                                                                            Pan Asian Water Solutions Limited   17
                                                                                                          Annual Report 2005
Corporate Governance Report (cont’d)
Board Composition and Balance

Principle 2: There should be a strong and independent element on the Board, which is able to exercise objective judgement on
corporate affairs independently, in particular, from Management. No individual or small group of individuals should be
allowed to dominate the Board’s decision

The Company endeavours to maintain a strong and independent element on the Board. The independent directors have confirmed
that they do not have any relationship with the Company or its related companies or its officers that could interfere, or be
reasonably perceived to interfere, with the exercise of the director’s independent business judgement with a view to the best
interests of the Company. The Nominating Committee (“NC”) has reviewed and determined that the said directors are independent.
The independence of each director is reviewed annually by the NC.

The board is of the opinion that its current size of 5 board members is appropriate, taking into account the nature and scope of
the Company’s operations.

Together, the board members possess a balanced field of core competencies to lead the Company. Details of the Board
members’ qualifications and experience are presented in this Annual Report under the heading “Board of Directors”.

Chairman and Chief Executive Officer

Principle 3: There should be a clear division of responsibilities at the top of the Company – the working of the Board and the
executive responsibility of the Company’s business – which will ensure a balance of power and authority, such that no one
individual represents a considerable concentration of power.

Although the Code of Corporate Governance states that the roles of the Chairman and the Chief Executive Officer should in
principle be separate to ensure an appropriate balance of power, increased accountability and greater capacity of the Board for
independent decision making, the Board is of the view that it is in the best interest of the Company to adopt a single leadership
structure so as to facilitate decision making. The roles of the Chairman and the Chief Executive Officer are assumed by one of
the executive directors, Mr Koh Tiam Teng.

The presence of a strong independent element and the participation of the independent directors ensure that the Chairman and
the Chief Executive Officers does not have unfettered powers of decision.

The Chairman’s duties and responsibilities includes :-

a)      scheduling of meetings to enable the board to perform its duties responsibly;
b)      preparing the agenda of meetings;
c)      ensuring the proper conduct of meetings and accurate documentation of the proceedings;
d)      ensuring the smooth and timely flow of information between the Board and Management;
e)      ensuring compliance with internal polices and guidelines of the Company.

In addition to the above duties, the Chairman will assume duties and responsibilities as may be required from time to time.




18   Pan Asian Water Solutions Limited
     Annual Report 2005
Corporate Governance Report (cont’d)
Board Membership

Principle 4 : There should be a formal and transparent process for the appointment of new directors to the Board. As a
principle of good corporate governance, all directors should be required to submit themselves for re-nomination and re-
election at regular intervals.

The Nominating Committee (“NC”) is established comprising of 3 members, the majority of whom are non-executive independent
directors.

Chairman          :     Ang Miah Khiang (appointed on 24 Feb 2006)
Member            :     Lim Ho Seng (resigned as Chairman on 24 Feb 2006)
Member            :     Koh Tiam Teng

The NC is established for the purposes of ensuring that there is a formal and transparent process for all board appointments.
It has adopted written terms of reference defining its membership, administration and duties. The Committee met twice in the
year 2005 and attended by all members.

The details of attendance by individual Directors in year 2005 are as follows:

                                               Number of meetings                        Number of meetings
                                               held while a member                           attended

Ang Miah Khiang                                          2                                          2
Lim Ho Seng                                              2                                          2
Koh Tiam Teng                                            2                                          2

The duties of the NC are as follows:

a)      To make recommendations to the board on all board appointments;
b)      To re-nominate directors having regard to the director’s contribution and performance;
c)      To determine annually whether or not a director is independent;
d)      To make recommendation to the board the performance criteria and appraisal process to be used for the evaluation of
        the individual directors as well as the effectiveness of the board as a whole, which criteria and process shall be subject
        to board’s approval.

The Articles of Association of the Company currently require one-third of the directors to retire and subject themselves to re-
election by the shareholders in every Annual General Meeting. In addition, all directors of the Company shall retire from office
at least once every three years.

The details of the board members’ qualifications and experience including the year of initial appointment and election are
presented in this Annual Report under the heading “Board of Directors”.




                                                                                              Pan Asian Water Solutions Limited   19
                                                                                                            Annual Report 2005
Corporate Governance Report (cont’d)
Board Performance

Principle 5 : There should be a formal assessment of the effectiveness of the Board as a whole and the contribution by each
director to the effectiveness of the Board.

The NC reviews and determines the independence of each director and assesses the effectiveness of the Board as a whole and
of individual director. The NC has reviewed and assessed the effectiveness of the Board based on the criteria approved by the
Board. The NC is of the opinion that each member of the Board has been effective during the year 2005 due to the active
participation of each board member during each meeting.

Access To Information

Principle 6 : In order to fulfill their responsibilities, board members should be provided with complete, adequate and timely
information prior to board meetings and on an on-going basis.

The Board is furnished with board papers prior to any Board Meeting. These papers are issued in sufficient time to enable the
directors to obtain additional information or explanations from the Management, if necessary. The board papers include
minutes of the previous meeting, reports relating to investment proposals, budgets, financial results announcements, reports
from committees, internal and external auditors.

The directors may communicate directly with the Management team and the Company Secretary on all matters whenever they
deem necessary. The Company Secretary attends board meetings and is responsible for recording of the proceedings.

The Company currently does not have a formal procedure for Directors to seek independent and professional advice for the
furtherance of their duties. However, directors may, on a case-to-case basis, propose to the Board for such independent and
professional advice, the cost of which may be borne by the Company.

REMUNERATION MATTERS

Procedures For Developing Remuneration Policies

Principle 7 : There should be a formal and transparent procedure for fixing the remuneration packages of individual directors.
No director should be involved in deciding his own remuneration.

The Remuneration Committee (“RC”) is established comprising of 3 members, the majority of whom are non-executive
independent directors.

Chairman           :      Wong Meng Yeng
Member             :      Ang Miah Khiang
Member             :      Koh Tiam Teng

The members of the RC have some experience in the field of executive compensation. The RC may seek professional advice
where necessary.

The RC is established for the purposes of ensuring that there is a formal and transparent procedure for fixing the remuneration
packages of individual directors. The overriding principle is that no director should be involved in deciding his own remuneration.
It has adopted written terms of reference that defines its membership, roles and functions and administration. The committee
met twice during the year 2005 and attended by all members.




20   Pan Asian Water Solutions Limited
     Annual Report 2005
Corporate Governance Report (cont’d)
The details of attendance by individual Directors in year 2005 are as follows:

                                              Number of meetings                        Number of meetings
                                              held while a member                           attended

Wong Meng Yeng                                          2                                        2
Ang Miah Khiang                                         2                                        2
Koh Tiam Teng                                           2                                        2

The duties of the RC are as follows:

a)      To review and recommend to the board in consultation with senior management a framework of remuneration for
        executive directors, chief executive officer (“CEO”) and senior management staff;
b)      To review the remuneration packages of all managerial staff that are related to any of the executive directors or CEO;
        and
c)      To recommend to the board in consultation with senior management and the Chairman of the board, the Executive’s
        and Employees’ any long term incentive scheme.

Level of Mix of Remuneration

Principle 8 : The level of remuneration should be appropriate to attract, retain and motivate the directors needed to run the
company successfully but companies should avoid paying more for this purpose. A proportion of the remuneration, especially
that of executive directors, should be linked to performance.

The remuneration of the Executive Directors is based on service agreements dated 9 July 2004 and which are disclosed to
shareholders in the Company’s Prospectus dated 8 September 2004.The service agreements are for an initial period of three
years with effect from 1 June 2004 for Koh Tiam Teng and Koh Eddie.

The independent directors are paid a director’s fee for their efforts and time spent, responsibilities and contribution to the
board, subject to approval by shareholders at the Annual General Meeting.

Disclosure on Remuneration

Principle 9 : Each company should provide clear disclosure of its remuneration policy, level and mix of remuneration, and the
procedures for setting remuneration, in the Company’s annual report.

Remuneration of Directors of the Company

Remuneration Band up to S$250,000

Name                              Fixed Salary/                                   Stock                 Other
                                      Fees                   Variable            Options             Benefits/Fees

Lim Ho Seng                            100%                     –                   –                     –
Wong Meng Yeng                         100%                     –                   –                     –
Ang Miah Khiang                        100%                     –                   –                     –




                                                                                           Pan Asian Water Solutions Limited   21
                                                                                                         Annual Report 2005
Corporate Governance Report (cont’d)
Remuneration Band from S$250,001 to S$500,000

Name                                                                               Stock               Other
                                         Fixed Salary        Variable             Options             Benefits

Koh Tiam Teng                               80%                11%                                      9%
Koh Eddie                                   77%                12%                                      11%

The remuneration of the Directors and key employees is reviewed by the RC and is disclosed in the Annual Report. The Board
is of the opinion that it is not necessary to invite the shareholders to approve the Board’s annual remuneration report and
policy.

ACCOUNTABILITY AND AUDIT

Accountability

Principle 10 : The Board is accountable to the shareholders while the Management is accountable to the Board.

For the financial performance reporting via the SGXNET announcement to SGX-ST and the Annual Report to the shareholders,
the Board has a responsibility to present a fair assessment of the Group’s financial position including the prospects of the
Group.

The Board ensures that the Management maintains a sound system of internal control to safeguard the shareholders’ investment
and the Group’s assets.

The Management provides all members of the Board with a monthly management report commencing from FY2005. The
Board members review the monthly management report and met to approve the Group’s quarterly, half yearly and full year
financial result. All board papers are given prior to any board meeting to facilitate effective discussion and decision making.

Audit Committee

Principle 11 : The Board should establish an Audit Committee (“AC”) with written terms of reference which clearly set out its
authority and duties.

The Audit Committee comprises 3 members, all are non-executive independent directors.

Chairman           :      Lim Ho Seng
Member             :      Wong Meng Yeng
Member             :      Ang Miah Khiang

The Chairman of the AC, Mr Lim Ho Seng is by training, a Certified Public Accountant. He has many years of experience in
business and financial management. The other members of the AC posses experience in finance, legal and business management.
At least two members have the appropriate accounting or related financial management experience or expertise.

The Board is of the opinion that the members of the AC have sufficient financial management and expertise and experience in
discharging their duties.

The role of the AC is to assist the Board with discharging its responsibility to safeguard the Company’s assets, maintain
adequate accounting records and develop and maintain effective systems of internal control.




22   Pan Asian Water Solutions Limited
     Annual Report 2005
Corporate Governance Report (cont’d)
The terms of reference AC are :

a)      To review the audit plan, system of internal accounting controls and the audit report in conjunction with external
        auditors;
b)      To review the assistance given by the Company’s officers to the external auditors;
c)      To review the independence and objectivity of the external auditors annually;
d)      To nominate external auditors for re-appointment;
e)      To review the financial statements of the Company including monthly, quarterly, half year and full year results and the
        respective announcements before submission to the board of directors;
f)      To give due consideration to the requirements of Stock Exchange Listing Rules; and
g)      To review interested person transactions.

In discharging the above duties, the AC confirms that it has full access to and co-operation from Management and is given full
discretion to invite any director or executive director to attend its meetings. In addition, the AC has also been given reasonable
resources to enable it to perform its functions properly.

The AC has conducted an annual review of the volume of non-audit services to satisfy itself that the nature and extent of such
services will not prejudice the independence and objectivity of the auditors before recommending their re-nomination to the
Board.

During the year 2005, the AC met 5 times and the details of attendance were as follows:

                                               Number of meetings                        Number of meetings
                                               held while a member                           attended

Lim Ho Seng                                               5                                         5
Wong Meng Yeng                                            5                                         5
Ang Miah Khiang                                           5                                         5

Internal control

Principle 12 : The Board should ensure that the Management maintains a sound system of internal controls to safeguard the
shareholders’ investments and the company’s assets.

The Board believes that, in the absence of any evidence to the contrary, the system of internal controls maintained by the
Company’s management provides reasonable assurance against material financial misstatements or loss and includes the
safeguarding of assets, the maintenance of proper accounting records, the reliability of financial information, compliance with
appropriate legislation, regulation and best practice and the identification and management of business risks.

The Board notes that no system of internal control can provide absolute assurance against the occurrence of material errors,
poor judgement in decision-making, human error, fraud or other irregularities.

Internal Audit

Principle 13 : The Company should establish an internal audit function that is independent of the activities it audits.

The Company has appointed LTC & Associates as its internal auditors from the financial year 2005. The internal auditors
report directly to the Audit Committee. The functions of the internal auditors include the review of the effectiveness of the
company’s material internal control, financial, operational and compliance control, and risk management.


                                                                                              Pan Asian Water Solutions Limited   23
                                                                                                            Annual Report 2005
Corporate Governance Report (cont’d)
Communication with Shareholders

Principle 14 : Companies should engage in regular, effective and fair communication with shareholders.

The Company endeavours to communicate regularly, effectively and fairly with its shareholders.

The Board ensures that materials and information helpful to shareholders is released on a timely basis. All announcements are
communicated to the shareholders through SGXNET.

Principle 15 : Companies should encourage greater shareholder participation at AGMs, and allow shareholders the opportunity
to communicate their views on various matters affecting the Company.

The Annual General Meeting is the principal forum for dialogue with shareholders. There is an open question and answer
session at which shareholders may raise questions or share their views regarding the proposed resolutions and the Company’s
businesses and affairs.

In addition, the Chairman of the respective committees and the external auditors will be present at the AGM to address any
queries from the shareholders.

SECURITIES TRANSACTIONS

The Company has set out guidelines to the directors and key employees of the Group to prohibit dealings in the Company’s
securities while in possession of price sensitive information and during the period commencing one month before the
announcement of the Company’s half year and full year results and ending on the date of announcement of the results.

All directors and executives of the Company are also advised to observe insider trading laws at all times even when dealing in
the Company’s securities within the permitted trading period.

ADDITIONAL DISCLOSURES

Interested person transactions policy

The Company has adopted an internal policy in respect of any transactions with interested persons and has set out the
procedures for review and approval. The Audit Committee has reviewed the interested person transactions for the financial
year 2005 conducted pursuant to the shareholders’ mandate obtained in accordance with Chapter 9 of the Listing Manual of
the Singapore Exchange Securities Trading Limited and is satisfied that the transactions were on normal commercial terms.

The aggregate value of interested person transactions entered into during the financial year 2005 pursuant to Rule 920 is as
follows:


                                             Aggregate value of all interested person       Aggregate value of all interested person
                                           transactions during the financial year under   transactions conducted under shareholders’
                                             review (excluding transactions less than            mandate pursuant to Rule 920
                                           $100,000 and transactions conducted under                (excluding transactions
  Name of interested person               shareholders’ mandate pursuant to Rule 920)                 less than $100,000 )


  Richard Manufacturing (HK) Limited                                                                     $569,258




24   Pan Asian Water Solutions Limited
     Annual Report 2005
Financial Statements
26   Report of the Directors
29   Statement of Directors
30   Auditors’ Report
31   Balance Sheets
32   Consolidated Income Statement
33   Statements of Changes in Equity
34   Consolidated Cash Flow Statement
35   Notes to Financial Statements




                           Pan Asian Water Solutions Limited   25
                                         Annual Report 2005
Report of the Directors
The directors of the Company are pleased to present their report together with the audited financial statements of the Company
and of the Group for the financial year ended 31 December 2005.


1.        DIRECTORS AT DATE OF REPORT

          The directors of the Company in office at the date of this report are:

          Executive Directors:
          Koh Tiam Teng
          Koh Eddie

          Non-executive and Independent Directors:
          Lim Ho Seng
          Wong Meng Yeng
          Ang Miah Khiang


2.      ARRANGEMENTS TO ENABLE DIRECTORS TO ACQUIRE BENEFITS BY MEANS OF THE ACQUISITION OF SHARES AND
        DEBENTURES

        Neither at the end of the financial year nor at any time during the financial year did there subsist any arrangement
        whose object is to enable the directors of the Company to acquire benefits by means of the acquisition of shares or
        debentures in the Company or any other body corporate.


3.      DIRECTORS’ INTERESTS IN SHARES AND DEBENTURES

        The directors of the Company holding office at the end of the financial year had no interests in the share capital and
        debentures of the Company and related corporations as recorded in the register of directors’ shareholdings kept by the
        Company under section 164 of the Companies Act, Cap. 50 except as follows:

                                                                                           Deemed interest
                                                                        At beginning of year               At end of year
                                                                                   Ordinary shares of $0.05 each
        In the Company

        Koh Tiam Teng                                                       100,000,000                      100,000,000
        Koh Eddie                                                           100,000,000                      100,000,000

                                                                             Direct interest held in the name of Directors
                                                                        At beginning of year                At end of year

                                                                                      Ordinary shares of $1.00 each
        In the holding Company – Xu Jia Zu Holdings Pte. Ltd.

        Koh Tiam Teng                                                              600,040                       600,040
        Koh Eddie                                                                  750,052                       750,052

        By virtue of section 7 of the Companies Act, Cap. 50, Koh Tiam Teng and Koh Eddie are also deemed to have an interest
        in all the related corporations of the Company. The directors’ interests as at 21 January 2006 were the same as those
        at the end of the year.


