IRIS CORPORATION BERHAD - MalaysiaStock.Biz

IRIS CORPORATION BERHAD (302232-X)

IRIS Smart Technology Complex,Technology Park Malaysia, Bukit Jalil,57000 Kuala Lumpur, Malaysia.Tel: +603 - 8996 0788Fax: +603 - 8996 0441

www.iris.com.my

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Contents

Corporate Profi le

Corporate Information

Profi le of the Board of Directors

Chairman’s Statement

Group Financial Summary 2003 – 2007

Corporate Structure

Report of the Audit Committee

Statement on Corporate Governance

Statement on Internal Control

Statement of Directors’ Responsibilities

Financial Statements

Shareholding Statistics

Notice of Annual General Meeting

Proxy Form

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03

05

10

18

19

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25

32

33

34

126

133

139

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Corporate profi le

IRIS Corporation Berhad is a global security end-to-end solutions provider with core expertise in

Electronic Passports and Electronic Identifi cation Cards. Incorporated in 1994, it is the fi rst company

in Asia to set up a fully integrated manufacturing facility for Contact and Contactless Smart Cards,

Contactless Document Inserts and assembled Module in Tapes and Reels.

IRIS pioneered the world’s fi rst Electronic Passport in March 1998 and the Multi-Application National

Identity Card for Malaysia and today, these technologies are deployed in many countries across Asia,

Middle East and African regions. IRIS’s products include a full range of smartcard readers, integrated

terminals, card personalization equipments, biometric scanners and border control systems.

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Corporate Information Board of Directors

Tan Sri Razali Bin Ismail Chairman, Non-Independent Non-Executive

YAM Tunku Dato’ Seri Shahabuddin Bin Tunku Besar Burhanuddin Vice Chairman, Independent Non-Executive

Dato’ Tan Say Jim Managing Director

Executive DirectorsLee Kwee Hiang Yap Hock Eng Eow Kwan Hoong Dato’ Suparadi Md Noor

Independent Non-Executive DirectorsSyed Abdullah Bin Syed Abd Kadir Dato Syed Abdul Rahman Bin Syed Abd Kadir Datuk Kamaruddin Bin Taib

Non-Independent Non-Executive Director Dato’ Noorazman Bin Abd Aziz

Audit Committee

Chairman, Independent Non-Executive YAM Tunku Dato’ Seri Shahabuddin Bin Tunku Besar Burhanuddin

Independent Non-Executive DirectorsSyed Abdullah Bin Syed Abd Kadir Datuk Kamaruddin Bin Taib

Non-Independent Executive DirectorEow Kwan Hoong

Company Secretaries

Eow Kwan Hoong (MIA 3184)Tai Keat Chai (MIA 1688)Chew Weng Kit (MIA 6048)

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Registrar

Epsilon Registration Services Sdn BhdG-01, Ground Floor, Plaza Permata Jalan Kampar, Off Jalan Tun Razak50400 Kuala Lumpur Tel No:- 603 – 4047 3999Fax No:- 603 – 4042 6352

Principal BankersEON Bank BerhadExport-Import Bank of Malaysia BerhadCIMB BankAmBank (M) BerhadRHB Islamic Bank Berhad

AuditorsHals & AssociatesSuite 1602 16th Wisma Lim Foo Yong86 Jalan Raja Chulan50200 Kuala LumpurTel No :- 603 – 2732 0322Fax No:- 603 - 2142 3116

Stock Exchange Listing Mesdaq Market of Bursa Malaysia Securities Berhad (formerly known as Malaysia Securities Exchange Berhad)

Stock Name and Stock Code IRIS (0010)

Registered Offi ceSuite 1603, 16th Wisma Lim Foo Yong86 Jalan Raja Chulan50200 Kuala LumpurTel No :- 603 – 2732 1377Fax No :- 603 - 2732 0338

Place of Incorporation and Domicile Malaysia

Corporate Business Offi ce Iris Smart Technology ComplexTechnology Park MalaysiaBukit Jalil57000 Kuala LumpurTel No :- 603-8996 0788Fax No :- 603-8996 0442

Website www.iris.com.my

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Profi le of the Board of Directors

Tan Sri Razali Bin Ismail (Chairman, Non-Independent Non-Executive), aged 69, was

appointed a director of the Company on 2 May 2002. Razali Ismail retired from government

in 1998 after a career in the Malaysian Diplomatic Service over 35 years. He was last

appointed Malaysia’s Permanent Representative to the United Nations in New York. At the

UN Razali Ismail was involved in developing positions on issues such as development and

sustainability, poverty and marginalisation, reforms in the United Nations, human rights and

the environment. Razali was the UN Secretary-General’s Special Envoy for Myanmar for more

than 5 years (April 2000-December 2005).

In Malaysia Razali Ismail is involved in IT and environmental industries and sits on the

boards of companies including Leader Universal Holdings Berhad, Allianz General Insurance

Malaysia Berhad and Plus Expressway Berhad. Razali is the Pro Chancellor of the University

Science Malaysia, Chairman of the National Peace Volunteer Corp (Yayasan Salam) and the

Malaysian Prime Minister’s Special Envoy to facilitate assistance for natural disaster victims.

He is the President of World Wildlife Fund in Malaysia and advises on a government supported

project on street and displaced children. Razali does not have any family relationship with

any Director and/or major shareholder of IRIS Corporation Berhad, nor any personal interest

in any business arrangement involving the Company. He has had no convictions for any

offences within the past 10 years.

YAM Tunku Dato’ Seri Shahabuddin Bin Tunku Besar Burhanuddin, D.K, S.P.T.J., AO

(Australia) (Vice Chairman, Independent Non-Executive Director), aged 73, was appointed

a director of the Company on 11 February 1998. Tunku was born at the Seri Menanti Palace

in Negeri Sembilan. He was educated at the Malay College, Kuala Kangsar and subsequently

Queens University, Northern Ireland majoring in Bachelor of Science (Economics).

As the Executive Chairman and founder member of Kompakar, a leading technology provider offering scalable integrated solutions. Tunku was instrumental in localizing the company and expanding it to other countries in the Asia Pacifi c region.

Tunku sits on the Board of various companies and is a shareholder in many of them including DHL Worldwide Express (M) Sdn Bhd, Jotun (M) Sdn Bhd, Totalisator Board of Malaysia, Selangor Turf Club and the Malaysia Australia Business Council (MABC). Tunku recently retired as Chairman of MABC after heading the council for the past 19 years.

Amongst the accolades bestowed on Tunku were the Austrade International Award 2000 Australian Export Awards for outstanding contribution to Australia’s international trading

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performance by a foreign individual based outside of Australia, the “Darjah Seri Paduka

Tuanku Ja’afar Yang Amat Terpuji (S.P.T.J.)” by his Royal Highness The Yang Di-Pertuan Besar

Negeri Sembilan and the appointment as an Honorary Offi cer (AO) in the General Division of

the Order of Australia award for his service to Australian-Malaysian relations by the Governor-

General of the Commonwealth of Australia.