26   Pan Asian Water Solutions Limited
     Annual Report 2005
Report of the Directors (cont’d)
4.   CONTRACTUAL BENEFITS OF DIRECTORS

     Since the beginning of the financial year, no director of the Company has received or become entitled to receive a
     benefit which is required to be disclosed under section 201(8) of the Companies Act, Cap. 50 by reason of a contract
     made by the Company or a related corporation with the director or chief executive officer or controlling shareholder or
     with a firm of which he is a member, or with a Company in which he has a substantial financial interest except
     disclosed in the financial statements. Certain directors of the Company received remuneration from related corporations
     in their capacity as directors and or executives of those related corporations.

     There were certain transactions (shown in the financial statements) with corporations in which certain directors have
     an interest.


5.   OPTIONS TO TAKE UP UNISSUED SHARES

     During the financial year, no option to take up unissued shares of the Company or any corporation in the Group was
     granted.


6.   OPTIONS EXERCISED

     During the financial year, there were no shares of the Company or any corporation in the Group issued by virtue of the
     exercise of an option to take up unissued shares.


7.   UNISSUED SHARES UNDER OPTION

     At the end of the financial year, there were no unissued shares of the Company or any corporation in the Group under
     option.


8.   AUDIT COMMITTEE

     The members of the Audit Committee at the date of this report are as follows:

     Lim Ho Seng            (Chairman)
     Wong Meng Yeng
     Ang Miah Khiang

     The Audit Committee performs the functions specified by section 201B(5) of the Companies Act. Among others, it
     performed the following functions:

     •   Reviewed with the external auditors the external audit plan;
     •   Reviewed with the external auditors their evaluation of the Company’s internal accounting control, and their report
         on the financial statements and the assistance given by the Company’s officers to them;
     •   Reviewed with the internal auditors the scope and results of the internal audit procedures;
     •   Reviewed the financial statements of the Group and the Company prior to their submission to the directors of the
         company for adoption; and
     •   Reviewed the interested person transactions (as defined in Chapter 9 of the Listing Manual of SGX).




                                                                                         Pan Asian Water Solutions Limited   27
                                                                                                       Annual Report 2005
Report of the Directors (cont’d)
8.       AUDIT COMMITTEE (Cont’d)

         Other functions performed by the Audit Committee are described in the report on corporate governance included in the
         annual report.

         The Audit Committee has recommended to the Board of Directors that the auditors, RSM Chio Lim, be nominated for
         re-appointment as auditors at the next annual general meeting of the Company.


9.       AUDITORS

         The auditors, RSM Chio Lim, have expressed their willingness to accept re-appointment. This audit firm was known as
         Chio Lim & Associates before 11 January 2006.


10.      SUBSEQUENT DEVELOPMENTS

         There are no significant developments subsequent to the release of the Group’s and the Company’s preliminary financial
         statements, as announced on 24 February 2006, which would materially affect the Group’s and the Company’s operating
         and financial performance as of the date of this report.


         ON BEHALF OF THE DIRECTORS




         Koh Tiam Teng
         Director




         Koh Eddie
         Director

         28 February 2006




28    Pan Asian Water Solutions Limited
      Annual Report 2005
Statement of Directors
In the opinion of the directors, the financial statements set out on pages 31 to 64 are drawn up so as to give a true and fair view
of the state of affairs of the Company and of the Group as at 31 December 2005 and changes in equity of the Company and of
the Group, and of the results and cash flows of the Group for the financial year then ended and at the date of this statement
there are reasonable grounds to believe that the Company will be able to pay its debts as and when they fall due.


ON BEHALF OF THE DIRECTORS




Koh Tiam Teng
Director




Koh Eddie
Director

28 February 2006




                                                                                               Pan Asian Water Solutions Limited   29
                                                                                                             Annual Report 2005
Auditors’ Report TO THE MEMBERS OF PAN ASIAN WATER SOLUTIONS LIMITED
We have audited the financial statements of Pan Asian Water Solutions Limited set out on pages 31 to 64 for the year ended
31 December 2005. These financial statements are the responsibility of the Company’s directors. Our responsibility is to
express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with Singapore Standards on Auditing. Those Standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by the directors, as well as
evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion,

(a)      the consolidated financial statements of the Group and the balance sheet and statement of changes in equity of the
         Company are properly drawn up in accordance with the provisions of the Companies Act, Cap. 50 (the “Act”) and
         Singapore Financial Reporting Standards so as to give a true and fair view of the state of affairs of the Group and of the
         Company as at 31 December 2005 and the results, changes in equity and cash flows of the Group and the changes in
         equity of the Company for the year ended on that date; and

(b)      the accounting and other records required by the Act to be kept by the Company and by those subsidiaries incorporated
         in Singapore of which we are the auditors have been properly kept in accordance with the provisions of the Act.




RSM Chio Lim
Certified Public Accountants

Singapore
28 February 2006

Partner in charge of audit: Paul Lee Seng Meng
Effective from year ended: 31 December 2003




30    Pan Asian Water Solutions Limited
      Annual Report 2005
Balance Sheets As at 31 December 2005
                                                                   Group                            Company
                                                  Notes    2005            2004             2005              2004
                                                          $’000            $’000            $’000             $’000
ASSETS
Current assets:
Cash and cash equivalents                           4      8,974            6,694            5,603             5,886
Trade and other receivables                         5      7,956            7,011            5,398             5,901
Inventories                                         6      3,348            3,080            2,575             2,362
Total current assets                                      20,278           16,785          13,576             14,149

Non-current assets:
Investments in subsidiaries                         7          –                –            2,016               686
Other assets                                        8         78               78               78                78
Property, plant and equipment                       9      2,057            1,294            1,040             1,263
Total non-current assets                                   2,135            1,372            3,134             2,027

Total assets                                              22,413           18,157          16,710             16,176

LIABILITIES AND EQUITY
Current liabilities:
Short-term borrowings                              10          –            1,500                –             1,500
Trade and other payables                           11      5,826            3,345            3,866             2,937
Income tax payable                                           604              380              287               279
Current portion of long-term borrowings            12         65                –                –                 –
Current portion of finance leases                  13         72               71               72                71
Total current liabilities                                  6,567            5,296            4,225             4,787

Non-current liabilities:
Long-term borrowings                               12       594                –                 –                 –
Finance leases                                     13       269              300               269               300
Total non-current liabilities                               863              300               269               300

Total liabilities                                          7,430            5,596            4,494             5,087

Equity attributable to equity holders
of the parent:
Share capital                                      14      8,947            8,947            8,947             8,947
Other reserves                                                49               36               76                76
Retained earnings                                          5,192            3,578            3,193             2,066
                                                          14,188           12,561          12,216             11,089
Minority interest                                            795                –               –                  –
Total equity                                              14,983           12,561          12,216             11,089

Total liabilities and equity                              22,413           18,157          16,710             16,176



See accompanying notes to financial statements.



                                                                                    Pan Asian Water Solutions Limited   31
                                                                                                  Annual Report 2005
Consolidated Income Statement Year ended 31 December 2005
                                                                       Group
                                                    Notes    2005               2004
                                                            $’000               $’000

Revenue                                             15       39,117             26,212
Cost of sales                                               (31,825)           (20,311)
Gross profit                                                 7,292              5,901
Financial income                                    16         243                103
Financial expense                                   16        (109)              (359)
Distribution costs                                           (2,506)            (1,965)
Administrative expenses                                      (2,483)            (2,020)
Other credits / (charges)                           17          (34)             (110)

Profit before tax                                            2,403              1,550
Income tax expense                                  18        (397)               (39)
Profit for the year                                          2,006              1,511


Attributable to :
Equity holders of the company                                2,011              1,511
Minority interest                                               (5)                 –
                                                             2,006              1,511

Earnings per share for profit attributable to the   19
equity holders of the company during the year
 (expressed in cents per share)


Basic                                                          1.61               1.39

Diluted                                                        1.61               1.39




See accompanying notes to financial statements.



32   Pan Asian Water Solutions Limited
     Annual Report 2005
Statements of Changes in Equity Year ended 31 December 2005
                                                     Attributable to equity holders of the parent               Minority          Total
                                                                                                                interest         equity
                                                                       Foreign
                                                                      Currency
                                           Share         Capital     Translation    Retained
                                           Capital       Reserve      Reserve       Earnings         Total
Group                                      $’000          $’000         $’000        $’000           $’000        $’000          $’000

Balance as at 1 January 2004                5,000           76          (21)          2,169          7,224            –          7,224
Exchange differences on translating
 foreign operations                               –          –          (19)               –           (19)           –             (19)
Net income recognised directly in equity          –          –          (19)              –            (19)           –            (19)
Profit for the year                               –          –            –           1,511          1,511            –          1,511
Total recognised income and
  expense for the year                          –            –          (19)          1,511          1,492            –          1,492
Issue of share capital (Note 14)            3,947            –            –               –          3,947            –          3,947
Dividends paid (Note 22)                        –            –            –            (102)          (102)           –           (102)
Balance as at 31 December 2004              8,947           76          (40)          3,578         12,561            –         12,561
FRS 39 adjustment (Note 29)                     –            –            –             103            103            –            103
Balance as at 1 January 2005 – restated     8,947           76          (40)          3,681         12,664            –         12,664
Exchange differences on translating
 foreign operations                               –          –           13                –            13            –              13
Net income recognised directly
 in equity                                        –          –           13               –             13            –             13
Profit for the year                               –          –            –           2,011          2,011           (5)         2,006
Total recognised income and
 expense for the year                             –          –           13           2,011          2,024           (5)         2,019
Minority interest arising from
 acquisition of subsidiary (Note 23)              –          –            –               –              –         800             800
Dividends paid (Note 22)                          –          –            –            (500)          (500)          –            (500)
Balance as at 31 December 2005              8,947           76          (27)          5,192         14,188         795          14,983
                                                            (a)          (a)

Company

Balance as at 1 January 2004                5,000           76            –           1,244          6,320            –          6,320
Profit for the year                             –            –            –             924            924            –            924
Issue of share capital (Note 14)            3,947            –            –               –          3,947            –          3,947
Dividends paid (Note 22)                        –            –            –            (102)          (102)           –           (102)
Balance as at 31 December 2004              8,947           76            –           2,066         11,089            –         11,089
FRS 39 adjustment (Note 29)                     –            –            –             103            103            –            103
Balance as at 1 January 2005 – restated     8,947           76            –           2,169         11,192            –         11,192
Profit for the year                             –            –            –           1,524          1,524            –          1,524
Dividends paid (Note 22)                        –            –            –            (500)          (500)           –           (500)
Balance as at 31 December 2005              8,947           76            –           3,193         12,216            –         12,216
                                                            (a)

(a)     Unrealised and not available for distribution of cash dividends.

See accompanying notes to financial statements.

                                                                                                     Pan Asian Water Solutions Limited     33
                                                                                                                   Annual Report 2005
Consolidated Cash Flow Statement Year ended 31 December 2005
                                                                                     Group
                                                                    Notes   2005             2004
                                                                            $’000            $’000
Cash flows from operating activities:
Profit for the year                                                         2,006            1,511
Adjustments for:
 Income tax expense                                                          397                39
 Depreciation expense                                                        300               347
 Loss on disposal of other investment                                          –                 4
 Gain on disposal of plant and equipment                                     (27)              (52)
 Interest income                                                             (69)              (28)
 Interest expense                                                             96               163
Operating profit before working capital changes                             2,703             1,984
Trade and other receivables                                                   605             2,390
Inventories                                                                  (238)              601
Trade and other payables                                                      200            (3,756)
Cash generated from operations                                              3,270            1,219
Income tax paid                                                              (307)            (918)
Net cash from operating activities                                          2,963              301

Cash flows from investing activities:
Proceeds from disposal of plant and equipment                                  30              118
Purchase of plant and equipment                                      4        (44)             (51)
Proceeds from disposal of other investments                                     –                4
Acquisition of subsidiary net of cash acquired                       23     1,431                –
Other investment                                                                –               (2)
Interest received                                                              69               28
Net cash from investing activities                                          1,486               97

Cash flows from financing activities:
Net proceeds from issuing shares (net of listing expenses)                      –             3,947
Interest paid                                                                 (96)             (163)
Dividends paid                                                               (500)             (102)
Decrease in borrowings                                                        (14)           (2,366)
Decrease in finance lease                                                     (72)             (329)
Net cash (used in)/from financing activities                                 (682)             987

Net effect of exchange rate changes in consolidating subsidiaries              13               (19)

Net increase in cash and cash equivalents                                   3,780            1,366
Cash and cash equivalents at beginning of year                              5,194            3,828
Cash and cash equivalents at end of year                             4      8,974            5,194




See accompanying notes to financial statements.



34   Pan Asian Water Solutions Limited
     Annual Report 2005
Notes to Financial Statements 31 December 2005
1.   GENERAL

     The Company is incorporated in Singapore. The financial statements are presented in Singapore dollars. They are
     drawn up in accordance with the provisions of the Companies Act, Cap. 50 and the Singapore Financial Reporting
     Standards. The financial statements were approved and authorised for issue by the Board of Directors on 28 February
     2006.

     The principal activities of the Company are those relating to supply of piping systems and related accessories for use
     in water and wastewater infrastructure developments. The principal activities of its subsidiaries are described in the
     notes to the financial statements below. It is listed on the Stock Exchange of Singapore Dealing and Automated
     Quotation System (“SESDAQ”).

     The registered office address of the Company is 16 Jalan Besut, Singapore 619569. The Company is domiciled in
     Singapore.


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     ACCOUNTING CONVENTION – The financial statements are prepared under the historical cost convention, modified to
     include the revaluation of financial assets, and financial liabilities as disclosed where appropriate in these financial
     statements.

     BASIS OF PRESENTATION – The consolidation accounting method is used for the consolidated financial statements
     which include the financial statements made up to the balance sheet date each year of the Company and of those
     companies in which it holds, directly or indirectly through subsidiaries, over 50 percent of the shares and voting rights
     (its subsidiaries including special purpose entities). The consolidated financial statements are prepared using uniform
     accounting policies for like transactions and other events in similar circumstances. All significant intragroup balances
     and transactions, including income, expenses and dividends, are eliminated in full on consolidation. The results of the
     investees acquired or disposed of during the financial year are consolidated from the respective dates of acquisition or
     up to the dates of disposal. On disposal the attributable amount of goodwill is included in the determination of the gain
     or loss on disposal.

     BASIS OF PREPARATION – The preparation of financial statements in conformity with generally accepted accounting
     principles requires the management to make estimates and assumptions that affect the reported amounts of assets
     and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
     amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The
     estimates and assumptions are reviewed on an ongoing basis. Apart from those involving estimations, management
     has made judgements in the process of applying the entity’s accounting policies. The areas requiring management’s
     most difficult, subjective or complex judgements, or areas where assumptions and estimates which are significant to
     the financial statements, are disclosed at the end of this footnote, where applicable.

     CASH AND CASH EQUIVALENTS – Cash and cash equivalents include bank and cash balances and any highly liquid
     debt instruments purchased with an original maturity of three months or less. Cash for the cash flow statement
     includes cash and cash equivalents less bank overdrafts payable on demand that form an integral part of cash
     management and cash subject to restriction.




                                                                                            Pan Asian Water Solutions Limited   35
                                                                                                          Annual Report 2005
Notes to Financial Statements 31 December 2005
2.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

        TRADE RECEIVABLES – After initial recognition at fair value, trade receivables are measured at amortised cost using
        the effective interest method but short-duration receivables with no stated interest rate are normally measured at
        original invoice amount unless the effect of imputing interest would be significant. Trade receivables are stated after
        provision for impairment. A trade receivable amount is regarded as impaired if there is objective evidence of impairment
        as a result of one or more events that occurred after the initial recognition and that loss event has an impact on the
        estimated future cash flows of the financial asset that can be reliably estimated. The carrying amounts of trade receivables
        are assumed to approximate their fair value. The amount of the provision is recognised in the income statement.
        Normally no interest is charged on trade receivables.

        LOANS AND OTHER RECEIVABLES – Loans and other receivables are non-derivative financial assets with fixed or
        determinable payments that are not quoted in an active market, not held for trading, not designated as available for
        sale and are not substantially recoverable other than because of credit deterioration which are classified as available
        for sale. Items with a short duration are not discounted. After initial recognition such financial assets, including derivatives
        that are assets, are measured at their fair values, without any deduction for transaction costs that may be incurred on
        sale or other disposal, except for the non-current financial assets that are loans and receivables which are measured at
        amortised cost using the effective interest method less provision for impairment. These items are included in the
        balance sheet in loan receivables and trade and other receivables as current assets or as non-current assets where the
        maturities are greater than 12 months after the balance sheet date.

        INVENTORIES – Inventories are measured at the lower of cost (weighted average method) and net realisable value. Net
        realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion
        and the estimated costs necessary to make the sale. Cost includes all costs of purchase, costs of conversion and other
        costs incurred in bringing the inventories to their present location and condition. A write down on cost is made for
        where the cost is not recoverable or if the selling prices have declined.

        CONTRACTS WORK-IN-PROGRESS – When the outcome of a long-term contract can be estimated reliably, the revenue
        and costs associated with the contract are recognised as revenue and expenses respectively by reference to the stage
        of completion of the contract activity at the balance sheet date using the proportion that contract costs incurred for
        work performed to date bear to the estimated total contract costs method except where this would not be representative
        of the stage of completion. Contract costs consist of costs that relate directly to the specific project, costs that are
        attributable to contract activity in general and can be allocated to the project and such other costs as are specifically
        chargeable to the customer under the terms of the contract. Variations in contract work, claims and incentive payments
        are included to the extent that they have been agreed with the customer. When it is probable that total contract costs
        will exceed total contract revenue, the expected loss is recognised as an expense immediately. The long-term work in
        progress projects have operating cycles longer than one year. The Group includes in current assets amounts relating
        to the long-term contracts realisable over a period in excess of one year.

        SUBSIDIARIES – A subsidiary is an entity including unincorporated and special purpose entities that are controlled by
        the Group. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from
        its activities accompanying a shareholding of more than one half of the voting rights. The existence and effect of
        potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group
        controls another entity. In the Company’s own separate financial statements, the investments in subsidiaries are stated
        at cost less any provision for impairment in value. The net book values of the subsidiaries are not necessarily indicative
        of the amounts that would be realised in a current market exchange.




36   Pan Asian Water Solutions Limited
     Annual Report 2005
Notes to Financial Statements 31 December 2005
2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

     BUSINESS COMBINATIONS – Business combinations are accounted for by applying the purchase method. The cost of
     a business combination includes the fair values, at the date of exchange, of assets given, liabilities incurred or assumed,
     and equity instruments issued by the acquirer, in exchange for control of the acquiree; plus any costs directly attributable
     to the business combination. Any excess of the cost over the acquirer’s interest in the net fair value of the identifiable
     assets, liabilities and contingent liabilities so recognised is accounted for as goodwill. The excess of acquirer’s interest
     in the net fair value of acquiree’s identifiable assets, liabilities and contingent liabilities over cost is accounted for as
     “negative goodwill”. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for
     recognition under FRS 103 are recognised at their fair values at the acquisition date, except for non-current assets (or
     disposal groups) that are classified as held for sale in accordance with FRS 105 Non-Current Assets Held for Sale and
     Discontinued Operations, which are recognised and measured at fair value less costs to sell. After initial recognition,
     goodwill is measured at cost less any accumulated impairment losses. Goodwill is not amortised but is tested for
     impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired. An
     impairment loss in respect of goodwill is not reversed.

     PROPERTY, PLANT AND EQUIPMENT – Depreciation is provided on a straight-line basis to allocate the gross carrying
     amounts less their residual values over their estimated useful lives of each part of an item of property, plant and
     equipment. The estimated useful lives are as follows:

     Leasehold properties and improvements            -      18 – 50 years
     Plant and equipment                              -      1 – 10 years

     An asset is depreciated when it is available for use until it is derecognised even if during that period the item is idle.
     Fully depreciated assets still in use are retained in the financial statements.

     Property, plant and equipment are carried at cost less any accumulated depreciation and any accumulated impairment
     losses. The residual value and the useful life of an asset is reviewed at least at each financial year-end and, if expectations
     differ from previous estimates, the changes are accounted for as a change in an accounting estimate, and the depreciation
     charge for the current and future periods are adjusted. The gain or loss arising from the derecognition of an item of
     property, plant and equipment is determined as the difference between the net disposal proceeds, if any, and the
     carrying amount of the item and is recognised in the income statement.

     IMPAIRMENT OF NON-FINANCIAL ASSETS – At each reporting date an assessment is made whether there is any
     indication that a depreciable or amortisable asset may be impaired. If any such indication exists, an estimate is made
     of the recoverable amount of the asset. Irrespective of whether there is any indication of impairment, an annual
     impairment test is performed at the same time every year on an intangible asset with an indefinite useful life or an
     intangible asset not yet available for use. The impairment loss is the excess of the carrying amount over the recoverable
     amount and is recognised in the income statement unless the relevant asset is carried at a revalued amount, in which
     case the impairment loss is treated as a revaluation decrease. The recoverable amount of an asset or a cash-generating
     unit is the higher of its fair value less costs to sell and its value in use. In assessing value in use, the estimated future
     cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments
     of the time value of money and the risks specific to the asset. For the purposes of assessing impairment, assets are
     grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). At each
     reporting date non-financial assets other than goodwill with impairment loss recognised in prior periods are assessed
     for possible reversal of the impairment. An impairment loss is reversed only to the extent that the asset’s carrying
     amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if
     no impairment loss had been recognised.




                                                                                              Pan Asian Water Solutions Limited   37
                                                                                                            Annual Report 2005
Notes to Financial Statements 31 December 2005
2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

        IMPAIRMENT OF FINANCIAL ASSETS – All financial assets except those measured at fair value through profit or loss
        are subject to review for impairment. A financial asset or a group of financial assets is impaired and impairment losses
        are incurred if there is objective evidence of impairment as a result of one or more events that occurred after the initial
        recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash
        flows of the financial asset or group of financial assets that can be reliably estimated. Losses expected as a result of
        future events, no matter how likely, are not recognised.

        ASSETS CLASSIFIED AS HELD FOR SALE – Identifiable assets, liabilities and contingent liabilities are classified as held
        for sale if their carrying amount is to be recovered principally through a sale transaction rather than through continuing
        use. Assets that meet the criteria to be classified as held for sale are measured at the lower of carrying amount and fair
        value less costs to sell and are presented separately on the face of the balance sheet. Impairment losses on initial
        classification as held for sale are included in the income statement, even when there is a revaluation. The same applies
        to gains and losses on subsequent remeasurement. The depreciation on depreciable assets is ceased.

        FINANCIAL LIABILITIES – Financial liabilities including bank and other borrowings when recognised initially are measured
        at fair value plus, in the case of items not at fair value through profit or loss, transaction costs that are directly
        attributable to the acquisition or issue of the financial liability. After initial recognition these are measured at amortised
        cost and any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the
        income statement over the period of the borrowings using the effective interest method except for financial liabilities
        at fair value through profit or loss. Such liabilities, including derivatives that are liabilities, are measured at fair value.
        Liabilities are classified as current liabilities unless there is an unconditional right to defer settlement of the liability for
        at least 12 months after the balance sheet date.

        LIABILITIES AND PROVISIONS – A liability or provision is recognised when there is a present obligation (legal or
        constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will
        be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. These include
        trade and other payables and where the effect of the time value of money is material, the amount recognised is the
        present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects
        current market assessments of the time value of money and the risks specific to the obligation. The increase in the
        provision due to passage of time is recognised as interest expense.

        LEASES AS A LESSEE – A finance lease is a lease that transfers substantially all the risks and rewards incidental to
        ownership of an asset. At the commencement of the lease term, a finance lease is recognised as an asset and as a
        liability in the balance sheet at amounts equal to the fair value of the leased asset or, if lower, the present value of the
        minimum lease payments, each determined at the inception of the lease. The discount rate used in calculating the
        present value of the minimum lease payments is the interest rate implicit in the lease, if this is practicable to determine;
        if not, the lessee’s incremental borrowing rate is used. Any initial direct costs of the lessee are added to the amount
        recognised as an asset. The excess of the lease payments over the recorded lease liability are treated as finance
        charges which are allocated to each period during the lease term so as to produce a constant periodic rate of interest
        on the remaining balance of the liability. Contingent rents are charged as expenses in the periods in which they are
        incurred. The assets are depreciated as owned depreciable assets. Leases where the lessor effectively retains
        substantially all the risks and benefits of ownership of the leased assets are classified as operating leases. For operating
        leases, lease payments are recognised as an expense in the income statement on a straight-line basis over the term of
        the relevant lease unless another systematic basis is representative of the time pattern of the user’s benefit, even if the
        payments are not on that basis. Lease incentives received are recognised in the income statement as an integral part
        of the total lease expense.




38   Pan Asian Water Solutions Limited
     Annual Report 2005
Notes to Financial Statements 31 December 2005
2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

     SHARE CAPITAL – Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new
     shares or options are shown in equity as a deduction from the proceeds. Where the Company reacquires its own equity
     instruments as treasury shares, the consideration paid, including any directly attributable incremental cost is deducted
     from equity attributable to the Company’s equity holders until the shares are cancelled, reissued or disposed of. Where
     such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental
     transaction costs and the related income tax effects, is included in equity attributable to the Company’s equity holders
     and no gain or loss is recognised in the income statement.

     MINORITY INTERESTS – Any minority interest in the acquiree (subsidiary) is initially measured at the minority’s
     proportion of the net fair value of the assets, liabilities and contingent liabilities recognised.

     FAIR VALUE OF FINANCIAL INSTRUMENTS – The carrying values of current financial assets and financial liabilities
     including cash, accounts receivable, short-term borrowings, accounts payable approximate their fair values due to the
     short-term maturity of these instruments. The fair values of long-term debts are not determined unless there are
     significant items at the end of the year and are disclosed in the relevant notes.

     REVENUE RECOGNITION – The revenue amount is the fair value of the consideration received or receivable from the
     gross inflow of economic benefits during the period arising from the course of the ordinary activities of the entity and
     it is shown net of related tax, estimated returns, discounts and volume rebates. Revenue from sale of goods is recognised
     when significant risks and rewards of ownership are transferred to the buyer, there is neither continuing managerial
     involvement to the degree usually associated with ownership nor effective control over the goods sold, the amount of
     revenue and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Revenue from
     rendering of services that are of short duration is recognised when services are completed. Interest revenue is recognised
     on a time-proportion basis using the effective interest rate that takes into account the effective yield on the asset.
     Rental revenue is recognised on a time-proportion basis that takes into account the effective yield on the asset.
     Dividend revenue from investments is recognised when the shareholder’s right to receive the dividend is legally
     established. Revenue from long-term contracts is recognised in accordance with the accounting policy on long-term
     contracts (See Contracts Work-in-Progress).

     FOREIGN CURRENCY TRANSACTIONS – The functional currency is the Singapore dollar as it reflects the primary
     economic environment in which the entity operates. Transactions in foreign currencies are recorded in Singapore
     dollars at the rates ruling at the dates of the transactions. At each balance sheet date, recorded monetary balances and
     balances measured at fair value that are denominated in foreign currencies are reported at the rates ruling at the
     balance sheet and fair value dates respectively. All realised and unrealised exchange adjustment gains and losses are
     dealt with in the income statement.

     FOREIGN CURRENCY FINANCIAL STATEMENTS – The foreign entities determine the appropriate functional currency
     as it reflects the primary economic environment in which the entities operate. In translating the financial statements of
     a foreign entity for incorporation in the consolidated financial statements the assets and liabilities denominated in
     currencies other than the functional currency of the Company are translated at year end rates of exchange and the
     income and expense items are translated at average rates of exchange for the year. The resulting translation adjustments
     (if any) are accumulated in a separate component of equity until the disposal of the foreign entity.

     BORROWING COSTS – All borrowing costs that are interest and other costs incurred in connection with the borrowing
     of funds costs are recognised as an expense in the period in which they are incurred except for borrowing costs that
     are directly attributable to the acquisition, construction or production of a qualifying asset that necessarily take a
     substantial period of time to get ready for their intended use or sale are capitalised as part of the cost of that asset until
     substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete. The
     interest expense is calculated using the effective interest rate method.



                                                                                              Pan Asian Water Solutions Limited   39
                                                                                                            Annual Report 2005
Notes to Financial Statements 31 December 2005
2.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

        INCOME TAX – The income taxes are accounted using the asset and liability method that requires the recognition of
        taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequence of
        events that have been recognised in the financial statements or tax returns. The measurements of current and deferred
        tax liabilities and assets are based on provisions of the enacted or substantially enacted tax laws; the effects of future
        changes in tax laws or rates are not anticipated. Income tax expense represents the sum of the tax currently payable
        and deferred tax. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same
        income tax authority. The carrying amount of deferred tax assets is reviewed at each balance sheet date and is reduced,
        if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realised. A
        deferred tax amount is recognised for all temporary differences unless the deferred tax amount arises from (a) goodwill
        for which amortisation is not deductible for tax purposes; or (b) the initial recognition of an asset or liability in a
        transaction which (i) is not a business combination; and (ii) at the time of the transaction, affects neither accounting
        profit nor taxable profit (tax loss). A deferred tax liability is not recognised for all taxable temporary differences associated
        with investments in subsidiaries because (a) the company is able to control the timing of the reversal of the temporary
        difference; and (b) it is probable that the temporary difference will not reverse in the foreseeable future.

        EMPLOYEE BENEFITS – Contributions to defined contribution retirement benefit plans are recorded as an expense as
        they fall due. The entity’s legal or constructive obligation is limited to the amount that it agrees to contribute to the
        fund. This includes the government managed retirement benefit plan such as the Central Provident Fund in Singapore.
        For employee leave entitlement the expected cost of short-term employee benefits in the form of compensated absences
        is recognised in the case of accumulating compensated absences, when the employees render service that increases
        their entitlement to future compensated absences; and in the case of non-accumulating compensated absences, when
        the absences occur.

        SEGMENT REPORTING – A business segment is a distinguishable component of an enterprise that is engaged in
        providing an individual product or service or a group of related products or services and that is subject to risks and
        returns that are different from those of other business segments. A geographical segment is a distinguishable component
        of an enterprise that is engaged in providing products or services within a particular economic environment and that
        is subject to risks and returns that are different from those of components operating in other economic environments.

        CRITICAL JUDGEMENTS, ASSUMPTIONS AND ESTIMATION UNCERTAINTIES

        The critical judgements made in the process of applying the entity’s accounting policies that have the most significant
        effect on the amounts recognised in the financial statements and the key assumptions concerning the future, and other
        key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material
        adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below:

        Critical accounting judgements:

        ALLOWANCES FOR DOUBTFUL ACCOUNTS - An allowance is for doubtful accounts for estimated losses resulting
        from the subsequent inability of our customers to make required payments. If the financial conditions of the customers
        were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required
        in future periods. Management specifically analyses accounts receivables and analyses historical bad debt, customer
        concentrations, customer creditworthiness, current economic trends and changes in our customer payment terms
        when making a judgement to evaluate the adequacy of the allowance for doubtful accounts.




40   Pan Asian Water Solutions Limited
     Annual Report 2005
Notes to Financial Statements 31 December 2005
    Critical assumptions and estimation uncertainties:

    INVENTORY RELATED ALLOWANCES - A review is made periodically on inventory for excess inventory, obsolescence
    and declines in net realisable value below cost and record an allowance against the inventory balance for any such
    declines. These reviews require management to estimate future demand for our products. Possible changes in these
    estimates could result in revisions to the valuation of inventory.

    CONTRACTS WORK-IN-PROGRESS - One of the most important phases for construction contracts relates to estimated
    costs to complete contracts in process, since that information is used in determining the estimated final gross profit or
    loss on contracts. Estimated costs to complete involve expectations about future performance, and the management
    does obtain explanations of apparent disparities between estimates and past performance on contracts. Because of
    the direct effect on the estimated gross profit or loss on the contract, management has to estimate that the cost to
    complete is reasonable. Events and circumstances frequently do not occur as expected. Even if the events anticipated
    under the assumptions occur, actual results are still likely to be different from the estimates since other anticipated
    events frequently do not occur as expected and the variation may be material.

    DEFERRED INCOME TAXES - Management judgment is required in determining the provision for income taxes, deferred
    tax assets and liabilities and the extent to which deferred tax assets can be recognised. A deferred tax asset is recognised
    if it is probable that sufficient taxable income will be available in the future against which the temporary differences and
    unused tax losses can be utilised. Management also considers future taxable income and tax planning strategies in
    assessing whether deferred tax assets should be recognised.

    RISK MANAGEMENT POLICIES FOR FINANCIAL INSTRUMENTS

    GENERAL RISK MANAGEMENT PRINCIPLES – The entity’s financial instruments comprise borrowings, some cash
    and liquid resources, and various items, such as trade and other receivables, trade and other payables, that arise
    directly from its operations. The main purpose of these financial instruments is to raise finance for the entity’s operations.
    The main risks arising from the entity’s financial instruments are credit risk, interest risk, liquidity risk and foreign
    currency risk. The management reviews and agrees policies for managing each of these risks and they are summarised
    below.

    CREDIT RISK ON FINANCIAL ASSETS – Financial assets that are potentially subject to concentrations of credit risk and
    failures by counterparties to discharge their obligations consist principally of cash, cash equivalents and trade and
    other accounts receivable. The management believes that the financial risks associated with these financial instruments
    are minimal. The cash and cash equivalents and other liquid financial assets are placed with high credit quality institutions.
    An ongoing credit evaluation is performed of the debtors’ financial condition and a loss from impairment is recognised
    in the income statement. There is no significant concentration of credit risk, as the exposure is spread over a large
    number of counterparties and customers unless otherwise disclosed in the notes to the financial statements.