Tunku Dato’ Seri Shahabuddin is married and has four children. His hobbies are horse racing

and golf. Tunku has no convictions for any offences within the past 10 years.

Dato’ Tan Say Jim (Managing Director), aged 51, is co-founder of ICB was appointed a

Director of the Company on 30 June 1996. He is responsible for the overall management and

fi nancial matters of ICB Group. He started his career with UMW Holdings Berhad, a company

listed on the KLSE, for six years where his last position was Group Finance Manager. In 1986,

he joined The Lion Group as the Group Treasurer and left the Group in December 1997. Dato’

Tan has no convictions for any offences within the past 10 years.

Lee Kwee Hiang (Executive Director), aged 60, a co-founder of ICB was appointed a Director

of the Company on 31 May 1994. He is responsible in heading the Research and Development

(R&D) and Manufacturing in the Company.

In 1969, Mr. Lee began his professional career in computer and electronics with the Royal

Malaysian Air Force and later joined DE Electronic & Computer Sdn Bhd as its Managing

Director in 1974, where he was responsible for the development and designing of various

unique systems. He left the company in 1984 and started Microcomputer Systems (M) Sdn Bhd

(“MSSB”) in 1985. MSSB obtained the fi rst computer manufacturing license with pioneer status

and launched its fi rst Malaysian designed PC in 1987. In 1989, its Microsystem 386sx computer

was awarded “PIKOM PRODUCT OF THE YEAR”. He was a member of the R&D committee which

designed and produced the ATOM 1 for the Malaysian Ministry of Education. The fi rst batch

of ATOM 1 was subsequently installed in 60 pilot schools throughout the country under the

Computer in Education programme. In 1993, the Lion Group started LIKOM Corporation and

MSSB was merged into this operation. He remained as their Executive Director until 1994

after which he set up his own consultancy business named Power Metric Consultant Sdn

Bhd, where he remains a director until present. In appreciation for his contributions to the

IT industry, he was awarded the “PIKOM – Computime IT Personality of the Year” in 1991 and

in October 2006, he was honoured with the “PIKOM Key Industry Leader Award”. He has no

convictions for any offences within the past 10 years.

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Yap Hock Eng (Executive Director), aged 63, a co-founder of ICB was appointed a Director

of the Company on 5 January 1995. He is responsible for technical and technology matters.

In 1984 and 1985, he established Peripherals Connection (UK) Ltd and Supply Technology

(UK) Ltd respectively, both of which are involved in the import and trading of personal

computers based system components. In 1991, he started MCS Microsystems, Ltd. in UK. In

1992, he refocused the strategy of supply technology, targeting the global security markets,

by designing and developing a unique form of identifi cation technology for sophisticated

security applications. The solution has become what is known today as the I.R.I.S. He has no

convictions for any offences within the past 10 years.

Eow Kwan Hoong (Executive Director), aged 55, was appointed as director of the Company

on 2 May 2002. He joined ICB as the Chief Operating Offi cer in April 1998. He is a fellow

member of the Chartered Institute of Management Accountants (CIMA) as well as a member

of the Malaysian Institute of Accountants (MIA). He started his career in 1979 as the Cost

Accountant with Intel Technology Sdn Bhd. In February 1980, he joined Socoil Corporation

Sdn Bhd, a palm oil refi nery, as the Factory Accountant. Subsequently in February 1982, he

joined the Lion Group as an Accounts Manager. After serving the Group for seventeen years

and holding the post of Group Chief Accountant, he left in April 1998 to join ICB. Currently

he is the President of the CIMA Malaysia Division and a Council member of the MIA. He holds

directorships in Versatile Creative Berhad, Silverstone Corporation Berhad, and Delloyd

Ventures Berhad. In addition, he sits on the Boards of several Malaysian private limited

companies. He has no convictions for any offences within the past 10 years.

Dato’ Suparadi Md.Noor (Executive Director), aged 49, was appointed as director of the

Company on 10 Dec 2004. He is also a Director of Versatile Creative Berhad .

He holds a Bachelor of Economics ( Hons.) from the University of Malaya in 1983 . Dato

started his career as Assistant Accountant with Bank Bumiputra (M) Berhad in 1983 then as

an Entrepreneur Development Offi cer and then Special Assistant to Executive Chairman in

1985. In 1988, he became a Dealer Representative in BBMB Securities Sdn Bhd. Subsequently,

he became a remisier in SJ Securities Sdn Bhd in 1990. He was the Chairman of National

Sports Complex, Bukit Jalil for the period 2000-2003.

Dato’ Suparadi was actively involved in voluntary bodies, being the advisor for Tanah Merah

Entrepreneur Club as well as the Charity and Sports Club. He has no convictions for any

offences within the past 10 years.

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Syed Abdullah Bin Syed Abd Kadir (Independent Non-Executive Director), aged 54,

graduated with a double degree in Bachelor of Science (Engineering Production) and Bachelor

of Commerce (Economics) from the University of Birmingham, United Kingdom in 1977. Prior

to his appointment, on the ICB board on 7 May 1998 he acquired extensive experience in the

banking and fi nancial services, having worked in a commercial bank, a merchant bank and

a public listed company with subsidiaries involved in, among others, discount house, money

broking, unit trust, fi nance company and funds management operations. Presently, Tuan

Syed Abdullah is Group Executive Director of YTL Corporation Berhad and also a Director of

YTL Power International Berhad, YTL E-Solutions Berhad, Versatile Creative Berhad and Stenta

Films (M) Sdn Bhd. He is also an alternate trustee in the Perdana Leadership Foundation.

Tuan Syed has no convictions for any offences within the past 10 years.

Dato’ Syed Abdul Rahman Bin Syed Abdul Kadir, (Independent Non-Executive Director),

aged 61, was appointed a director of the Company on 27 January 2003. He holds a Masters

Degree in Public Administration from University Malaya, B.A. (Hons) University of Science,

Malaysia and a Diploma in Public Administration from University of Malaya.

He joined the Royal Malaysian Police Force in 1969 as a Probationary Inspector and rose to

the rank of Deputy Commissioner of Police in 1997. He had served as Chief Police Offi cer

(CPO) in Pahang, Sarawak, Perak and Kuala Lumpur till he retired on 26th October 2002 after

33 years of loyal service.

He has gained extensive experience and exposure in the fi eld of Police Paramilitary

training relating to Federal Reserved Unit and Police Field Force, criminal investigation,

drug prevention, crime prevention techniques, special branch administration relating to

protective security. Between 1987 and 1996 he represented Malaysian Police in local and

international conferences.

He has attended several management courses and was thoroughly exposed in corporate

management of private sector through British Malaysian Industry Trade Association (BMITA)

program.

In appreciation for his services to the nation and society, Dato’ Syed Abdul Rahman has been

conferred with various awards and accolades by the State and Federal Governments. Dato’

Syed has no convictions for any offences within the past 10 years.

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Datuk Kamaruddin bin Taib (Independent Non-Executive Director) aged 51, was

appointed as director on 6 November 2003. He holds a Bachelor of Science Degree in

Mathematics from the University of Salford (U.K.). His fi rst job was with a leading Merchant

Bank in Malaysia. Subsequently, he served as a Director of several private Companies and

Companies listed on Bursa Malaysia.

Apart from the experience of serving on the Board of Companies Listed on Bursa Malaysia, his

experience also included serving on the Board of Companies listed on the Stock Exchange of

India as well as listed on the Nasdaq (U.S.A.).

Currently, he is also a shareholder and Director of several private Companies, as well as a

Director of Malaysian Pacifi c Corporation Berhad, a Company listed on Bursa Malaysia.

His main areas of business and interest are managing his personal portfolio of investments.

He has no convictions for any offences within the past 10 years.

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Chairman’s statement

On behalf of the Board of Directors, I am pleased to present to the shareholders the Annual Report and Financial Statements of IRIS CORPORATION BERHAD (“IRIS”) for the fi nancial year ended 31 December 2007.

Review of Operations

IRIS started the year with excitement; commencing with the collaboration with IBM USA (IBM), the launching of IRIS’s new corporate logo and the classifi cation of IRIS’s activities into four business groupings namely;

(i)

(ii)

(iii)

(iv)

Digital Identity and Business Solutions were the main contributors to Revenue and Profi t for the year. Our Farming and Environmental Solutions are at its infancy and will require much nurturing prior to achieving the expected results.

The waste management and power generation project secured by the Environmental Solutions sector in Thailand is expected to power up during the latter part of the year. Upon completion this project represents yet another milestone for IRIS.

Digital Identity Solutions – encompassing National Security Solutions such as Electronic Passport and Electronic Identifi cation Systems.

Business Solutions – encompassing Conference Systems, Radio Frequency Identifi cation System and Smart Security such as automated electronic ticketing and fare collection, payment cards and loyalty management cards.

Farming Solutions – encompassing the Automatic Pot Growing System, an effi cient and environmentally friendly “Fertigation” system and

Environmental Solutions – encompassing Desalination, Waste Management and Power Generation.

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On 5 September 2007, IRIS entered into an agreement with the Government of the Republic of Senegal for the Build-Own-Transfer (BOT) implementation of an electronic passport system. This project worth Euro180,000,000 to IRIS over a twenty year period is the fi rst BOT project for IRIS.

In line with our plan to generate more overseas revenue, I am happy to report that for 2007, overseas revenue accounted for RM93.8 million or 43% of total revenue. This compares with 37% for 2006 and 30% for 2005. Overseas revenue stems from Turkey, Nigeria, Thailand and the Bahamas.

On 21 December 2007, TL Technology Research (Aust) Pty Limited (TLTR[A]), a wholly owned subsidiary of IRIS was placed into voluntary liquidation. TLTR[A] had suffered losses from its investing activities and had been dormant. The negative net book value of TLTR[A] had been provided for in the accounts of IRIS for the fi nancial year ended 31 December 2004.

The “Fit-Up” of IRIS Corporation North America (ICNA) manufacturing facility within IBM’s plant in Burlington, Vermont, United States of America has been completed and is in readiness for the installation of machineries. If all goes well, we expect the plant to be operational by the fourth quarter of 2008. IRIS though a relatively young company have spread its wings internationally and have also diversifi ed into different business segments. To strengthen and augment IRIS’s operations, we have recruited on board Ronald Saade as Chief Operating Offi cer (COO). Ronald was our Regional Sales Director for the Middle East.

Corporate Developments

Corporate developments undertaken/proposed in 2007 were as follows;

1.

2.

3.

On 25 June 2007, IRIS announced that it has acquired 300,000 ordinary shares of RM1.00 each in Paysys (M) Sdn Bhd (Paysys) representing 30% of the issued and paid-up share capital of Paysys for a total cash consideration of RM810,000. Paysys has an established position in the Electronic Draft Capture sector within the fi nance and banking industry.

On 11 July 2007, IRIS announced that its wholly owned subsidiary IRIS Technologies (M) Sdn Bhd (IRT) accepted a Conditional Letter of Offer issued by Mapletree Industrial Fund Management Pte Ltd (Mapletree) for the proposed disposal and leaseback of the Group’s Corporate offi ces at Technology Park Malaysia comprising of two plots of leasehold land and a four and a half storey offi ce and manufacturing building for a consideration of RM91.5 million. Both IRT and Mapletree have mutually agreed to extend the period to negotiate on the terms of the defi nitive Sale and Purchase Agreement to 5 May 2008.

On 21 September 2007, IRIS successfully completed its proposed private placement of up to 10% of the issued and paid-up share capital of IRIS. A total of 124,000,000 new IRIS shares were issued at an issue price of RM0.22 per share. These new shares have been listed on the MESDAQ Market of Bursa Malaysia Securities Berhad.

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4.

5.

Financial Results

For the fi nancial year ended 31 December 2007, IRIS Group recorded a turnover of RM219.5 million, which is 6.5% lower when compared with the previous fi nancial year. The decrease in revenue was mainly due to a reduced order for e-passport substrates for Malaysia. Despite the decreased revenue, the group recorded higher profi t after taxation and exceptional items of RM7.53 million in the fi nancial year ended 31 December 2007, compared to the RM4.76 million profi t after taxation and exceptional items recorded in last year’s corresponding period. The increase was mainly attributable to better margins from overseas e-passport projects.

Revenue and profi t contribution is attributable from the group’s core business of digital identity and business solutions. The group have yet to reap the rewards from its investment in the farming and environmental solutions.

The Group’s associated companies recorded an overall loss of (RM45,829) for 2007.

Gearing ratio for the group improved to 0.74 compared to 1.01 for year ended 31 December 2006.

Shareholders’ funds stood at RM267.2 million compared to RM229.9 million for year ended 31 December 2006 an increase of 16.2%.

Dividend

The Board does not recommend the payment of dividends for the fi nancial year ended 31 December 2007.

Looking forward to 2008

The market for Digital Identity Solutions globally is very competitive and will continue to be. To win contracts, we will introduce more BOT packages for selected countries. For 2008, IRIS Group expects equal revenue contribution from its domestic and overseas sales. Both domestic and overseas revenue will primarily be contributed from the Group’s Digital Identity Solutions.

On 1 October 2007, IRIS Research and Development Hardware division were divested from the Group.

Capillary Agrotech (M) Sdn Bhd, a wholly owned subsidiary of IRIS has received an approval-in-principle from the Selangor Agriculture Development Corporation to lease 50 acres located at Mukim Tanjung Dua Belas Daerah Kuala Langat, Selangor for the purpose of carrying out farming activities utilizing modern farming techniques.

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On 19 February 2008, IRIS announced a proposed private placement of up to 155,431,281 new ordinary shares of RM0.15 each in IRIS representing not more than ten percent (10%) of the issued and paid-up share capital of the company. The proceeds of the exercise will be utilized for the repayment of principal to bondholders.