                                                                                             Pan Asian Water Solutions Limited   41
                                                                                                           Annual Report 2005
Notes to Financial Statements 31 December 2005
2.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

        OTHER RISKS ON FINANCIAL INSTRUMENTS – The main risks arising from the entity’s financial instruments are
        interest risk, liquidity risk and foreign currency risk. The operations are financed through a mixture of retained earnings
        and borrowings. Borrowings are in the desired currencies at both fixed and floating rates of interest. The policy is to
        retain flexibility in selecting borrowings at both fixed and floating rates interest. There is exposure to interest rate price
        risk for financial instruments with a fixed interest rate and to interest rate or cash flow risk for financial instruments
        with a floating interest rate that is reset as market rates change. Interest rate swaps are not used to generate the
        desired interest profit and to manage the exposure to interest rate fluctuations. There is also exposure to liquidity. As
        regards liquidity, the policy has to ensure continuity of funding and where necessary a certain percentage of the
        borrowings should mature in two to five years. Short-term flexibility is achieved by overdraft facilities. There is also
        exposure to changes in foreign exchange rates arising from foreign currency transactions and balances and changes
        in fair values. These exposures and changes in fair values from time to time are monitored and any gains and losses
        are included in the income statement unless otherwise stated in the notes to the financial statements. There is no
        policy to reduce currency exposures through forward currency contracts, derivatives transactions or other arrangements.


3.      RELATED PARTY TRANSACTIONS

        A related party is an entity or person that directly or indirectly through one or more intermediaries controls, is controlled
        by, or is under common or joint control with, the entity in governing the financial and operating policies, or that has an
        interest in the entity that gives it significant influence over the entity in financial and operating decisions. It also
        includes members of the key management personnel or close members of the family of any individual referred to
        herein and others who have the ability to control, jointly control or significantly influence by or for which significant
        voting power in such entity resides with, directly or indirectly, any such individual. This includes parents, subsidiaries,
        fellow subsidiaries, associates, joint ventures and post-employment benefit plans, if any.

        3.1.     Related companies :

                 The Company is a subsidiary of Xu Jia Zu Holdings Pte. Ltd., incorporated in Singapore that is also the
                 Company’s ultimate parent company. Related companies in these financial statements refer to members of the
                 ultimate parent company’s group of companies.

                 There are transactions and arrangements between the Company and members of the Group and the effects of
                 these on the basis determined between the parties are reflected in these financial statements. The current
                 intercompany balances are unsecured without fixed repayment terms and interest unless stated otherwise.
                 For non-current balances an interest is imputed based on the cost of borrowing less the interest rate if any
                 provided in the agreement for the balance.

                 Intragroup transactions and balances that have been eliminated in these consolidated financial statements are
                 not disclosed as related party transactions and balances below.




42   Pan Asian Water Solutions Limited
     Annual Report 2005
Notes to Financial Statements 31 December 2005
3.   RELATED PARTY TRANSACTIONS (Cont’d)

            Significant related company transactions:

            In addition to the transactions and balances disclosed elsewhere in the notes to the financial statements, this
            item includes the following: -

            Company                                                    Parent                         Subsidiaries
                                                              2005              2004              2005            2004
                                                              $’000             $’000             $’000          $’000

            Sale of goods                                         –                 –             1,580               465
            Purchases of goods                                    –                 –            (2,231)           (2,441)
            Rental income                                         –                 –               122               118
            Sundry income                                         –                 –               246               260
            Dividend income                                       –                 –               732               233
            Dividend expense                                   (400)             (102)                –                 –
            Sale of country club                                  –                 4                 –                 –

     3.2.   Other related parties :

            There are transactions and arrangements between the Company and related parties and the effects of these on
            the basis determined between the parties are reflected in these financial statements. The current related party
            balances are unsecured without fixed repayment terms and interest unless stated otherwise. For non-current
            balances interest is imputed based on the cost of borrowing less the interest rate if any provided in the
            agreement for the balance.

            Significant related party transactions:

            In addition to the transactions and balances disclosed elsewhere in the notes to the financial statements, this
            item includes the following: -

                                                                                                     Related parties
                                                                                                  2005             2004
                                                                                                  $’000           $’000

            Sale of goods                                                                             –                10
            Purchases of goods                                                                     (587)             (751)


     3.3.   Key management compensation:
                                                                                                  2005              2004
                                                                                                  $’000             $’000

            Salaries and other short-term employee benefits                                       1,617             1,081




                                                                                         Pan Asian Water Solutions Limited   43
                                                                                                       Annual Report 2005
Notes to Financial Statements 31 December 2005
3.      RELATED PARTY TRANSACTIONS (Cont’d)

                 The above amounts are included under employee benefits expense. Included in the above amounts are following
                 items:

                                                                                                  2005             2004
                                                                                                  $’000            $’000

                 Directors’ remuneration of directors of the Company                                726               665
                 Directors’ remuneration of directors of the subsidiary                             182                 –
                 Directors’ fee of directors of the Company                                          80                40

                 Further information about the remuneration of individual directors is provided in the report on corporate
                 governance.

                 Key management personnel are directors and those persons having authority and responsibility for planning,
                 directing and controlling the activities of the Company, directly or indirectly. The above amounts for key
                 management compensation are for all the directors and other key management personnel.

        3.4.     Other receivables from and other payables to related parties:

                 The trade receivables and payables balances arising from sales and purchases of goods and services are
                 disclosed elsewhere in the notes to the financial statements.

                 The movements in other receivables from and other payables to related parties are as follows:

                                                                                                       Subsidiaries
                                                                                                          2005
                                                                                                         $’000
                 Other receivables/(other payables):
                 Balance at beginning of year                                                                91
                 Amounts paid out during the year                                                            17
                 Amounts received during the year                                                          (597)
                 Payments made on behalf                                                                    496
                 Balance at end of year - debit (net)                                                         7

                                                                                                 Parent     Subsidiaries
                                                                                                  2004            2004
                                                                                                  $’000           $’000
                 Other receivables/(other payables):
                 Balance at beginning of year                                                    (1,140)                15
                 Amounts paid out during the year                                                 1,108                  –
                 Amounts received during the year                                                     –               (714)
                 Payments made on behalf                                                             32                682
                 Dividend income                                                                      –                108
                 Balance at end of year - debit (net)                                                  –               91




44   Pan Asian Water Solutions Limited
     Annual Report 2005
Notes to Financial Statements 31 December 2005
4.   CASH AND CASH EQUIVALENTS

                                                                         Group                             Company
                                                                2005             2004              2005              2004
                                                                $’000            $’000             $’000             $’000

     Not restricted in use                                      8,974            5,194             5,603             4,386
     Restricted in use (a)                                          –            1,500                 –             1,500
                                                                8,974            6,694             5,603             5,886

     Analysis of above amount denominated in
     foreign currency:
     Hong Kong Dollars                                          1,036              725                 –                 –
     United States Dollars                                      2,127              118             1,453               118

     (a)     This is with respect to fixed deposit held by bankers to cover the short-term revolving loan facility granted.

     The rate of interest for the cash on interest earning accounts is between 0.81% per annum and 2.10% per annum
     (2004: 0.38% and 1.7875%) receivable monthly. These approximate the weighted effective interest rate.

     Cash and cash equivalents in the cash flow statement:

                                                                                                   2005              2004
                                                                                                   $’000             $’000

     As shown above                                                                                8,974             6,694
     Restricted cash                                                                                   –            (1,500)
     Cash and cash equivalents at end of year                                                      8,974             5,194

     NON-CASH TRANSACTIONS – Additions to plant and equipment during the year amounting to $42,000 (2004: $328,000)
     were financed by new finance leases.


5.   TRADE AND OTHER RECEIVABLES

                                                                         Group                             Company
                                                                2005             2004              2005              2004
                                                                $’000            $’000             $’000             $’000
     Trade receivables:
     Subsidiary (Notes 3 and 7)                                     –                –                 2                 –
     Outside parties                                            7,942            7,452             5,499             6,247
     Less: Provision for impairment                              (329)            (616)             (316)             (607)

     Other receivables:
     Subsidiary (Notes 3 and 7)                                     –                –                 9               108
     Other receivables                                             86               77                27                55
     Deposits                                                      34               19                19                19
     Prepayments                                                  223               79               158                79
     Total trade and other receivables                          7,956            7,011             5,398             5,901



                                                                                          Pan Asian Water Solutions Limited   45
                                                                                                        Annual Report 2005
Notes to Financial Statements 31 December 2005
5.      TRADE AND OTHER RECEIVABLES (Cont’d)

                                                                          Group                          Company
                                                                 2005             2004           2005              2004
                                                                 $’000            $’000          $’000             $’000

        Movement in above provision:
        Balance at beginning of year                              616              551             607              539
        Reversed general provision to retained
        earnings (Note 29)                                        (103)               –           (103)                –
        Arising from acquisition of subsidiary                      12                –              –                 –
        Charge for trade receivables to income statement
        included in financial income/(expense)                      13             190              13              193
        Used                                                      (209)           (125)           (201)            (125)
        Balance at end of year                                    329              616             316              607

        Analysis of above amount denominated in foreign currency:
        Hong Kong Dollars                                        412               890               –                –
        Sterling Pound                                            39               159              39              159
        United States Dollars                                    888               301             718               15
        Japanese Yen                                             457                 –               –                –

        Concentration of customers:
        Top 1 customer                                            852               880            852               880
        Top 2 customers                                         1,628             1,415          1,584             1,415
        Top 3 customers                                         2,360             1,877          2,064             1,877

        The average credit period generally granted to trade receivables customers of the Group and Company is about 60
        days to 90 days.

        Current receivables with a short duration are not discounted and the carrying values are assumed to approximate the
        fair value.


6.      INVENTORIES

                                                                          Group                          Company
                                                                 2005             2004           2005              2004
                                                                 $’000            $’000          $’000             $’000

        Finished goods and goods for resale                     3,975             3,671          3,218             2,939
        Contract work-in-progress (Note 6A)                        30                 –              –                 –
        Less: Provision on inventory                             (657)             (591)          (643)             (577)
                                                                3,348             3,080          2,575             2,362




46   Pan Asian Water Solutions Limited
     Annual Report 2005
Notes to Financial Statements 31 December 2005
6.    INVENTORIES (Cont’d)

                                                                        Group                             Company
                                                                2005            2004             2005               2004
                                                                $’000           $’000            $’000              $’000

      Movements in provision:
      Balance at beginning of year                                591             504              577               489
      Charge to income statement included in
      other credits/(charges)                                      66              87                66                88
      Balance at end of year                                      657             591              643               577

      Changes in inventories of finished goods and
      work in progress (increase)                               (268)             601             (213)              862

6A.   Construction work-in-progress comprises:

                                                                                                           Group
                                                                                                           2005
                                                                                                           $’000

      Arising from acquisition of subsidiary (Note 23)                                                       30
      Less amounts recognised in the income statement                                                         –
      Balance at end of year – contract costs that
      relate to future activity recognised as an asset                                                       30

      Aggregate amount of costs incurred and recognised profits
      (less recognised losses) to date on uncompleted contracts                                            4,760
      Less progress payments received and receivable to date                                              (4,366)
      Net amount due from or (to) contract customers at end of year                                         394

      Included in the accompanying balance sheet as follows :
      As an asset under trade receivables                                                                   436
      As a liability under trade payables                                                                   (42)

      Construction contract retention receivables as an asset under trade receivables                        37




                                                                                        Pan Asian Water Solutions Limited   47
                                                                                                      Annual Report 2005
Notes to Financial Statements 31 December 2005
7.      INVESTMENTS IN SUBSIDIARIES

                                                                                                             Company
                                                                                                     2005              2004
                                                                                                     $’000             $’000

        Unlisted equity shares at cost to company                                                    2,016              686
        Net book value of subsidiaries                                                               4,858             2,157

        Analysis of above amount denominated in foreign currency:
        Hong Kong Dollars                                                                              586              586
        Chinese Renminbi                                                                               330                –
        Indonesian Rupiah                                                                              168                –

        The fair value of the subsidiaries as available-for-sale financial assets is deemed to be not reliably measurable as the
        probabilities of the various estimates within the range cannot be reasonably assessed as used in estimating fair values.
        Consequently the investment is carried at cost less provision for impairment. Impairment losses recognised in profit
        or loss for equity investments are not reversed.

        The subsidiaries held are listed below:



                                                                         Cost in                      Effective percentage
                                                                      books of Group                of equity held by Group
        Name of subsidiaries, country of incorporation,            2005            2004              2005             2004
        place of operations and principal activities               $’000          $’000                  %               %

        Pan Asian Engineering Pte. Ltd. (1)                          100              100              100              100
        Singapore
        Fabrication of pipes and customisation of
        pipe joints for use in water and wastewater
        infrastructure developments

        Pan Asian Water Solutions (HK) Limited (2) (3)               586              586              100              100
        Hong Kong
        Supply of piping systems and related
        accessories for use in water and wastewater
        infrastructure developments

        PA Water Solutions (Shanghai) Limited (2)                    330                 –             100                –
        (incorporated on 27 January 2005)
        Shanghai
        General importers and exporters

        PT. Pan Asian Water Solutions (4) (5)                        168                 –             100                –
        (incorporated on 10 May 2005)
        Indonesia
        Exporting and importing of products of
        water treatment



48   Pan Asian Water Solutions Limited
     Annual Report 2005
Notes to Financial Statements 31 December 2005
7.   INVESTMENTS IN SUBSIDIARIES (Cont’d)

                                                                             Cost in                           Effective percentage
                                                                          books of Group                     of equity held by Group
                                                                       2005            2004                   2005             2004
                                                                       $’000          $’000                       %               %

     Tricaftan Environmental Technology Pte. Ltd.                        833                    –                 51                  –
     - formerly known as Tricaftan Enterprise Pte Ltd (1) (6)
     (subsidiary acquired from 30 September 2005)
     Singapore
     Mechanical engineering works in water and
     wastewater infrastructure developments

     (1)     Audited by RSM Chio Lim, Singapore.
     (2)     Audited by member firms of Horwath International of which Chio Lim & Associates in Singapore was a member until
             10 January 2006. RSM Chio Lim is now a member of RSM International.
     (3)     1 ordinary share of HK$1 in Pan Asian Water Solutions (HK) Limited is held in trust by a director.
     (4)     Audited by AAJ Associates, a member firm of RSM International of which RSM Chio Lim, Singapore is a member.
     (5)     1,000 shares in PT. Pan Asian Water Solutions are held in trust by a director.
     (6)     The Company has the option to acquire the remaining 49% equity interest in Tricaftan Environmental Technology Pte. Ltd.
             (“Tricaftan”) from the other shareholders during the period from 1 January 2006 to 31 December 2010, conditional upon
             Tricaftan achieving an average annual profit after taxation of not less than $1 million in any three consecutive financial years
             during the aforesaid period. The price for the remaining 49% equity interest shall be based on the average annual profit after
             taxation and a price-earnings ratio of four times, and the Company is entitled to pay such price in shares or cash or both.



8.   OTHER ASSETS

                                                                                 Group                                 Company
                                                                       2005                2004               2005               2004
                                                                       $’000               $’000              $’000              $’000

     Club memberships at cost                                            163                 163                163                163
     Less : Provision for impairment                                     (85)                (85)               (85)               (85)
                                                                           78                  78                 78                 78

     Movement in provision:
     Balance at beginning of year                                        192                 192                192                192
     Used                                                               (107)               (107)              (107)              (107)
     Balance at end of year                                                85                  85                 85                 85

     The above club memberships are held in trust by certain directors.

     The fair value of the club memberships at cost is deemed to be not reliably measurable as the probabilities of the
     various estimates within the range cannot be reasonably assessed as used in estimating fair values. Consequently it is
     carried at cost less provision for impairment.

     In 2004, the Company sold a membership at Palm Resort Golf & Country Club for a total consideration of $4,000 to the
     ultimate holding company. The consideration of $4,000 was based on the net book value of the club membership as
     at 31 December 2003.