The Directors expect that barring unforeseen circumstances, the operating performance of IRIS Group for 2008 to be satisfactory.

Appreciation

On behalf of the Board of Directors, I would like to take this opportunity to thank the management and staff for their dedicated service and loyalty towards the Group throughout the year. My sincere appreciation also goes to our shareholders, customers, and business associates, fi nanciers and the government authorities for their continued confi dence, guidance and support.

I wish to take this opportunity to welcome Dato’ Noorazman Bin Abd Aziz on his appointment to the Board of ICB. Dato’ Noorazman brings with him a wealth of experience from the fi nancial services sector.

Finally, I would like to extend my gratitude to my fellow Directors for their invaluable dedication and support towards the Group.

Tan Sri Razali Bin IsmailChairman

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Dato’ Tan demostrating the user frendliness of a Kiosk to Prime Minister Datuk Sri Abdullah Ahmad Badawi at the Putrajaya Convention Centre.

Dato’ Tan explaining The Autopot Fertigation System to The Jordanian Ministry of Interior.

15

Dato’ Tan and Tony Lee (right) welcoming The Republic of Senegal Minister of Interior to IRIS.

Our social responsibility-Incinerating fl ood waste in Bukit Bakri.

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Wet scrubber and chimney under construction.

General view of the plant and offi ce.

Construction of a waste management and power generation plant in Bangkok, Thailand.

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View of generator, steam turbine and condenser.

Work on steam boiler in progress.k b l

Construction of a waste management and power generation plant in Bangkok, Thailand. (continued)

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GROUP FINANCIAL SUMMARY 2003 – 2007

Description 2007 2006 2005 2004 2003

RM’000 RM’000 RM’000 RM’000 RM’000

Revenue

219,529

234,881

299,782

222,562

162,529

Profi t / (Loss) before taxation

5,516

6,693 7,235

(10,978)

9,433

Profi t / (Loss) after taxation 7,528

4,768 7,386

(10,978)

9,388

Share capital

216,416

196,886

137,101

125,101

125,000

Reserves

50,799

33,044

27,098

19,451

21,146

Shareholders’ equity

267,215

229,930

164,198

144,552

146,146

Current liabilities

119,580

139,239

141,992

113,809

69,275

Long term liabilities

10,368

16,615

10,841 2,712

1,481

Deferred tax liabilities 5,356

7,544

5,666

5,788 -

Long term borrowings

125,000

150,000

165,000

180,000 195,000

527,519

543,328

487,698

446,862

411,903

Property, plant & machinery

126,488

109,506

105,934

93,690

67,168

Intangible assets

160,073

161,920

155,788

162,749

170,687

Investments & long term receivables

6,637

7,722

1,681 731

21,245

Current assets

234,321

264,180

224,295

189,692

152,803

Total assets

527,519

543,328

487,698

446,862

411,903

19

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20

Report of the Audit Committee

Membership

The present members of the Audit Committee (the “Committee”) comprise of:

Chairman, Independent Non-Executive Director

YAM Tunku Dato’ Seri Shahabuddin Bin Tunku Besar Burhanuddin

Independent Non-Executive Directors

Syed Abdullah Bin Syed Abd Kadir

Datuk Kamaruddin Bin Taib

Non-Independent Executive Director

Eow Kwan Hoong

Terms of reference

The Committee was established with the terms of reference as stated in the following

pages.

Meetings

The Committee convened four (4) meetings, during the fi nancial year. The meetings were

appropriately structured through the use of agendas, which were distributed to members

with suffi cient notifi cation. The meetings were minuted accordingly.

Meetings attended (out of 4)

YAM Tunku Dato’ Seri Shahabuddin

bin Tunku Besar Burhanuddin 4/4

Syed Abdullah bin Syed Abd Kadir 3/4

Datuk Kamaruddin bin Taib 3/4

Eow Kwan Hoong 4/4 4/4

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Summary of activities during the fi nancial year

The Committee carried out its duties in accordance with its terms of reference during the

year.

The main activities undertaken by the Committee were as follows:

• Reviewed internal audit plan for the fi nancial year which includes review of

operational compliance with established control procedures, risk assessment and

reliability of fi nancial records.

• Received and reviewed of internal audit reports.

• Reviewed the external auditors’ scope of work and audit plans for the year.

• Reviewed with the external auditors the results of the audit, the audit report and

the management letter, including management’s response.

• Consideration and recommendation to the Board for approval of audit fees payable

to the external auditors.

• Reviewed the independence and objectivity of the external auditors and the

services provided including non-audit services.

• Reviewed the annual report and the audited fi nancial statements of the Company

prior to submission to the Board for their consideration and approval. The review

was to ensure that the audited fi nancial statements were drawn up in accordance

with the provisions of the Companies Act 1965 and the applicable approved

accounting standards approved by the MASB.

• Reviewed the quarterly unaudited fi nancial results announcement before

recommending them for the Board’s approval.

• In respect of the quarterly and year end fi nancial statements, reviewed the

Company’s compliance with the Listing Requirements of Bursa Malaysia Securities

Berhad for the Mesdaq market, FRS and other relevant legal and regulatory

requirements.• Reviewed the related party transactions entered into by the Group.• Reviewed the extent of the Group’s compliance with the provisions set out under the Malaysian Code on Corporate Governance for the purpose of preparing the Corporate Governance Statement. • Reviewed that the allocation of options offered by the Company to eligible employees of the group complies with the Bye-Laws of the Employees’ Share Option Scheme.

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Terms of referenceObjectives

The primary function of the Audit Committee is to assist the Board of Directors in fulfi lling the following oversight objectives on the Group activities:

• Assess the Group’s processes relating to its risks and control environment;• Oversee fi nancial reporting; and• Evaluate the internal and external audit processes.

Composition

The Board shall elect and appoint Committee members from amongst their numbers, comprising no fewer than four (4) Directors, the majority of whom shall be independent non-executive Directors of the Company.

The Board shall at all times ensure that at least one (1) member of the Committee shall be a member of the Malaysian Institute of Accountants (MIA).

If a member of the Committee resigns, dies or for any reason ceases to be a member with the

result that the number of members is reduced below four (4), the Board shall within three

(3) months of the event appoint such number of new members as may be required to fi ll the

vacancy.

The Chairman of the Committee shall be an independent non-executive Director. No

alternate Director of the Board shall be appointed as a member of the Committee.

The Board shall review the terms of offi ce of each of its members at least once (1) every three

(3) years.

Quorum and Committee’s procedures

Meetings shall be conducted at least four (4) times annually, or more frequently as

circumstances dictate.

In order to form a quorum for the meeting, the majority of the members present must be

independent non-executive Directors. In the absence of the Chairman, the members present

shall elect a Chairman for the meeting from amongst the members present.

The Company Secretary shall be appointed Secretary of the Committee. The Secretary, in

conjunction with the Chairman, shall raw up an agenda, which shall be circulated together

with the relevant support papers, at least one (1) week prior to each meeting to the members

of the Committee. The minutes shall be circulated to members of the Board.

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The Committee may, as and when deemed necessary, invite other Board members and senior

management members to attend the meetings.

The Chairman shall submit an annual report to the Board summarising the Committee’s

activities during the year and the related signifi cant results and fi ndings.

Authority

The Committee is authorised to seek any information it requires from the employees, who are required to cooperate with any request made by the Committee.

The Committee shall have full and unlimited access to any information pertaining to the Group.

The Committee shall have direct communication channels with the internal and external auditors and with senior management of the Group and shall be able to convene meeting with the external auditors whenever it considers necessary.

Responsibilities and duties

In fulfi lling its primary objectives, the Committee shall undertake the following responsibilities and duties:

• Review with the external auditor, the audit scope and plan, including any changes to the planned scope of the audit plan.

• Review the adequacy of the internal audit scope and plan, functions and resources of the internal audit function and that it has necessary authority to carry out his work.

• Review the external and internal audit reports to ensure that appropriate and prompt remedial action is taken by management on major defi ciencies in controls or procedures that are identifi ed.

• Review major audit fi ndings and the management’s response during the year with management, external auditors and internal auditors, including the status of previous audit recommendations.

• Review the assistance given by the Group’s offi cers to the auditors, and any diffi culties encountered in the course of the audit work, including any restrictions on the scope of activities or access to required information.

• Review the independence and objectivity of the external auditors and their services, including non-audit services and the professional fees, so as to ensure a proper balance between objectivity and value for the money.

24

• Review the appointment and performance of external auditors, the audit fee and any questions of resignation or dismissal before making recommendations to the Board.

• Review the quarterly results and the annual fi nancial statements prior to approval by the Board.

• Review the adequacy and effectiveness of risk management, internal control and governance systems.

• Direct and where appropriate supervise any special projects or investigation considered necessary, and review investigation reports on any major defalcations, fraud and theft.

• Review procedures in place to ensure that the Group is in compliance with the Companies Act 1965, Bursa Malaysia Securities Berhad for the Mesdaq Market Listing Requirements and other legislative and reporting requirements.

• Review any related party transaction and confl ict of interest situation that may arise within the Company or the Group, including any transaction, procedure or course of conduct that raises question on management integrity.

• Prepare reports, if the circumstances arise or at least once (1) a year, to the Board summarising the work performed in fulfi lling the Committee’s primary responsibilities.

• Any other activities, as authorised by the Board.

25

Statement on Corporate Governance The Board of Directors appreciates the importance of achieving high standards of corporate governance within the Group.

In this regard, the Board is fully committed to the maintenance of high standards of corporate governance by supporting and implementing the best practices set out in the Malaysian Code on Corporate Governance.

The Board is pleased to provide the following statement, which outlines the main corporate governance practices that were in place throughout the fi nancial year.

Principle Statements

The following statement sets out how the company has applied the principles in Part 1 of the Code.

A. Directors

The Board

The Group recognises the important role played by the Board of Directors in setting out the direction and operations of the Group. To fulfi ll this role, the Board is responsible for the overall corporate governance of the Group, formulation of policies and overseeing and monitoring the investments and business of the Group.

Meetings

The Board meets on a scheduled basis at least four (4) times a year at quarterly intervals with additional meetings convened when necessary. During the fi nancial year, the Board met on four (4) occasions, where it deliberated upon and considered a variety of matters including the Group’s fi nancial results, major investments and strategic decisions and the business plan and directions of the Group.

The Board receives documents on matter requiring its consideration prior to and in advance of each meeting. The Board papers are comprehensive and encompass both quantitative and qualitative factors so that informed decisions are made. All proceedings from the Board meetings are minuted.

26

Details of each Director’s meeting attendance during the Financial year were as follows:

Meetings Attended (out of 4)

Tan Sri Razali Bin Ismail 4/4

YAM Tunku Dato’ Seri Shahabuddin Bin Tunku Besar Burhanuddin

4/4

Dato’ Tan Say Jim 4/4

Lee Kwee Hiang 4/4

Yap Hock Eng 4/4

Eow Kwan Hoong 4/4

Dato’ Mohamad Suparadi Bin Md Noor 1/4

Syed Abdullah bin Syed Abd Kadir 3/4

Dato’ Syed Abdul Rahman Bin Syed Abdul Kadir 4/4

Datuk Kamaruddin bin Taib 3/4

Board Committees

The Board of Directors delegates certain responsibilities to the Board Committees, as follows:

Board Committee Key Functions

Audit Committee To review and report on the Group’s results, accounting and audit

procedures

Nomination Committee To recommend to the Board on all new Board appointments

Remuneration Committee To recommend to the Board the Directors’ remuneration

The Board Committees have been established to assist the Board in the execution of its responsibilities. The Committees do not have executive powers but reports to the Board on all matters considered and their recommendations thereon. The terms of reference of each Committee, have been approved by the Board and, where applicable, comply with the recommendations of the Code.

Board BalanceAs at the date of this statement, the Board consists of ten (10) members comprising four (4) Independent Non-Executive Directors, fi ve (5) Executive Directors and one (1) Non Independent Non-Executive Directors.

The concept of independence adopted by the Board is in tandem with the defi nition of an independent Director in Section 1.01 of the Listing Requirements of Bursa Malaysia Securities Berhad for the Mesdaq Market. The key elements for fulfi lling the criteria are the appointment of Directors who are not members of management (Non-Executive Directors) and who are free of any relationship which could interfere with the exercise of independent judgement or the ability to act in the best interests of the Company.

27

The Executive Directors are responsible for implementing the policies and decisions of the Board, overseeing the operations as well as co-ordinating the development and implementations of business and corporate strategies. The Independent Non-Executive Directors bring to bear objective and independent judgement to the decision making of the Board and provide a capable check and balance for the Executive Directors.

The Board is satisfi ed that the current Board composition fairly refl ects the interests of minority shareholders in the company.

Supply of InformationThe Board recognises that the decision making process is highly contingent on the strength of information furnished. As such, Directors have unrestricted access to any information pertaining to the Company.

The Chairman plays a key role in ensuring that all Directors have full and timely access to information with Board papers circulated in advance of the Board meetings. This ensures that Directors have suffi cient time to appreciate issues deliberated at the Board meeting and expedites the decision making process. A comprehensive balance of fi nancial and non-fi nancial information is encapsulated in the papers covering strategic, operational, regulatory, marketing and human resources issues.

Every Director has also unhindered access in the advice and services of the Company Secretaries. The Board believes that the current Company Secretaries are capable of carrying out their duties to ensure the effective functioning of the Board.

Detailed periodic briefi ngs on the industry outlook and company performance are also conducted for the Directors to ensure that the Board is well informed on the latest market and industry trends.