                                                                                                    Pan Asian Water Solutions Limited     49
                                                                                                                  Annual Report 2005
Notes to Financial Statements 31 December 2005
9.      PROPERTY, PLANT AND EQUIPMENT

                                                            Leasehold
                                                           property and      Plant and
        Group                                              improvement      equipment    Total
                                                              $’000            $’000     $’000

        Cost:
        At beginning of year 1 January 2004                    1,445          3,631      5,076
        Additions                                                  –            379        379
        Disposals                                                  –           (454)      (454)
        Foreign exchange adjustment                                –             (3)        (3)
        At end of year 31 December 2004                        1,445          3,553      4,998

        Accumulated depreciation:
        At beginning of year 1 January 2004                      669          3,079      3,748
        Depreciation for the year                                 77            270        347
        Disposals                                                  –           (388)      (388)
        Foreign exchange adjustment                                –             (3)        (3)
        At end of year 31 December 2004                          746          2,958      3,704

        Net book value:
        At end of year 31 December 2004                          699            595      1,294

                                                             Leasehold
                                                           properties and    Plant and
        Group                                              improvement      equipment    Total
                                                               $’000           $’000     $’000

        Cost:
        At beginning of year 1 January 2005                    1,445          3,553      4,998
        Arising from acquisition of subsidiary (Note 23)       1,173            152      1,325
        Additions                                                  –             86         86
        Disposals                                                  –           (486)      (486)
        Foreign exchange adjustment                                –              1          1
        At end of year 31 December 2005                        2,618          3,306      5,924

        Accumulated depreciation:
        At beginning of year 1 January 2005                      746          2,958      3,704
        Arising from acquisition of subsidiary (Note 23)         211            134        345
        Depreciation for the year                                 83            217        300
        Disposals                                                  –           (483)      (483)
        Foreign exchange adjustment                                –              1          1
        At end of year 31 December 2005                        1,040          2,827      3,867

        Net book value:
        At end of year 31 December 2005                        1,578            479      2,057




50   Pan Asian Water Solutions Limited
     Annual Report 2005
Notes to Financial Statements 31 December 2005
9.   PROPERTY, PLANT AND EQUIPMENT (Cont’d)

                                                                        Leasehold
                                                                       property and        Plant and
     Company                                                           improvement        equipment               Total
                                                                          $’000              $’000                $’000

     Cost:
     At beginning of year 1 January 2004                                   1,445                3,338             4,783
     Additions                                                                 –                  368               368
     Disposals                                                                 –                 (448)             (448)
     At end of year 31 December 2004                                       1,445                3,258             4,703

     Accumulated depreciation:
     At beginning of year 1 January 2004                                     669                2,824             3,493
     Depreciation for the year                                                77                  252               329
     Disposals                                                                 –                 (382)             (382)
     At end of year 31 December 2004                                         746                2,694             3,440

     Net book value:
     At end of year 31 December 2004                                         699                 564              1,263

                                                                        Leasehold
                                                                       property and        Plant and
     Company                                                           improvement        equipment               Total
                                                                          $’000              $’000                $’000

     Cost:
     At beginning of year 1 January 2005                                   1,445                3,258             4,703
     Additions                                                                 –                   52                52
     Disposals                                                                 –                 (482)             (482)
     At end of year 31 December 2005                                       1,445                2,828             4,273

     Accumulated depreciation:
     At beginning of year 1 January 2005                                     746                2,694             3,440
     Depreciation for the year                                                77                  194               271
     Disposals                                                                 –                 (478)             (478)
     At end of year 31 December 2005                                         823                2,410             3,233

     Net book value:
     At end of year 31 December 2005                                         622                 418              1,040

     (a)    In 2004, a fully depreciated motor vehicle was given to the spouse of a director.




                                                                                       Pan Asian Water Solutions Limited   51
                                                                                                     Annual Report 2005
Notes to Financial Statements 31 December 2005
9.       PROPERTY, PLANT AND EQUIPMENT (Cont’d)

         (b)      The properties held by the Group at end of the year are as follows:-

                                                                        Gross                   Gross
                  Location of property        Tenure of land       land area (sqm)       Built-in area (sqm)          Existing use


                  16 Jalan Besut          30 years with effect
                  Singapore 619569        from 30 March 1982           5,130                   2,032               Owner Occupied/
                                                                                                                   office/ warehouse
                                                                                                                   and manufacturing

                  53 Ubi Avenue 1         60 years with effect
                  Paya Ubi Industrial     from 10 March 1997
                  Park #05-32
                  Singapore 408934                                        –                     411                Rental

         (c)      The Group’s and Company’s leasehold property with net book value of $956,000 (2004: $699,000) and nil
                  (2004: $699,000) is mortgaged for banking facilities as disclosed in Notes 10 and 12 respectively.

         (d)      Motor vehicles with a net book value of $329,105 (2004: $484,067) are registered in the names of directors
                  who hold the assets in trust for the Company.

         (e)      Certain items are under finance lease agreements (see Note 13).


10.      SHORT-TERM BORROWINGS

                                                                              Group                                Company
                                                                    2005              2004                2005               2004
                                                                    $’000             $’000               $’000              $’000

         Short-term revolving bank loan (secured)                        –            1,500                    –             1,500

         The Company’s short-term revolving loan and bank facilities was secured by:

         (i)      all monies mortgage over the Company’s leasehold property;

         (ii)     a negative pledge over the assets of the Company; and

         (iii)    a security over deposit of $1,500,000 in the name of the Company (Note 4).

         The short-term revolving loan was charged at cost of the fund plus cost of liquidity plus 2.5% per annum. The interest
         was charged at 3.9% per annum at the first drawn down. Interest and principal was repayable on a monthly basis. The
         carrying value approximate fair value. The bank facilities secured over the Company’s property and deposit of $1,500,000
         have been removed in 2005.




52    Pan Asian Water Solutions Limited
      Annual Report 2005
Notes to Financial Statements 31 December 2005
11.   TRADE AND OTHER PAYABLES

                                                                        Group                              Company
                                                                2005            2004              2005               2004
                                                                $’000           $’000             $’000              $’000

      Trade payables:
      Related party (Note 3)                                      61               79                 –                 53
      Subsidiaries (Notes 3 and 7)                                 –                –               503                364
      Outside parties and accrued liabilities                  5,750            3,252             3,347              2,489

      Other payables:
      Other payables                                               15               14                14                14
      Subsidiaries (Notes 3 and 7)                                  –                –                 2                17
      Total trade and other payables                           5,826            3,345             3,866              2,937

      Analysis of above amount denominated
      in foreign currency:
      Hong Kong Dollars                                          537              567                 –                  –
      United States Dollars                                    1,496            1,894             1,434              1,810
      Japanese Yen                                               379                –                 –                  –

      The average credit period taken by the Group and the Company to settle trade payables is about 67 days (2004 : 60
      days) and 50 days (2004 : 55 days) respectively. The other payables are with short-term durations. The notional
      amount is deemed to reflect the fair value.


12.   LONG-TERM BORROWINGS

                                                                                                           Group
                                                                                                  2005               2004
                                                                                                  $’000              $’000

      Bank loans (secured)                                                                          659                  –

      The borrowings are repayable as follows:
      Amounts due within a year                                                                       65                 –
      Total current portion                                                                           65
      Non-current portion                                                                           594                  –
      The non-current portion is repayable as follows:
      Due within 2 to 5 years                                                                       296                  –
      After 5 years                                                                                 298                  –
      Total non-current portion                                                                     594                  –

      The interest rate for the bank loan is 5.35% per annum on monthly rests. The bank loan is secured by a legal mortgage
      of the subsidiary’s leasehold property and personal guarantee given by a director. The bank loan is repayable by 144
      monthly instalments commencing from January 2003. The fair value of long-term debt was not determined because
      the carrying amount approximate fair value.




                                                                                         Pan Asian Water Solutions Limited   53
                                                                                                       Annual Report 2005
Notes to Financial Statements 31 December 2005
13.      FINANCE LEASES LIABILITIES

                                                                                   Minimum          Finance          Present
         Group and Company                                                         payments         charge            value
         2005                                                                        $’000           $’000            $’000

         Minimum lease payments payable:
         Due within one year                                                           83              (11)              72
         Due within 2 to 5 years                                                      306              (42)             264
         After 5 years                                                                  6               (1)               5
                                                                                      395              (54)             341

         Net book value of plant and equipment under finance leases                                                    365

                                                                                   Minimum          Finance          Present
         Group and Company                                                         payments         charge            value
         2004                                                                        $’000           $’000            $’000

         Minimum lease payments payable:
         Due within one year                                                           82              (11)              71
         Due within 2 to 5 years                                                      291              (40)             251
         After 5 years                                                                 56               (7)              49
                                                                                      429              (58)             371

         Net book value of plant and equipment under finance leases                                                     489

         It is a policy to lease certain of its plant and equipment under finance leases. The average lease term is 5-7 years. The
         rate of interest for finance leases during the above financial years was about 2.2% to 3.0% per annum. There is an
         exposure to fair value interest risk because the interest rates are fixed at the contract date. All leases are on a fixed
         repayment basis and no arrangements have been entered into for contingent rental payments. All lease obligations are
         denominated in S$. The obligations under finance leases are secured by the lessor’s charge over the leased assets and
         a personal guarantee by a director. The fair value of the lease liabilities approximate the carrying amounts.


14.      SHARE CAPITAL

                                                                                                     Group and Company
                                                                                                 Number of Issued share
                                                                                                    shares        capital
                                                                                                      ’000         $’000
         Ordinary shares:
         Balance at beginning of year 1 January 2004                                                   5,000           5,000

         Sub-division (a)                                                                           100,000                –
         Issue of shares at $0.05 each (b)                                                           25,000            1,250
         Transfer of share premium balance (c)                                                            –            2,697
         Balance at end of year 31 December 2004                                                    125,000            8,947
         Balance at end of year 31 December 2005                                                    125,000            8,947




54    Pan Asian Water Solutions Limited
      Annual Report 2005
Notes to Financial Statements 31 December 2005
14.   SHARE CAPITAL (Cont’d)

      (a)    At an Extraordinary General Meeting held on 5 July 2004, the shareholders approved, inter-alia, the sub-
             division of each ordinary share of $1 in the authorised and issued share capital into 20 ordinary shares of
             $0.05 each.

      (b)    The Company issued 25,000,000 ordinary shares of $0.05 each at par at a premium of $0.16 each per share in
             its initial public offer.

      (c)    With the changes to the Companies Act, Cap 50, effective from 30 January 2006, there is the removal of the
             concept of par value and authorised capital and there is no share premium account. The Company had a share
             premium account balance of $2,697,000 at the end of the year. This amount has now been included on share
             capital as required by the changes to the Companies Act.


15.   REVENUE

                                                                                                         Group
                                                                                               2005               2004
                                                                                               $’000              $’000

      Sales of finished goods                                                                38,340              26,031
      Commission income                                                                          36                  72
      Sundry income                                                                              81                 109
      Rental                                                                                     11                   –
      Amount recognised from long-term contracts                                                649                   –
                                                                                             39,117              26,212


16.   FINANCIAL INCOME AND (EXPENSE)

                                                                                                         Group
                                                                                               2005               2004
                                                                                               $’000              $’000

      Financial income:
      Interest income                                                                             69                 28
      Foreign exchange gain                                                                      174                 75
                                                                                                 243               103

      Financial expense:
      Bad debts written off – trade (outside party)                                                 –                (2)
      Loss on disposal of other investment                                                          –                (4)
      Provision for impairment on trade receivables                                               (13)             (190)
      Interest expense                                                                            (96)             (163)
                                                                                                (109)              (359)




                                                                                      Pan Asian Water Solutions Limited    55
                                                                                                    Annual Report 2005
Notes to Financial Statements 31 December 2005
17.      OTHER CREDITS/(CHARGES)

                                                                                                       Group
                                                                                              2005             2004
                                                                                              $’000            $’000

         Gain on disposal of plant and equipment                                                 27               52
         Inventories (written off)/reversal                                                       5              (75)
         Provision on inventories                                                               (66)             (87)
                                                                                                (34)           (110)


18.      INCOME TAX EXPENSE

                                                                                                       Group
                                                                                              2005             2004
                                                                                              $’000            $’000

         Current tax expense                                                                    397              39
         Total income tax expense                                                               397              39

         The income tax expense varied from the amount of income tax expense determined by applying the Singapore
         income tax rate of 20% (2004: 20%) to profit before tax as a result of the following differences:-

                                                                                                       Group
                                                                                              2005             2004
                                                                                              $’000            $’000

         Profit before tax                                                                    2,403            1,550

         Income tax expense at statutory rate                                                   481             310
         Non-allowable items                                                                     59              38
         Deferred tax valuation allowance                                                        40              39
         Difference in tax rate in other countries                                              (18)             (9)
         Tax exemption                                                                          (22)            (22)
         Overprovision of income tax for prior years                                           (143)           (317)
         Total income tax expense                                                               397              39




56    Pan Asian Water Solutions Limited
      Annual Report 2005
Notes to Financial Statements 31 December 2005
18.   INCOME TAX EXPENSE (Cont’d)

      The deferred tax amounts are as follows:

                                                                           Group                              Company
                                                                  2005             2004               2005              2004
                                                                  $’000            $’000              $’000             $’000

      Deferred tax liabilities:
      Excess of net book value of plant and equipment               (3)               (2)               (3)               (2)
      Total deferred tax liabilities                                (3)               (2)               (3)               (2)

      Deferred tax assets:
      Tax loss carryforwards                                         28                –                  –                 –
      Provisions                                                     89               76                 89                76
      Total deferred tax assets                                    117                76                 89                76

      Net deferred tax assets                                       114               74                 86                74
      Deferred tax assets valuation allowance                      (114)             (74)               (86)              (74)
                                                                      –                 –                 –                 –

      An allowance is made to the extent that it is not probable that taxable profit will be available against which the unused
      tax loss carryforwards can be utilised. The realisation of the future income tax benefits from tax loss carryforwards
      and temporary differences from capital allowances is available for an unlimited future period subject to the conditions
      imposed by law including the retention of majority shareholders as defined. Where provision for deferred tax arising
      from temporary differences has been offset against the above tax loss carryforwards, such provision for deferred tax
      will be required to be set up when the tax losses are utilised in the future.

      There are no income tax consequences of dividends to shareholders of the Company.

      Temporary differences arising in connection with interests in subsidiaries are insignificant.


19.   EARNINGS PER SHARE

      The earnings per share is calculated by dividing the Group’s profit for the year attributable to equity holders of the
      Company of $2,011,000 (2004 : $1,511,000) by the number of ordinary shares which is 125,000,000 (2004 : the
      weighted average number of ordinary shares during the year which is 108,333,334).

      Both basic and diluted earnings per share are the same as there are no dilutive ordinary share equivalents outstanding
      during the period.




                                                                                            Pan Asian Water Solutions Limited    57
                                                                                                          Annual Report 2005
Notes to Financial Statements 31 December 2005
20.      EMPLOYEE BENEFITS EXPENSE

                                                                                                                Group
                                                                                                       2005             2004
                                                                                                       $’000            $’000

         Employee benefits expenses including directors                                                2,131            1,946
         Contributions to defined contribution plan                                                      149              168
         Other benefits                                                                                   84               73
         Total employee benefits expense                                                               2,364            2,187


21.      ITEMS IN INCOME STATEMENT

         In addition to the charges and credit disclosed elsewhere in the notes to the financial statements, this item includes the
         following charges:-

                                                                                                                Group
                                                                                                       2005             2004
                                                                                                       $’000            $’000

         Non-audit fees to auditors included under administrative expenses                                  9               10
         Other fees to affiliated entities of auditors included under administrative expenses              35                –


22.      DIVIDENDS

         On 23 March 2004, an interim dividend of $0.0204 net of tax of 20% per ordinary share of the Company was paid to
         shareholders totalling $102,000.

         On 31 May 2005, a final dividend of 0.4 cents net of tax of 20% per ordinary share of the Company was paid to
         shareholders totalling $500,000.

         In respect of the current year, the directors propose that a final dividend of 0.5 cents net of tax of 20% per ordinary
         share totalling $625,000 be paid to shareholders after the Annual General Meeting. There are no income tax
         consequences. This dividend is subject to approval by shareholders at the next Annual General Meeting and has not
         been included as a liability in these financial statements. The proposed dividend for 2005 is payable in respect of all
         ordinary shares in issue at balance sheet date and including new shares issued up to the date of the dividend becomes
         payable.




58    Pan Asian Water Solutions Limited
      Annual Report 2005
Notes to Financial Statements 31 December 2005
23.   ACQUISITION OF SUBSIDIARY

      The Group acquired 51% of Tricaftan Enterprise Pte Ltd on 30 September 2005. The transaction was accounted for by
      the purchase method of accounting.

      The net assets acquired and the related fair value are as follows:

                                                                                                         Group
                                                                                                         2005
                                                                                                         $’000

      Cash                                                                                                2,264
      Trade and other receivables                                                                         1,447
      Contract work-in-progress                                                                              30
      Property, plant and equipment                                                                         980
      Trade and other payables                                                                           (2,281)
      Long-term borrowings                                                                                 (673)
      Income tax payable                                                                                   (134)
      Minority interest                                                                                    (800)
      Cash consideration                                                                                    833
      Less cash taken over                                                                               (2,264)
      Net cash inflow on acquisition                                                                     (1,431)

      The contributions from the subsidiary for the period between the date of acquisition and 31 December 2005 (before
      inter-company eliminations) were as follows:

                                                                                                          $’000

      Revenue                                                                                               649
      Loss before tax                                                                                       (10)

      The revenue and profit of the subsidiary acquired during the year as though the acquisition date effected during the
      year had been the beginning of that year were as follows:

                                                                                                          $’000

      Revenue                                                                                             5,745
      Profit before tax                                                                                     472




                                                                                        Pan Asian Water Solutions Limited   59
                                                                                                      Annual Report 2005
Notes to Financial Statements 31 December 2005
24.      OPERATING LEASE PAYMENT COMMITMENTS

         At the balance sheet date the total of future minimum lease payments under non-cancellable operating leases are as
         follows:

                                                                           Group                            Company
                                                                   2005            2004             2005              2004
                                                                   $’000           $’000            $’000             $’000

         Not later than one year                                    249              292             221               274
         Later than one year and not later than five years          411              760             402               760
         Later than five years                                       95              275              95               275

         Rental expense for the year                                245              238             213               216


         Operating lease payments represent rentals payable by the Group and Company for certain of its warehouses, office
         equipment and owned leasehold properties. The lease rental terms are negotiated for term of 3 to 30 years and rentals
         are subject to an escalation clause but the amount of the rent increase is not to exceed a certain percentage. Such
         increases are not included in the above amounts.