Appointments to the Board

Nomination Committee

The Nomination Committee comprised the following members during the year:

YAM Tunku Dato’ Seri Shahabuddin Bin Tunku Besar BurhanuddinChairman, Independent Non-Executive DirectorSyed Abdullah Bin Syed Abd Kadir Independent Non-Executive DirectorEow Kwan Hoong Non Independent Executive Director

The Committee consists Two Independent Non-Executive Directors One Executive Director. The Nomination Committee is empowered by the Board and its terms of reference to bring to the Board recommendations as to the appointment of new Directors. The Nomination Committee also assesses the Board’s effectiveness, its committee and the contribution of each individual Director on an annual basis.

The Committee also keeps under review the Board structure, size and composition.

28

Appointment process

The Board through the Nomination Committee’s annual appraisal believes that the current composition of the Board brings the required mix of skills and core competencies required for the Board to discharge its duties effectively.

The Board appoints its members through a formal and transparent selection process which is consistent with Articles of Association of the Company. This process has been reviewed, approved and adopted by the Board. New appointees will be considered and evaluated by the Nomination Committee. The Committee will then recommend the candidates to be approved and appointed by the Board. The Company Secretary will ensure that all appointments are properly made, and that legal and regulatory obligations are met.

Director’s training

The Board through the Nomination Committee, ensures a structured orientation program for new members of the Board.

The Directors have attended the Mandatory Accreditation Program (MAP) and will also to continue to undergo other relevant training programs to further enhance their skills and knowledge where relevant.

Re-election

The Articles of Association provide that all the Directors shall retire by rotation and be eligible for re-election. A retiring Director is eligible for re-appointment. This provides an opportunity for shareholders to renew their mandates. The election of each Director is voted on separately.

B. Directors’ remuneration

Remuneration Committee

The Remuneration Committee comprised the following members during the year:YAM Tunku Dato’ Seri Shahabuddin Bin Tunku Besar BurhanuddinChairman, Independent Non-Executive DirectorSyed Abdullah Bin Syed Abd Kadir Independent Non-Executive DirectorEow Kwan Hoong Non-Independent Executive Director

The Remuneration Committee is responsible for recommending to the Board the remuneration framework for Directors as well as the remuneration packages of Executive Directors.

The policy practised on Directors’ remuneration by the Remuneration Committee is to provide the remuneration packages necessary to attract, retain and motivate Directors of the quality required to manage the business of the Company and to align the interest of the Directors with those of the shareholders.

29

Details of the Directors’ remuneration

Details of remuneration for the Directors of the Company are as follows:

Fees

RM

Salaries

RM

Benefi ts-in-

kind

RM

Total

RM

Directors

Non-executive 416,000 1,432,635 42,900 1,891,535

Executive 345,800 - - 345,800

Range of Remuneration Executive Non-Executive

RM1 - RM50,000 - 4

RM 150,001 - RM200,000 2 -

RM 250,001 - RM300,000 1 1

RM 350,001 - RM400,000 1 -

RM 400,001 - RM450,000 1 -

RM 550,001 - RM600,000 1 -

C. Shareholders’ Communication The Board acknowledges the need for shareholders to be informed of all material business matters affecting the Group. In addition to the various announcements made, the timely release of fi nancial results on a quarterly basis provides shareholders and the investing public with an overview of the Group’s performance and operations.

In addition, the Board encourages full participation by shareholders at every Annual General Meeting and Extraordinary General Meeting of the Company and opportunity is given to the shareholders to ask questions and sought clarifi cation on the Group’s business activities and fi nancial performance.

30

D. Accountability and Audit

Financial reporting

The Board aims to provide and present a balanced and meaningful assessment of the Group’s fi nancial performance and prospects at the end of the fi nancial year, primarily through the annual fi nancial statements, quarterly and half yearly announcement of results to the shareholders as well as the Chairman’s statement in the annual report. The Board is assisted by the Audit Committee to oversee the Group’s fi nancial reporting processes and the quality of its fi nancial reporting.

Relationship with the Auditors

Key features underlying the relationship of the Audit Committee with the external auditors are included in the Audit Committee’s terms of reference.

A summary he activities of the Audit Committee during the year are set out in the Audit Committee Report.

Compliance statement

The Company has complied throughout the fi nancial year with all the best practices of corporate governance set out in Part 2 of the Code. Given the current composition of the Board which refl ects a strong independent element and the separation of the roles amongst the Executive Directors, the Board does not consider it necessary at this juncture to nominate a Senior Independent Non-Executive Director.

Other information

Material Contracts

There were no material contracts of the Company and its subsidiaries involving Directors and/or major shareholders entered into since the end of the said fi nancial year.

Share Buybacks

There were no share buybacks by the Company.

Options, Warrants or Convertible Securities

Save for the Employee Share Options Scheme and the conversion of the company’s 3% non-cumulative irredeemable convertible preference shares of RM0.15 each and its free detachable warrants, there were no other options, warrants or convertible securities issued by the company during the year.

31

Profi t Guarantees

There were no profi t guarantees given by the Company.

American Depository Receipt (ADR) or Global Depository Receipt (GDR) Programme

The Company did not sponsor any ADR or GDR programme.

32

Statement on Internal Control

The Board is committed to maintaining a sound system of internal control in the Group and is pleased to outline the nature and scope of internal control of the Group during the year.

The Group’s system of internal control includes the establishment of an appropriate control environment and framework as well as reviewing its adequacy and integrity. The system of internal control covers, inter alia, fi nancial, operational and compliance controls and risk management procedures.

Internal Audit FrameworkThe Board fully supports the Internal Audit function and through the Audit Committee, continually reviews the adequacy and effectiveness of the risk management processes in place.

The Group has outsourced its Internal Audit function. Internal audit independently reviews the risk identifi cation procedures and control processes implemented by management, and reports to the Audit Committee. Internal audit also reviews the internal controls in the key activities of the Group’s businesses. The internal audit function adopts a risk-based approach and prepares its audit strategy and plan based on the risk profi les of the various business units of the Group.

Internal audit also undertakes a review of the Company’s compliance with recommended principles and best practices. The results and any corrective action which may be necessary are reported directly to the Audit Committee.

The Audit Committee reviews the risk monitoring and compliance procedures, ensuring that an appropriate mix of techniques is used to obtain the level of assurance required by the Board. The Audit Committee considers reports from internal audit and from management, before reporting and making recommendations to the Board in strengthening the risk management, internal control and governance systems. The committee presents its fi ndings to the Board on a regular basis.

Other risk and control processesApart from risk management and internal audit, the Board has put in place an organisational structure with formally defi ned lines of responsibility. A reporting process has been established which provide for a documented and auditable trail of accountability. These processes were reviewed by internal audit, which provides a degree of assurance as to operations and validity of the systems of internal control.

There were no material losses incurred during the current fi nancial year as a result of weaknesses in internal control.

33

Statement of Directors’ Responsibilities

The Directors are required by law to prepare fi nancial statements for each fi nancial year, which give a true and fair view of the state of affairs of the Group and of the Company at the end of the fi nancial year and of the results and cash fl ows of the Group and of the Company for the fi nancial year then ended.

The Directors consider that, in preparing the fi nancial statements for the fi nancial year ended 31 December 2007, the Group has used appropriate accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent. The Directors also considered that all applicable approved accounting standards have been followed.

The Directors are responsible for ensuring that the Group and the Company keep accounting records which disclose with reasonable accuracy at any time the fi nancial position of the Group and of the Company and which enable them to ensure that the fi nancial statements comply with the provisions of the Companies Act, 1965 and the applicable approved accounting standards in Malaysia.

34

IRIS CORPORATION BERHAD(Incorporated in Malaysia)

AND ITS SUBSIDIARIES

REPORTS AND AUDITED FINANCIALSTATEMENTS FOR THE YEAR ENDED

31ST DECEMBER 2007

CONTENTS

DIRECTORS’ REPORT

CONSOLIDATED BALANCE SHEET

CONSOLIDATED INCOME STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED CASH FLOW STATEMENT

BALANCE SHEET

INCOME STATEMENT

STATEMENT OF CHANGES IN EQUITY

CASH FLOW STATEMENT

NOTES TO THE FINANCIAL STATEMENTS

STATEMENT BY DIRECTORS

STATUTORY DECLARATION

AUDITORS’ REPORT

Page No.

35

42

44

45

46

49

51

52

53

55

123

123

124

35



DIRECTORS’ REPORT

The directors have pleasure in submitting their report and the audited fi nancial statements of the Group and the Company for the fi nancial year ended 31st December 2007.

PRINCIPAL ACTIVITIES

The Company is principally engaged in technology consulting, implementation research and development.

The principal activities of the subsidiaries are disclosed in Note 36 to the fi nancial statements.

There have been no signifi cant changes in the nature of these activities during the fi nancial year.

RESULT OF OPERATIONS

Group Company

RM RM

Profi t/(Loss) for the year after taxation 7,532,838 (18,078,096)

DIVIDEND

No dividend has been paid or declared by the Company since the end of the previous fi nancial year.

The directors do not recommend any dividend in respect of the current fi nancial year.

RESERVES AND PROVISIONS

There were no material transfers to or from reserves or provisions during the fi nancial year except as disclosed in the fi nancial statements.

ISSUE OF SHARES

During the fi nancial year, 6,191,600 units ordinary shares of RM0.15 were issued by the Company under ESOS Scheme for cash at RM0.24 each for the purpose of working capital.

On 21st September 2007, 124,000,000 units ordinary shares of RM0.15 each were issued by the Company in the form of private placement for cash at RM0.22 each for the purpose of working capital.

36

During the fi nancial year, 79,992,451 units of 3% non-cumulative irredeemable convertible preference shares (‘ICPS”) of RM0.15 were converted into ordinary shares of RM0.15/ each. There was no premium payable for conversion of these ICPS into ordinary shares.

During the fi nancial year, 150 unit of warrants were converted into ordinary shares of RM0.15/ each for cash at a premium of RM0.15 payable for each warrant converted into ordinary shares.

EMPLOYEE SHARE OPTION SCHEME

The Company initiated an Employee Share Option Scheme (“ESOS”) on 16th February 2004. The ESOS is gov-erned by the by-laws which were approved by the shareholders on 28th January 2004. The main features of the ESOS are disclosed in Note 25 to the fi nancial statements.

As at 31st December 2007, 28,460,100 units of shares under ESOS have been subscribed and 54,873,253 share options were outstanding under the scheme.

NON-CUMULATIVE IRREDEEMABLE CONVERTIBLE PREFERENCE SHARES

On 27th June 2006, the Company issued 368,343,533 units of 3% non-cumulative irredeemable convertible preference shares (“ICPS”) at RM0.15 each. The main features of the ICPS are disclosed in Note 25 to the fi nan-cial statements.

WARRANTS

On 24th April 2006, the Company executed a deed poll (“Deed Poll”) pertaining to creation and issuance of 55,251,530 2006/2016 warrants on the basis of three (3) warrant for every fi fty (50) existing ordinary shares held in the Company. The warrants were listed on Malaysian Exchange of Securities Dealings and Automated Quotation Berhad (“MESDAQ). The main features of the 2006/2016 warrants are disclosed in Note 25 to the fi nancial statements.

On 27th June 2006, the Company issued 55,251,530 units of free detachable warrants to the shareholders of the Company on the basis of twenty (20) ICPS and three (3) free warrants for every fi fty (50) existing ordinary shares of RM0.15 each held in the Company.

As of the end of the fi nancial year, 46,617,589 warrants remained unexercised.

37

OTHER FINANCIAL INFORMATION

Before the income statements and balance sheets of the Group and the Company were made out, the directors took reasonable steps:

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

(b) to ensure that any current assets which were unlikely to realise their book values in the ordinary course of business have been written down to their estimated realisable values.

At the date of this report, the directors are not aware of any circumstances:

(a) which would render the amount written off for bad debts or the amount of allowance for doubtful debts in the fi nancial statements of the Group and the Company inadequate to any substantial extent; or

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

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

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

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

(a) any charge on the assets of the Group and the Company which has arisen since the end of the fi nancial year which secures the liability of any other person; or

(b) any contingent liability in respect of the Group and the Company which has arisen since the end of the fi nancial year.

No contingent liability or other liability has become enforceable or is likely to become enforceable within the period of twelve months after the end of the fi nancial year which, in the opinion of the directors, will or may substantially affect the ability of the Group and the Company to meet their obligations as and when they fall due.

In the opinion of the directors:

(a) the results of the Group’s and the Company’s operations during the fi nancial year were not substan-tially affected by any item, transaction or event of a material and unusual nature; and

(b) there has not arisen in the interval between the end of the fi nancial year and the date of this report any item, transaction or event of a material and unusual nature likely to affect sub-stantially the results of the operations of the Group and the Company for the fi nancial year in which this report is made.

38

DIRECTORS

The directors who have held offi ce since the date of the last report are:-

Lee Kwee HiangYAM Tunku Dato’ Seri Shahabuddin Bin Tunku Besar BurhanuddinYap Hock EngSyed Abdullah Bin Syed Abd KadirDato’ Tan Say JimTan Sri Razali Bin IsmailEow Kwan HoongDato’ Syed Abdul Rahman Bin Syed Abdul Kadir Datuk Kamaruddin Bin Taib Dato’ Mohamad Suparadi Bin Md Noor Dato’ Noorazman Bin Abd. Aziz (Appointed: 3.3.2008)

The directors retiring by rotation this fi nancial year pursuant to Article 86 of the Company’s Articles of Association are Dato’ Tan Say Jim, Dato’ Syed Abdul Rahman Bin Syed Abdul Kadir and Dato’ Moha-mad Suparadi Bin Md Noor.

The director retiring by rotation this fi nancial year pursuant to Article 93 of the Company’s Articles of Association is Dato’ Noorazman Bin Abd Aziz.

The director, YAM Tunku Dato’ Seri Shahabuddin Bin Tunku Besar Burhanuddin retires in accordance with Section 129 of the Company’s Act at the forthcoming Annual General Meeting.