25.      BANK FACILITIIES

                                                                           Group                            Company
                                                                   2005            2004             2005              2004
                                                                   $’000           $’000            $’000             $’000

         Bankers’ guarantees – secured                              155              850                –              850

         Letters of credit – secured                                  –            1,780               –              1,780
         Letters of credit – unsecured                              277                –             277                  –

         Performance bonds – secured                                 146           1,186                –             1,186
         Performance bonds – unsecured                             1,136               –            1,136                 –

         Tender bonds – secured                                        –             696                –              696

         The bank facilities are unsecured in 2005. In 2004, the Company’s bank facilities were secured by:

         (i)      all monies mortgage over the Company’s leasehold property.

         The subsidiaries’ bank facilities are secured by:

         (i)      a legal mortgage of the subsidiary’s leasehold property and personal guarantee given by the subsidiary’s
                  director; and

         (ii)      corporate guarantee given by holding company.




60    Pan Asian Water Solutions Limited
      Annual Report 2005
Notes to Financial Statements 31 December 2005
26.   FINANCIAL INFORMATION BY SEGMENTS

      For management purposes, the Group’s operating businesses are organised according to their nature of activities
      which is based on the nature of programmes and/or the intent of use of the products. These are grouped into the
      following:-

      (a)       Potable water (“PW”) – Pipelines linking the raw water collection points to the water purification plants, or the
                distribution pipelines bringing clean water supply to homes and industrial buildings;

      (b)       Wastewater (“WW”) – Waste and sewer pipelines that channel the discharge of waste matter to the wastewater
                treatment plants for treatment before it is discharged into the sea or routed to other uses;

      (c)       NEWater (“NW”) – Pipelines relating to NEWater treatment plants; and

      (d)       Others – Pipelines relating to oil and gas industry

      Segment results consist of costs directly attributable to a segment as well as those that can be allocated on a reasonable
      basis.

      Segment assets consist principally of trade receivables that are directly attributable to a segment.

      Unallocated items comprise cash and cash equivalents, other receivables and prepayments, inventories, other
      investments, property, plant and equipment, trade payables and accrued liabilities, other payables, income tax payable,
      long-term borrowings, finance leases, financial income, financial expense, distribution costs, administrative expenses,
      other credits/(charges), and income tax expense.

      The following tables present the segment revenue and results and certain assets and liability information regarding
      segments as at 31 December 2005 and corresponding comparative figures.

      Business segments
      $’000                                        PW               WW                 NW            Others         Consolidated
                                              2005    2004     2005   2004        2005    2004   2005     2004     2005     2004
                                              $’000 $’000      $’000 $’000        $’000 $’000    $’000 $’000       $’000 $’000

      Revenue :–
      External sales                          28,328 12,926    8,785 10,080        812   1,882   1,192   1,324    39,117 26,212
      Results :–
      Segment result                           3,574 3,045     3,136      2,069     93     489     489     298     7,292     5,901
      Financial income                                                                                                317     103
      Financial expense                                                                                              (183) (359)
      Unallocated corporate expenses                                                                               (4,989) (3,985)
      Other credits / (changes)                                                                                       (34) (110)
      Profit before tax                                                                                            2,403 1,550
      Income tax expense                                                                                            (397)  (39)
      Profit for the year                                                                                          2,006     1,511

      Other information :–
      Segment assets                           3,382 3,175     3,882      2,783    132     588     413     290     7,809 6,836
      Unallocated assets                           –     –         –          –      –       –       –       –    14,604 11,321
      Total assets                                 –       –          –      –       –       –       –        –   22,413 18,157

      Segment liabilities-unallocated                                                                              7,430     5,596
      Total liabilities                                                                                            7,430     5,596

      Capital expenditure-unallocated                                                                              1,066         379
      Depreciation-unallocated                                                                                       300         347


                                                                                             Pan Asian Water Solutions Limited    61
                                                                                                           Annual Report 2005
Notes to Financial Statements 31 December 2005
26.      FINANCIAL INFORMATION BY SEGMENTS (Cont’d)

         Geographical segments

         The following table provides an analysis of the Group revenue by geographical market which is analysed based on the
         country of domicile of the customers:-

                                                                                                      Sales revenue
                                                                                                   2005           2004
                                                                                                   $’000          $’000

         Singapore                                                                                10,768          17,231
         Hong Kong                                                                                 4,908           2,647
         Vietnam                                                                                  20,549           3,371
         Others                                                                                    2,892           2,963
                                                                                                  39,117          26,212

         The following is an analysis of the carrying amount of segment assets and additions to property, plant and equipment
         analysed by the geographical area in which the assets are located:-

                                                                   Carrying amount of              Additions to property,
                                                                     segment assets                plant and equipment
                                                                  2005           2004              2005            2004
                                                                  $’000          $’000             $’000           $’000

         China                                                      264                –               4               –
         Indonesia                                                  148                –               2               –
         Singapore                                               19,280           16,301           1,051             379
         Hong Kong                                                2,721            1,856               9               –
                                                                 22,413           18,157           1,066             379


27.      CHANGES AND ADOPTION OF FINANCIAL REPORTING STANDARDS

         For the year ended 31 December 2005 the new following Singapore Financial Reporting Standards were adopted for
         the first time.

         FRS 1 (revised 2004) Presentation of Financial Statements
         FRS 2 (revised 2004) Inventories
         FRS 8 (revised 2004) Accounting Policies, Changes in Accounting Estimates and Errors
         FRS 10 (revised 2004) Events after the Balance Sheet Date
         FRS 16 (revised 2004) Property, Plant and Equipment
         FRS 17 (revised 2004) Leases
         FRS 21 (revised 2004) The Effects of Changes in Foreign Exchange Rates
         FRS 24 (revised 2004) Related Party Disclosures
         FRS 27 (revised 2004) Consolidated and Separate Financial Statements
         FRS 28 (revised 2004) Investments in Associates (*)




62    Pan Asian Water Solutions Limited
      Annual Report 2005
Notes to Financial Statements 31 December 2005
27.   CHANGES AND ADOPTION OF FINANCIAL REPORTING STANDARDS (Cont’d)

      FRS 32 (revised 2004) Financial Instruments: Disclosure and Presentation
      FRS 33 (revised 2004) Earnings per Share
      FRS 36 (revised 2004) Impairment of Assets
      FRS 38 (revised 2004) Intangible Assets (*)
      FRS 39 (revised 2004) Financial Instruments: Recognition and Measurement
      FRS 41 Agriculture (*)
      FRS 102 Share-based Payments (*)
      FRS 103 Business Combinations
      FRS 104 Insurance Contracts (*)
      FRS 105 Non-current assets held for sale and discontinued operations

      (*) Not applicable to the entity.

      Adoption of the above new standards has resulted in some changes in the detailed application of the accounting
      policies and some modifications to financial statement presentation (see Note 29). However, the new standards did not
      affect the results for the current or prior periods except as disclosed in Note 29.


28.   FUTURE CHANGES IN ACCOUNTING STANDARDS

      The following Singapore Financial Reporting Standards that have been issued will be effective in future. The transfer to
      the new standards from the effective dates may result in material adjustments to the financial position, results of
      operations, or cash flows for the following year. The transfer to the new standards from the effective dates is not
      expected to have a material impact on the financial statements.

      FRS 40 Investment Property, effective from 1.1.2007 (*)
      FRS 106 Exploration for and Evaluation of Mineral Resources effective from 1.1.2006 (*)
      FRS 107 Financial Instruments: Disclosures, effective from 1.1.2007.

      (*) Not applicable to the entity.




                                                                                          Pan Asian Water Solutions Limited   63
                                                                                                        Annual Report 2005
Notes to Financial Statements 31 December 2005
29.      RECLASSIFICATIONS AND COMPARATIVE FIGURES

        Certain reclassifications have been made to the prior year’s financial statements to enhance comparability with current
        year’s financial statements. The reclassifications included the following:

         Group                                        After                              Before
                                                 reclassification                   reclassification                        Difference
                                                      $’000                              $’000                                $’000

         Trade and other receivables                 7,011                                   –                                7,011
         Trade receivables                               –                               6,836                               (6,836)
         Other receivables                               –                                 175                                 (175)
         Trade and other payables                   (3,345)                                  –                               (3,345)
         Trade payables                                  –                              (3,331)                               3,331
         Other payables                                  –                                 (14)                                  14
         Share capital                              (8,947)                                  –                               (8,947)
         Issued capital                                  –                              (6,250)                               6,250
         Other reserves                                (36)                                  –                                  (36)
         Retained earnings                          (3,578)                                  –                               (3,578)
         Reserves                                        –                              (6,311)                               6,311
         Revenue                                   (26,212)                            (26,031)                                (181)
         Financial income                             (103)                                  –                                 (103)
         Financial expense                             359                                   –                                  359
         Other operating income                          –                                (209)                                 209
         Other charges/(credits)                       110                                 231                                 (121)
         Finance cost                                    –                                 163                                 (163)

         Company
         Trade and other receivables                  5,901                                   –                               5,901
         Trade receivables                                –                               5,640                              (5,640)
         Other receivables                                –                                 261                                (261)
         Trade and other payables                    (2,937)                                  –                              (2,937)
         Trade payables                                   –                              (2,906)                              2,906
         Other payables                                   –                                 (31)                                 31
         Share capital                               (8,947)                                  –                              (8,947)
         Issued capital                                   –                              (6,250)                              6,250
         Other reserves                                 (76)                                  –                                 (76)
         Retained earnings                           (2,066)                                  –                              (2,066)
         Reserves                                         –                              (4,839)                              4,839

         The entity adopted FRS 39 Financial Instruments: Recognition and Measurement with effect from 1 January 2005. As
         is explained in Note 2, all financial assets and financial liabilities are recognised at fair values (other than those permitted
         to be recognised at cost). The adjustments to fair values at the beginning of the year are adjusted in retained earnings.
         The figures for last year are not restated. The amounts involved are as follows:

                                                                                                            Group and Company
                                                                                                                   $’000

         Trade and other receivables                                                                                  103
         Adjustment at beginning of year 2005                                                                         103



64    Pan Asian Water Solutions Limited
      Annual Report 2005
Statistics of Shareholdings as at 8 March 2006
Issued & Fully Paid-up share capital       S$6,250,000
Class of Equity Shares                     Ordinary
Number of Shares                           125,000,000
Voting Rights on Ordinary Shareholders     On show of hands : one vote for each member
                                           On a poll : one vote for each ordinary share

ANALYSIS OF SHAREHOLDINGS

Range of Shareholdings              No. of Shareholders            %                 No. of Shares                %

1         - 999                                2                        0.14                1,000                 0.00
1,000     - 10,000                         1,177                       80.4             3,620,000                 2.90
10,001    - 1,000,000                        282                       19.26           15,463,000                12.37
1,000,001 and above                            3                        0.2           105,916,000                84.73
                                            1464                    100.00            125,000,000              100.00

Based on information provided to the Company as at 8 March 2006, approximately 20% of the issued ordinary shares of the
Company is held by the public, and therefore, Rule 723 of the Listing Manual is complied with.


TOP 20 SHAREHOLDERS LIST AS AT 8 MARCH 2006

Name                                                                               No. of shares held             %

XU JIA ZU HOLDINGS PTE LTD                                                            100,000,000                80.00
BNP PARIBAS NOMINEES SINGAPORE PTE LTD                                                  4,405,000                 3.52
DBS NOMINEES PTE LTD                                                                    1,511,000                 1.21
LEE CHEE KWAN                                                                             342,000                 0.27
LEE THIAM HOCK THOMAS                                                                     342,000                 0.27
PHILLIP SECURITIES PTE LTD                                                                305,000                 0.24
CITIBANK CONSUMER NOMINEES PTE LTD                                                        300,000                 0.24
TANG KOK KHIONG WILLIAM                                                                   300,000                 0.24
TAN KHAY SIN                                                                              252,000                 0.20
CHIA THIAN HEE HILARY                                                                     250,000                 0.20
CHENG KOK KWANG @ CHENG CHIA PAN                                                          237,000                 0.19
HO WEE SENG                                                                               217,000                 0.17
CHAN SOO MOI                                                                              204,000                 0.16
ONG KHIAW YANG IVAN                                                                       200,000                 0.16
PHUA CHOO YENG                                                                            200,000                 0.16
RAFFLES NOMINEES PTE LTD                                                                  200,000                 0.16
UNITED OVERSEAS BANK NOMINEES PTE LTD                                                     193,000                 0.15
TAN CHOON SENG                                                                            170,000                 0.14
CIMB-GK SECURITIES PTE. LTD.                                                              165,000                 0.13
CHAN LAM                                                                                  150,000                 0.12
                                                                                      109,943,000                87.95




                                                                                      Pan Asian Water Solutions Limited   65
                                                                                                    Annual Report 2005
Statistics of Shareholdings as at 8 March 2006
SUBSTANTIAL SHAREHOLDERS AS AT 8 MARCH 2006
as recorded in the Register of Substantial Shareholders

                                          Number of shares        Number of shares
                                          registered in the     in which substantial
                                         name of substantial   shareholder is deemed
Name of Substantial Shareholder             shareholder          to have an interest      Total       %

Xu Jia Zu Holdings Pte. Ltd.                100,000,000                 –              100,000,000   80.00




66   Pan Asian Water Solutions Limited
     Annual Report 2005
APPENDIX

4 April 2006

This Appendix is circulated to the Shareholders of Pan Asian Water Solutions Limited (the “Company”) together with the
Company’s annual report for the year ended 31 December 2005 in respect of the proposed renewal of the IPT Mandate (as
defined in the Appendix) to be tabled at the Annual General Meeting of the Company to be held on 21 April 2006 at 5:00 p.m.
at 18 Cross Street 8th Floor Marsh & McLennan Centre Singapore 048423.

If you are in any doubt as to the contents herein or as to any action you should take, you should consult your broker, bank
manager, accountant or other professional adviser immediately.

The Singapore Exchange Securities Trading Limited assumes no responsibilities for the accuracy of any of the statements
made, reports contained or opinions expressed in this Appendix.

The Notice of Annual General Meeting and Proxy Form are enclosed with the Annual Report.




                                         PAN ASIAN WATER SOLUTIONS LIMITED
                                       (Incorporated in the Republic of Singapore)
                                        (Company Registration No. 197902790N)

                                               APPENDIX IN RELATION TO
                                              THE PROPOSED RENEWAL OF
                                             THE SHAREHOLDERS’ MANDATE
                                        FOR INTERESTED PERSONS TRANSACTIONS




                                                                                         Pan Asian Water Solutions Limited   67
                                                                                                       Annual Report 2005
In this appendix (“Appendix”), the following definitions apply throughout unless otherwise stated:

Companies within our Group

“Company”                                :   Pan Asian Water Solutions Limited
“Group” or “PA Group”                    :   Pan Asian Water Solutions Limited and its subsidiaries
“PA HK”                                  :   Pan Asian Water Solutions (HK) Limited
“PA Engineering”                         :   Pan Asian Engineering Pte. Ltd.
“PA Shanghai”                            :   PA Water Solutions (Shanghai) Limited
“PA Indonesia”                           :   PT. Pan Asian Water Solutions
“Tricaftan”                              :   Tricaftan Environmental Technology Pte. Ltd.

Other Companies,
Corporations or
Organisations

“APAM”                                   :   Associated Pan Asian Metal Sdn Bhd
“CDP”                                    :   The Central Depository (Pte) Limited
“Mantabury”                              :   Mantabury Limited
“PAI”                                    :   Pan Asian International Limited
“Pamtech”                                :   Pamtech Asia Holdings Pte Ltd
“RM HK”                                  :   Richards Manufacturing (HK) Limited
“RM Malaysia”                            :   Richards Manufacturing Sdn. Bhd.
“RSM”                                    :   Richards Sales & Marketing Sdn. Bhd.
“RV Qingdao”                             :   Richards Valves (Qingdao) Co., Ltd.
“RV Malaysia”                            :   Richards Valves Sdn. Bhd.
“RV Singapore”                           :   Richards Valves Pte. Ltd.
“SGX-ST” or “Stock Exchange”             :   Singapore Exchange Securities Trading Limited
“Sinzhong Wuxi”                          :   Sinzhong Valves & Fitting (Wuxi) Co., Ltd
“XJZ”                                    :   Xu Jia Zu Holdings Pte. Ltd.

General

“Act” or “Companies Act”                 :   Companies Act (Chapter 50) of Singapore
“AGM”                                    :   Annual General Meeting




68   Pan Asian Water Solutions Limited
     Annual Report 2005
General (Cont’d)

“Associates”                       :     (a)   In relation to a corporation, means a director or Controlling Shareholder; a
                                               subsidiary or associated company; or a subsidiary or associated company of
                                               the Controlling Shareholder, of the corporation
                                         (b)   In relation to a director, CEO, Substantial Shareholder or Controlling
                                               Shareholder of a corporation who is an individual, means his immediate family
                                               (being his spouse, child, sibling and parent); a trustee, when acting in his
                                               capacity as such trustee, of any trust of which the individual or his immediate
                                               family is a beneficiary or, in the case of a discretionary trust, is a discretionary
                                               object; or any corporation in which he and his immediate family together
                                               (directly or indirectly) have an interest of not less than 30% of the aggregate
                                               nominal amount of all the voting shares
                                         (c)   In relation to a Substantial Shareholder, or Controlling Shareholder, which is a
                                               corporation, means, notwithstanding paragraph (a), any corporation which is
                                               its related corporation or associated company
“Associated Company”               :           An “associated company” means a company in which at least 20% but not
                                               more than 50% of its shares are held by the listed company or the group.
“Audit Committee”                  :           The audit committee of our Company
“Board” or “Directors”             :           The directors of our Company as at the date of this Appendix , unless otherwise
                                               stated
“CEO”                              :           Chief executive officer
“Controlling Shareholder”          :           A person who holds directly or indirectly 15% or more of the issued share
                                               capital of the Company or in fact exercises control over the Company as the
                                               case may be
“FY”                               :           Financial year ended or, as the case may be, ending 31 December
“Independent Directors”            :           The non-executive independent Directors of our Company, as at the date of
                                               this Appendix, unless otherwise stated
“Interested Person”                            An “interested person” means a director, chief executive officer or controlling
                                               shareholder of the listed company or an associate of such director, chief
                                               executive officer or controlling shareholder.
“Listing Manual”                   :           The SGX-ST listing manual
“SGX Sesdaq”                       :           SGX-ST Dealing and Automated Quotation System
“Securities Account”               :           A securities account maintained by a Depositor with CDP but does not include
                                               securities sub-account maintained with a Depository Agent
“Shareholders”                     :           Persons holding Shares of our Company
“Substantial Shareholder”          :           A person who holds directly or indirectly 5% or more of the total issued share
                                               capital in our Company or in a company, as the case may be
“$” or “S$” and “cents”            :           Singapore dollars and cents, respectively
“%”                                :           Per centum or percentage
The terms “Depositor”, “Depository Agent” and “Depository Register” shall have the meanings ascribed to them respectively
by Section 130A of the Act.


                                                                                             Pan Asian Water Solutions Limited   69
                                                                                                           Annual Report 2005
Words importing the singular shall, where applicable, include the plural and vice versa, and words importing the masculine
gender shall, where applicable, include the feminine and neuter genders and vice versa. References to persons shall include
corporations.

Any reference in this Appendix to any enactment is a reference to that enactment for the time being amended or re-enacted.
Any word defined under the Companies Act, the Listing Manual or any modification thereof and used in this Appendix shall
have the same meaning assigned to it under the Companies Act, the Listing Manual or any modification thereof, as the case
may be.

Any reference to a time of day in this Appendix shall be a reference to Singapore time unless otherwise stated.

1       INTRODUCTION

        The purpose of this Appendix is to provide Shareholders with the relevant information relating to, and to seek
        Shareholders’ approval at the AGM to renew the general mandate (“Shareholders’ Mandate”) that will enable the
        Group to enter into transactions with the Interested Persons in compliance with Chapter 9 of the Listing Manual.

        Chapter 9 of the Listing Manual applies to transactions which a listed company or any of its subsidiaries or associated
        companies propose to enter into with an interested person of the listed company. An “interested person” is defined as
        a director, chief executive officer or controlling shareholder of the listed company or an associate of such directors,
        chief executive offer or controlling shareholder.

        Chapter 9 of the Listing Manual allows a listed company to seek a general mandate from its shareholders for recurrent
        transactions of revenue or trading nature or those necessary for its day-to-day operations, which may be carried out
        with the listed company’s “interested persons”.

        Pursuant to Chapter 9 of the Listing Manual, the general mandate was renewed at the Annual General Meeting held on
        22 April 2005. Such renewal was expressed to take effect until the date of the forthcoming Annual General Meeting to
        be held on 21 April 2006. Accordingly, the Directors propose that the Shareholders’ Mandate to be renewed at the
        Annual General Meeting to be held on 21 April 2006, to take effect until the next annual general meeting of the
        Company.


2       THE RENEWAL OF THE SHAREHOLDERS’ MANDATE FOR INTERESTED PERSON TRANSACTIONS

        2.1      Classes of Interested Persons

                 The Shareholders’ Mandate will apply to Interested Person Transactions carried out with RM Malaysia, RM
                 HK, RV Qingdao and Sinzhong Wuxi and their Associates (the “Interested Persons” and each an “Interested
                 Person”).

                 Transactions with the Interested Persons which do not fall within the ambit of the proposed Shareholders’
                 Mandate shall be subject to the relevant provisions of Chapter 9 of the Listing Manual.

        2.2      Categories of Interested Person Transactions

                 The Interested Person Transactions that will be covered by the Shareholders’ Mandate are the purchase of
                 valves and related accessories from the Interested Persons. The selection of the suppliers for such purchases
                 is dependent on, inter alia, factors such as quality, pricing consistency, delivery schedule and the business
                 relationship with the respective suppliers.




70   Pan Asian Water Solutions Limited
     Annual Report 2005
2   THE RENEWAL OF THE SHAREHOLDERS’ MANDATE FOR INTERESTED PERSON TRANSACTIONS (Cont’d)

          From time to time, our Group would purchase valves and related accessories from the Interested Persons.
          These purchases can be categorised as follows:

          Common Inventory Items

          Common inventory items are items which are covered under the standard price list based on the fixed price
          quotations provided by our suppliers and are applicable for purchases made during the agreed period and may
          be revised periodically.

          Specialised Inventory Items

          Specialised inventory items are items which are not covered under the standard price list based on the fixed
          price quotations provided by our suppliers.

    2.3   Rationale for and Benefits of the Shareholders’ Mandate

          The transactions with Interested Persons are entered into or are to be entered into by our Group in its ordinary
          course of business. They are recurring transactions which are likely to occur with some degree of frequency
          and arise at any time and from time to time. The Directors are of the view that it will be beneficial to our Group
          to be able to transact or continue to transact with the Interested Persons. It is in the interest of our Group to
          have maximum access to potential suppliers of valves and related accessories in order to procure the relevant
          valves and accessories which best meet the needs of our customers, having regard to, amongst others, the
          quality, response time, reliability of supply and pricing. It is intended that the Interested Persons Transactions
          shall continue in the future as long as they are in the interest of our Group and are not prejudicial to our
          minority Shareholders.

          The Shareholders’ Mandate and the renewal of the Shareholders’ Mandate on an annual basis will eliminate
          the need to announce or convene separate general meetings on each occasion in order to seek Shareholders’
          prior approval for the entry by our Group into such transactions. This will substantially reduce the expenses
          associated with the convening of such general meetings from time to time, improve administrative efficacy,
          and allow resources and time to be focused towards other corporate and business opportunities.

          The Shareholders’ Mandate is intended to facilitate the Interested Persons Transactions, provided that they are
          carried out on normal commercial terms and are not prejudicial to our Company and our minority Shareholders.

          Disclosure will be made in the annual report of the aggregate value of Interested Person Transactions conducted
          pursuant to the Shareholders’ Mandate during the current financial year, and in the annual reports for the
          subsequent financial years during which the Shareholders’ Mandate is renewed and in force.

    2.4   Review Procedures for Interested Person Transactions

          To ensure that the transactions with the Interested Persons are undertaken on normal commercial terms and
          are consistent with our Group’s usual business practices and policies, which are generally no more favourable
          to the Interested Persons than those extended to unrelated third parties, our Group shall implement the following
          procedures:




                                                                                        Pan Asian Water Solutions Limited   71
                                                                                                      Annual Report 2005
2       THE RENEWAL OF THE SHAREHOLDERS’ MANDATE FOR INTERESTED PERSON TRANSACTIONS (Cont’d)

                 Purchases of common inventory items

                 (a)      In respect of purchases of common inventory items from the Interested Persons, the prices for such
                          common inventory items are determined on the basis of a standard price list, which is determined and
                          updated on a semi-annual basis by our Sales department, based on prevailing market pricing for
                          similar products in the industry. Our Sales department will obtain two other quotations from non-
                          interested persons (wherever possible or available) and document the non-interested persons’
                          quotations received. Where fixed price quotations for any particular inventory item are not available
                          from non-interested persons, any one of the Senior Technical Sales Managers of our Group (who shall
                          not be an Interested Person in respect of the particular transaction) will determine whether the prices
                          offered for that item by the Interested Persons are fair and reasonable and the terms of supply from
                          the Interested Persons are in accordance with industry norms.

                 (b)      The standard price list will be reviewed against the non-interested persons’ quotations and approved
                          by our Audit Committee (as part of its standard procedures) as and when there are variations in the
                          prices noted by our Sales department based on market knowledge or if there are no variations, at least
                          on a semi-annual basis. In approving the standard price list, our Audit Committee will take into
                          account factors such as quality, pricing consistency, delivery schedule, business relationship with the
                          supplier and market pricing of raw materials. In addition, our Audit Committee will benchmark the
                          prices on the standard price list to the prices of the raw material commodities, which are quoted on
                          international commodity exchanges such as the London Commodity Exchange. The standard price
                          list as at 31 December 2005 has been reviewed and approved by our Audit Committee.

                 (c)      Based on the approved standard price list, purchases of such common inventory items from Interested
                          Persons at purchase prices which are at or below the prices in the approved standard price list and for
                          which the value equals to or exceeds $100,000 but is less than 5% of our Group’s latest audited NTA
                          will be reviewed and approved by Koh Tiam Teng, our Managing Director and CEO.

                 (d)      Purchases of common inventory items for which the value equals to or exceeds $100,000 from
                          Interested Persons at purchase prices which are above the prices in the approved standard price list
                          shall be subject to the prior approval of our Audit Committee. The extent to which the purchase price
                          exceeds the standard price (including any bulk discounts) and the reasons, such as purchase volume
                          and lead time offered (i.e. delivery timeframe), will be analysed and recorded by any one of the Senior
                          Technical Sales Managers of our Group (who shall not be an Interested Person in respect of the
                          particular transaction) and reviewed by our Audit Committee in its approval process.

                          In addition, transactions more than 5% of our Group’s latest audited NTA will be reviewed and approved
                          by majority of the members of the Audit Committee prior to entering into the transaction.

                 Purchases of specialised inventory items

                 (a)      In respect of purchases of specialised inventory items equal to or exceeding $100,000, our Group will
                          obtain at least two other quotations from non-interested persons for comparison at the time of purchase.
                          The price offered by the Interested Persons shall not be higher than the most competitive price offered
                          by non-interested persons. In determining the most competitive price, non-price factors such as delivery
                          schedules, technical specifications, margins from sale of end products, track record, experience and
                          expertise, and where appropriate, preferential rates, rebates or discounts accorded will also be taken
                          into account.




72   Pan Asian Water Solutions Limited
     Annual Report 2005
2   THE RENEWAL OF THE SHAREHOLDERS’ MANDATE FOR INTERESTED PERSON TRANSACTIONS (Cont’d)

          (b)     Purchases of specialised inventory items from Interested Persons equal to or exceeding $100,000 but
                  less than 5% of our Group’s latest audited NTA will be reviewed and approved by any one of the Senior
                  Technical Sales Managers of our Group (who shall not be an Interested Person in respect of the
                  particular transaction).

          (c)     Where it is impracticable or not possible for such quotations to be obtained, any one of the Senior
                  Technical Sales Managers of our Group (who shall not be an Interested Person in respect of the
                  particular transaction) will determine whether the prices offered by the Interested Persons are fair and
                  reasonable and the terms of supply from the Interested Persons are in accordance with industry
                  norms.

          In addition, transactions more than 5% of our Group’s latest audited NTA will be reviewed and approved by
          majority of the members of the Audit Committee prior to entering into the transaction.


    2.5   General administration procedures for all Interested Person Transactions

          The Group has also implemented the following procedures for the identification of Interested Persons and the
          recording of Interested Person Transactions:-

          (i)     The Group Finance Manager will maintain a list of the Group’s Directors, Substantial Shareholders and
                  Controlling Shareholder and their respective Associates (which is to be updated immediately if there
                  are any changes), and disclose the list to relevant key personnel of each subsidiary to enable identification
                  of Interested Persons. The master list of Interested Persons which is maintained shall be reviewed at
                  least on a semi-annual basis;

          (ii)    The Group Finance Manager will also obtain signed letters of confirmation from key management
                  personnel, the Directors, Substantial Shareholders and Controlling Shareholder of the Group and on a
                  semi-annual basis as to their interests as well as their Associates’ interests in any transaction with our
                  Group;

          (iii)   The Group Finance Manager will maintain a register of transactions carried out with Interested Persons
                  (recording the basis, including the quotations obtained to support such basis, on which they are
                  entered into) (the “Interested Person Transactions Register”);

          (iv)    The Audit Committee will review the letters of confirmation from key management personnel, Substantial
                  Shareholders and the Directors of our Group, and all interested person transactions at least on a semi-
                  annual basis and the outcome of such review shall be documented and filed in the Interested Person
                  Transactions Register; and

          (v)     The Board would also be responsible for obtaining Shareholders’ approval for recurring interested
                  persons transactions which are carried out in the normal course of business.

          In addition, our Audit Committee will include the review of Interested Person Transactions as part of its
          standard procedures while examining the adequacy of its internal controls. Our Board will also ensure that all
          disclosures, approvals and other requirements on Interested Person Transactions, including those required by
          prevailing legislation, the Listing Manual and accounting standards, are complied with.




                                                                                          Pan Asian Water Solutions Limited   73
                                                                                                        Annual Report 2005
2       THE RENEWAL OF THE SHAREHOLDERS’ MANDATE FOR INTERESTED PERSON TRANSACTIONS (Cont’d)

                 Our Audit Committee shall review from time to time such guidelines and procedures to determine if they are
                 adequate and/or commercially practicable in ensuring that transactions between our Group and our Interested
                 Persons are conducted on normal commercial terms. Further, if during these periodic reviews by our Audit
                 Committee, our Audit Committee is of the view that the guidelines and procedures as stated above are
                 inappropriate or are not sufficient to ensure that Interested Person Transactions will be on normal commercial
                 terms which will not be prejudicial to our Company and our minority Shareholders, our Company will (pursuant
                 to Rule 920(1)(b)(iv) and (vii) of the Listing Manual) revert to Shareholders for a fresh mandate based on new
                 guidelines and procedures for transactions with Interested Persons.

        2.6      Review procedures for future Interested Person Transactions other than those covered by Shareholders’
                 Mandate

                 Our Audit Committee will review and approve all interested person transactions as defined by the Listing
                 Manual which are not covered by the Shareholders’ Mandate to ensure that such transactions are on normal
                 commercial terms and arms’ length basis, that is, the transactions are transacted on terms and prices not
                 more favourable to the interested persons than if they were transacted with a third party and are not prejudicial
                 to the interests of our shareholders in any way.

                 During its periodic review or such other review deemed necessary by it, our Audit Committee will carry out a
                 review of records of all such interested person transactions to ensure that they are carried out in accordance
                 with the following internal control procedures:-

                 (i)      interested person transactions above $100,000 are to be approved by a Director who shall not be an
                          interested person in respect of the particular transaction. Interested person transactions below $100,000
                          do not require such approval. Any sale or purchase contracts to be made with an interested person
                          shall not be approved unless the pricing is:-

                          (a)      determined in accordance with our usual business practices and policies;

                          (b)      consistent with the usual margin given or price received by us for the same or substantially
                                   similar type of transactions between us and unrelated parties; and

                          (c)      the terms are no more favourable to the interested person than those extended to or received
                                   from unrelated parties.

                          For the purposes above, contracts for the same or substantially similar type of transactions entered
                          into between us and unrelated third parties, if any, will be used as a basis for comparison to determine
                          whether the price and terms offered to or received from the interested person are no more favourable
                          than those extended to unrelated parties.

                 (ii)     In addition, we shall monitor interested person transactions entered into by us and categorise these
                          transactions as follows:-

                          (a)      a Category 1 interested person transaction is one where the value thereof is in excess of 3% of
                                   the NTA of our Group; and

                          (b)      a Category 2 interested person transaction is one where the value thereof is below or equal to
                                   3% of the NTA of our Group.




74   Pan Asian Water Solutions Limited
     Annual Report 2005
2   THE RENEWAL OF THE SHAREHOLDERS’ MANDATE FOR INTERESTED PERSON TRANSACTIONS (Cont’d)

                    Category 1 interested person transactions must be approved by our Audit Committee prior to entry
                    whereas Category 2 interested person transactions need not be approved by our Audit Committee
                    prior to entry but shall be reviewed on a semi-annual basis by our Audit Committee.

                    We will prepare relevant information to assist our Audit Committee in its review.

                    Before any agreement or arrangement that is not in the ordinary course of business of our Group is
                    transacted, prior approval must be obtained from our Audit Committee. In the event that a member of
                    our Audit Committee is interested in any of the interested person transactions, he will abstain from
                    reviewing that particular transaction. Any decision to proceed with such an agreement or arrangement
                    would be recorded for review by our Audit Committee.

                    Our Audit Committee will also review all interested person transactions to ensure that the prevailing
                    rules and regulations of the SGX-ST (in particular, Chapter 9 of the Listing Manual) are complied with.

                    We will also comply with the provisions in Chapter 9 of the Listing Manual in respect of all future
                    interested person transactions, and if required under the Listing Manual or the Act, we will seek our
                    Shareholders’ approval (where necessary) for such transactions.

                    Our Audit Committee is of the view that the review procedures and systematic monitoring mechanism
                    of all interested person transactions as mentioned above are adequate in ensuring that such transactions
                    will be on normal commercial terms and will not be prejudicial to the interests of our Shareholders in
                    any way.


3   DIRECTORS’ AND SUBSTANTIAL SHAREHOLDERS’ INTERESTS

    The details of the Directors’ and Substantial Shareholders’ interests in the Shares as at the Latest Practicable Date are
    set out below:-



                                                       Direct Interest                         Deemed Interest
                                               No. of Shares              %             No. of Shares                %
      Koh Tiam Teng                                                                      100,000,000                80.0
      Koh Eddie                                                                          100,000,000                80.0
      Xu Jia Zu Holdings Pte. Ltd.             100,000,000               80.0




                                                                                         Pan Asian Water Solutions Limited   75
                                                                                                       Annual Report 2005
4       AUDIT COMMITTEE’S STATEMENT

        The Audit Committee confirms that:

        (a)      the methods or procedures for determining the transaction prices under the IPT Mandate have not changed
                 since the AGM held on 22 April 2005; and

        (b)      the methods or procedures referred to as per above are sufficient to ensure that the transactions will be carried
                 out on normal commercial term and will not prejudicial to the interests of the Company and its minority
                 Shareholders.

        If during the periodic reviews by the Audit Committee, it is of the view that the established review procedures are no
        longer appropriate or adequate to ensure that the IPTs will be transacted on normal commercial terms and on terms or
        conditions that would not be prejudicial to the interests of the Company and minority Shareholders, the Company will
        seek a fresh mandate from Shareholders based on new review procedures.


5.      DIRECTORS’ RECOMMENDATION

        Having fully considered the rationale set out in this Appendix, the Directors believe that the IPT Mandate is in the
        interest of the Company and recommend that Shareholders vote in favour of the IPT Resolution as set out in the Notice
        of AGM enclosed in the Annual Return.

        The Independent Directors of the Company are of the opinion that the IPT Mandate is transacted on normal commercial
        terms and on terms or conditions that would not be prejudicial to the interests of the Company and minority Shareholders.
        Accordingly, they recommend that Shareholders vote in favour of the IPT Resolution as set out in the Notice of AGM
        enclosed in the Annual Return.


6       ANNUAL GENERAL MEETING

        Your approval for the proposed renewal of the Mandate is sought at the AGM. The resolutions relating to the renewal
        of the Mandate is contained in the Notice of AGM as Ordinary Resolution 8.


7       ACTION TO BE TAKEN BY SHAREHOLDERS

        If a Shareholder is unable to attend the AGM and wishes to appoint a proxy to attend and vote on his behalf, he should
        complete, sign and return the attached Proxy Form in accordance with the instructions printed thereon as soon as
        possible and, in any event, so as to reach the registered office of the Company at 16 Jalan Besut Singapore 619569 not
        later than 48 hours before the time set for the Annual General Meeting.


8.      DIRECTORS’ RESPONSIBILITY STATEMENT

        The Directors accept full responsibility for the accuracy of the information given in this Appendix and confirm, having
        made all reasonable enquiries, that to the best of their knowledge and belief, the facts stated and opinions expressed
        in this Appendix are fair and accurate in all material respects as at the Latest Practicable Date that there are no material
        facts the omission of which would make any statement in this Appendix misleading.




76   Pan Asian Water Solutions Limited
     Annual Report 2005
PAN ASIAN WATER SOLUTIONS LIMITED
Registration No: 197902790N
(Incorporated in Singapore)

Notice of Annual General Meeting
NOTICE IS HEREBY GIVEN that the Annual General Meeting of the shareholders of the Company will be held at 18 Cross Street
8th Floor Marsh & McLennan Centre Singapore 048423 on Friday, 21 April 2006 at 5:00 p.m. to transact the following businesses:


ORDINARY BUSINESS:

1.      To receive and consider the Directors’ Report and Audited Accounts for the financial year ended
        31 December 2005 and the Auditors’ Report thereon.                                                          Resolution 1

2.      To declare a final dividend of 0.5 cents per ordinary share net of tax for the financial year ended
        31 December 2005.                                                                                           Resolution 2

3.      To re-elect the following Directors retiring pursuant to the Company’s Articles of Association : -

        (a)     Mr Koh Eddie (Article 107)                                                                          Resolution 3
        (b)     Mr Wong Meng Yeng (Article 107)                                                                     Resolution 4

        [Mr Wong Meng Yeng will, upon re-election as a Director of the Company, remain as a member of the
        Audit Committee and will be considered independent for the purposes of Rule 704(8) of the Listing
        Manual of The Singapore Exchange Securities Trading Limited.]

4.      To approve the payment of Directors’ fees of S$80,000 for the financial year ended 31 December
        2005. [2004: S$40,000]                                                                                      Resolution 5

5.      To re-appoint Messrs RSM Chio Lim as Auditors and to authorise the Directors to fix their
        remuneration.                                                                                               Resolution 6


SPECIAL BUSINESS :

        To consider and, if thought fit, to pass with or without any modifications, the following resolutions as
        Ordinary Resolutions :

6.      Ordinary Resolution : Authority to allot and issue shares up to 50% of the Company’s issued share
        capital

        “That pursuant to Section 161 of the Companies Act, Chapter. 50 and the listing rules of the Singapore
        Exchange Securities Trading Limited, authority be and is hereby given to the Directors to allot and
        issue shares and convertible securities in the Company (whether by way of rights, bonus or otherwise)
        at any time and from time to time thereafter to such persons and on such terms and conditions and for
        such purposes as the Directors may in their absolute discretion deem fit provided always that the
        aggregate number of shares and convertible securities to be issued shall not exceed 50% of the issued
        share capital of the Company, of which the aggregate number of shares and convertible securities to
        be issued other than on a pro rata basis to existing shareholders shall not exceed 20% of the issued
        share capital of the Company (the percentage issued share capital being based on the Company’s
        issued share capital at the time this Resolution is passed after adjusting for new shares arising from
        the conversion or exercise of any convertible securities or share options or vesting of share awards
        which are outstanding at the time this Resolution is passed and any subsequent consolidation or sub-
        division of shares) and unless revoked or varied by the Company in general meeting, such authority
        shall continue in force until the conclusion of the next Annual General Meeting or the expiration of the
        period within which the next Annual General Meeting of the Company is required by law to be held,
        whichever is the earlier.” (See Explanatory Note (i)).                                                   Resolution 7


                                                                                             Pan Asian Water Solutions Limited   77
                                                                                                           Annual Report 2005
Notice of Annual General Meeting (cont’d)
7.        Ordinary Resolution : Renewal of Shareholders’ Mandate for Interested Person Transactions

          “That approval be and is hereby given for the purposes of Chapter 9 of the Listing Manual of the
          Singapore Exchange Securities Trading Limited for the Company, its subsidiaries and target associated
          companies (if any) or any of them to enter into any of the transactions falling within the types of
          Interested Person Transactions, particulars of which are set out in the Appendix to the Annual Report
          to shareholders dated 4 April 2006 (“the Appendix”) with the interested persons described in the
          Appendix, provided that such transactions are transacted on normal commercial terms and will not be
          prejudicial to the interests of the Company and the minority shareholders of the Company and in
          accordance with the guidelines and procedures for Interested Person Transactions as set out in the
          Appendix and that such approval (the “Shareholders’ Mandate”) shall, unless revoked or varied by the
          Company in general meeting, continue in force until the conclusion of the next Annual General Meeting
          of the Company; and the Directors of the Company be and are hereby authorised to complete and do
          all such acts and things (including executing all such documents as may be required) as they may
          consider expedient or necessary to give effect to the Shareholders’ Mandate.” (See Explanatory
          Note (ii)).                                                                                           Resolution 8

8.        To transact any other business which may be properly transacted at an Annual General Meeting.


Explanatory Notes:

(i)       Resolution 7 if passed, will empower the Directors from the date of the above Meeting until the date of
          the next Annual General Meeting, to allot and issue shares and convertible securities in the Company.
          The number of shares and convertible securities which the directors may allot and issue under this
          Resolution would not exceed 50 per cent of the issued share capital of the Company at the time this
          Resolution is passed. For allotment and issue of shares and convertible securities other than on a
          pro-rata basis to all shareholders, the aggregate number of shares and convertible securities to be
          allotted and issued shall not exceed 20 per cent of the total issued share capital of the Company at the
          time this Resolution is passed.

(ii)      Resolution 8 is to renew the Shareholders’ Mandate for transactions with interested persons and will
          empower the Directors of the Company from the date of the above meeting until the date of the next
          Annual General Meeting to do all acts necessary to give effect to the Resolution. This authority will
          continue in force until the next Annual General Meeting of the Company, unless previously revoked or
          varied at a general meeting.




78     Pan Asian Water Solutions Limited
       Annual Report 2005
Notice of Annual General Meeting (cont’d)
NOTICE OF BOOKS CLOSURE

NOTICE IS HEREBY GIVEN that the Share Transfer Books and Register of Members of the Company will be closed on 15 May
2006, for the purpose of determining members’ entitlements to the final dividend to be proposed at the Annual General
Meeting of the Company to be held on 21 April 2006.

Duly completed registrable transfers in respect of the shares in the Company received up to the close of business at 5:00 p.m.
on 11 May 2006 by the Company’s Share Registrar, Lim Associates (Pte) Ltd, 10 Collyer Quay #19-08 Ocean Building Singapore
049315 will be registered to determine members’ entitlements to final dividend. Members whose Securities Accounts with The
Central Depository (Pte) Ltd are credited with shares in the Company as at 5:00 p.m. on 11 May 2006 will be entitled to such
proposed final dividend.

The proposed final dividend, if approved at the Annual General Meeting will be paid on 30 May 2006.


BY ORDER OF THE BOARD




Low Mei Mei Maureen
Company Secretary

Singapore : 4 April 2006


Proxies :

1.      A member of the Company is entitled to attend and vote at the above Meeting and may appoint not more than two
        proxies to attend and vote instead of him.

2.      Where a member appoints two proxies, he shall specify the proportion of this shareholding to be represented by each
        proxy in the instrument appointing the proxies. A proxy need not be a member of the Company.

3.      If the member is a corporation, the instrument appointing the proxy must be under seal of the hand of an officer or
        attorney duly authorised.

4.      The instrument appointing a proxy must be deposited at the Registered Officer of the Company at 16 Jalan Besut
        Singapore 619569 not less than 48 hours before the time appointed for holding the above Meeting.




                                                                                           Pan Asian Water Solutions Limited   79
                                                                                                         Annual Report 2005
                                         This page has been intentionally left blank.




80   Pan Asian Water Solutions Limited
     Annual Report 2005
    PAN ASIAN WATER SOLUTIONS LIMITED                                           IMPORTANT

    Registration No: 197902790N                                                 1. For investors who have used their CPF monies to buy the Company’s
                                                                                   shares, this Annual Report is forwarded to them at the request of their
    (Incorporated in Singapore)                                                    CPF Approved Nominees and is sent solely FOR INFORMATION ONLY.

                                                                                2. This Proxy Form is not valid for use by CPF investors and shall be

    Proxy Form                                                                     ineffective for all intents and purposes if used or purported to be used
                                                                                   by them.



    I/We

    of

    being a member/members of Pan Asian Water Solutions Limited (the “Company”) hereby appoint

               Name                                         Address                       NRIC/Passport                        Proportion of
                                                                                             Number                            Shareholdings




    and/or (delete as appropriate)

               Name                                         Address                       NRIC/Passport                        Proportion of
                                                                                             Number                            Shareholdings




    as my/our proxy/proxies to attend and to vote for me/us on my/our behalf and, if necessary, to demand a poll at the Annual
    General Meeting of the Company to be held at 18 Cross Street, 8th Floor, Marsh & McLennan Centre, Singapore 048423 on
    Friday, 21 April 2006 at 5.00 p.m. and at any adjournment thereof.

    (Please indicate with an “X” in the spaces provided whether you wish your vote(s) to be cast for or against the resolutions as
    set out in the notice of Annual General Meeting. In the absence of specific directions, the proxy/proxies will vote or abstain as
    he/they may think fit, as he/they will on any other matter arising at the Annual General Meeting.)

         No.   Resolutions                                                                                                        For         Against
         1     To receive and consider Directors’ and Auditors’ Reports and Audited Accounts
         2     To approve the payment of a final dividend
         3     To re-elect Mr Koh Eddie as director
         4     To re-elect Mr Wong Meng Yeng as director
         5     To approve directors’ fees for the year ended 31 December 2005
         6     To re-appoint Auditors and authorise the directors to fix their remuneration
               SPECIAL BUSINESS
         7     To authorise the directors to allot and issue shares
         8     To renew Shareholders’ Mandate for transactions with interested persons of the Company



    Dated this               day of              2006                                                   Total Number of Shares Held
✁




    Signature(s) of member(s) or common seal


    IMPORTANT: PLEASE READ NOTES OVERLEAF                                                                Pan Asian Water Solutions Limited                81
                                                                                                                       Annual Report 2005
Proxy Form
NOTES :

1.        Please insert the total number of shares held by you. If you have shares entered against your name in the Depository
          Register (as defined in Section 130A of the Companies Act, Chapter 50), you should insert that number of shares. If
          you have shares registered in your name in the Register of Members, you should insert that number of shares. If you
          have shares entered against your name in the Depository Register and shares registered in your name in the Register
          of Members, you should insert the aggregate number of shares. If no number is inserted, this form of proxy will be
          deemed to relate to all the shares held by you.

2.        A member of the Company entitled to attend and vote at a meeting of the Company is entitled to appoint not more than
          two proxies to attend and vote on his behalf. A proxy need not be a member of the Company.

3.        Where a member appoints more than one proxy, he shall specify the proportion of his shareholding to be represented
          by each proxy.

4.        The instrument appointing a proxy or proxies must be under the hand of the appointor or his attorney duly authorised
          in writing. Where the instrument appointing a proxy or proxies is executed by a corporation, it must be executed either
          under its common seal or under the hand of its attorney or duly authorised officer.

5.        A corporation which is a member of the Company may authorise by resolution of its directors or other governing body
          such person as it thinks fit to act as its representative at the Annual General Meeting, in accordance with its Articles of
          Association and Section 179 of the Companies Act, Chapter 50.

6.        The instrument appointing a proxy or proxies, together with the power of attorney or other authority (if any) under
          which it is signed, or notarially certified copy thereof, must be deposited at the registered office of the Company at 16
          Jalan Besut Singapore 619569 not later than 48 hours before the time set for the Annual General Meeting.

7.        The Company shall be entitled to reject the instrument appointing a proxy or proxies if it is incomplete, improperly
          completed or illegible or where the true intentions of the appointor are not ascertainable from the instructions of the
          appointor specified in the instrument appointing a proxy or proxies. In addition, in the case of members of the Company
          whose shares are entered against their names in the Depository Register, the Company may reject any instrument
          appointing a proxy or proxies lodged if such members are not shown to have shares entered against their names in the
          Depository Register at 48 hours before the time appointed for holding the Annual General Meeting as certified by The
          Central Depository (Pte) Limited to the Company.




82   Pan Asian Water Solutions Limited
     Annual Report 2005
Corporate Information
Board of Directors:                      Registered Office and Business Address:
Koh Tiam Teng (Managing Director and     16, Jalan Besut
Chief Executive Officer)                 Singapore 619569
Koh Eddie (Executive Director)
Lim Ho Seng (Independent Director)
Wong Meng Yeng (Independent Director)    Company Registration Number:
Ang Miah Khiang (Independent Director)   197902790N


Nominating Committee:                    Share Registrar:
Ang Miah Khiang (Chairman)               Lim Associates (Pte) Ltd.
Lim Ho Seng                              10 Collyer Quay # 19-08
Koh Tiam Teng                            Ocean Building
                                         Singapore 049315

Remuneration Committee:
Wong Meng Yeng (Chairman)                Auditors:
Ang Miah Khiang                          RSM Chio Lim
Koh Tiam Teng                            Certified Public Accountants
                                         (Member, RSM International)
                                         18 Cross Street # 09-01
Audit Committee:                         Marsh & McLennan Centre
Lim Ho Seng (Chairman)                   Singapore 048423
Ang Miah Khiang
Wong Meng Yeng
                                         Principal Banker:
                                         The Hong Kong and Shanghai Banking
Company Secretary:                       Corporation Limited
Low Mei Mei Maureen                      21 Collyer Quay # 08-01
ACIS, LLB (Hons) (London)                HSBC Building
                                         Singapore 049320




                                                                     Pan Asian Water Solutions Limited   17
                                                                                   Annual Report 2005
                                         (Company’s Registration No. 197902790N)
                                         16 Jalan Besut
                                         Singapore 619569
                                         Tel: (65) 6268 7227 Fax: (65) 6268 9679 Email: pawater@panasian.com.sg
                                         www.pawater.com.sg

18   Pan Asian Water Solutions Limited
     Annual Report 2005

				
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