All the above directors being eligible offer themselves for re-election.

DIRECTORS’ BENEFITS

During and at the end of the fi nancial year, no arrangement subsisted to which the Company is a party, with the object or objects of enabling directors of the Company to acquire benefi ts by means of the acquisition of shares in or debentures of the Company or any other body corporate.

Since the end of the previous fi nancial year, no director has received or become entitled to receive any benefi t (other than a benefi t included in the aggregate amount of emoluments received or due and receivable by directors shown in the fi nancial statements, or the fi xed salary of a full-time em-ployee of the Company) by reason of a contract made by the Company or a related corporation with the director or with a fi rm of which he is a member or with a company in which he has a substantial fi nancial interest.

39

DIRECTORS’ INTERESTS

According to the register of Directors’ shareholdings, the interests of directors in offi ce at the end of the fi nancial year in shares in the Company and its related corporations were as follows:-

NUMBER OF ORDINARY SHARES OF RM 0.15/= EACH

As at1.1.2007

BoughtICPS

ConversionSold

As at 31.12.2007

Direct interest:

Lee Kwee Hiang 22,100,000 - - - 22,100,000

Yap Hock Eng 23,022,200 - 8,000,000 - 31,022,200

Dato’ Tan Say Jim 42,295,567 15,000,000 22,196,666 (33,000,000) 46,492,233

YAM Tunku Dato’ Seri Sha-habuddin Bin Tunku Besar Burhanuddin

2,666,667 - - - 2,666,667

Syed Abdullah Bin Syed Abdul Kadir

333,333 - - - 333,333

Tan Sri Razali Bin Ismail 39,533,333 - - 39,533,333

Eow Kwan Hoong 1,333,333 - 260,000 - 1,593,333

Dato’ Mohamad Suparadi Bin Md Noor

667 - - - 667

Indirect interest:

Yap Hock Eng 86,666,667 - 34,666,666 - 121,333,333

Dato’ Tan Say Jim 98,855,667 - - - 98,855,667

Interest in subsidiary companies:

By virtue of their interest in the shares of the Company, Lee Kwee Hiang, Yap Hock Eng, Dato’ Tan Say Jim, YAM Tunku Dato’ Seri Shahabuddin Bin Tunku Besar Burhannuddin, Syed Abdullah Bin Syed Abdul Kadir, Tan Sri Ra-zali Bin Ismail, Dato’ Mohamad Suparadi Bin Md Noor and Eow Kwan Hoong are deemed to have interest in the shares of all the subsidiary companies to the extent that the Company has interests.

40

NUMBER OF NON-CUMULATIVE IRREEMABLE CONVERTIBLEPREFERENCE SHARES OF RM 0.15 EACH

As at 1.1.2007 BoughtConversionto ordinary

shares

As at 31.12.2007

Direct interest:

Lee Kwee Hiang 9,240,000 - - 9,240,000

Dato’ Tan Say Jim 22,196,666 - (22,196,666) -


1,866,666 - - 1,866,666


133,333 - - 133,333

Eow Kwan Hoong 260,000 - (260,000) -

Yap Hock Eng 8,000,000 - (8,000,000) -

NUMBER OF WARRANTS

As at 1.1.2007 Bought SoldAs at

31.12.2007

Direct interest:

Lee Kwee Hiang 1,386,000 - - 1,386,000

Dato’ Tan Say Jim 1,385,000 - - 1,385,000


280,000 - - 280,000


19,999 - - 19,999

Yap Hock Eng 1,200,000 - (462,000) 738,000

No other directors in offi ce at the end of the fi nancial year held any interest in shares in the Company and its related corporations.

SIGNIFICANT EVENTS

Signifi cant events during and after the fi nancial year are disclosed in Note 42 to the fi nancial statements.

AUDITORS

The retiring auditors, Messrs HALS & Associates have indicated that they would not seek re-appointment.

41

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

DATO’ TAN SAY JIM LEE KWEE HIANG

Director Director

KUALA LUMPUR

DATE: 18 April 2008

42



CONSOLIDATED BALANCE SHEET AS AT 31ST DECEMBER 2007

Note 2007 2006

RM RM

ASSETS

CONCESSION ASSETS 5 15,798,339 -

PROPERTY, PLANT AND EQUIPMENT 6 104,421,600 102,929,074

PREPAID LEASE PAYMENTS 7 6,268,217 6,576,814

RESEARCH AND DEVELOPMENT

EXPENDITURE 8 10,277,901 10,736,295

PATENTS, LICENSES AND COPYRIGHTS 9 15,678,397 17,058,455

GOODWILL 10 134,126,066 134,126,066

INVESTMENT IN ASSOCIATED COMPANIES 11 6,221,081 5,453,090

OTHER INVESTMENTS 12 406,400 2,268,525

CURRENT ASSETS

Contract work in progress 14,635,713 -

Inventories 13 75,713,678 91,175,028

Trade receivables 14 79,235,558 81,660,171

Other receivables, deposits and prepayments 15 29,534,408 31,236,531

Amount due from associated company 16 17,078,089 25,041,011

Amount due from related company 17 93,920 -

Tax recoverable 81,200 6,200

Fixed deposits with licensed bank 18 13,781,942 29,465,181

Cash and bank balances 14,166,268 5,595,967

234,320,776 264,180,089

CURRENT LIABILITIES

Trade payables 19 28,527,440 54,789,121

Other payables and accruals 19 26,369,572 16,420,266

Amount due to related company 17 103,029 -

Amount due to a director 20 377,543 246,913

Hire purchase payables 21 868,889 838,294

Lease payables 22 5,345,796 4,949,913

Bank borrowings 23 32,987,511 46,994,410

Bonds 24 25,000,000 15,000,000

119,579,780 139,238,917

NET CURRENT ASSETS 114,740,996 124,941,172

407,938,997 404,089,491

43

Note 2007 2006

RM RM

Financed by:-

CAPITAL AND RESERVES

SHARE CAPITAL 25 216,415,636 196,886,874

RESERVES 26 50,799,144 33,043,596

SHAREHOLDERS’ FUNDS 267,214,780 229,930,470

LONG TERM AND DEFERRED LIABILITIES

Hire purchase payables 21 717,259 1,466,559

Other payables 27 2,737,765 2,889,756

Lease payables 22 6,912,979 12,258,775

Bonds 24 125,000,000 150,000,000

Deferred taxation 28 5,356,214 7,543,931

407,938,997 404,089,491

The above consolidated balance sheet is to be read in conjunction with the notes to the fi nancial statements on pages 55 to 122.

44



CONSOLIDATED INCOME STATEMENTFOR THE YEAR ENDED 31ST DECEMBER 2007

Note 2007 2006

RM RM

REVENUE 29 219,529,340 234,880,586

Less: COST OF SALES (151,141,255) (179,937,823)

GROSS PROFIT 68,388,085 54,942,763

INTEREST INCOME 780,961 1,017,918

OTHER INCOME 3,575,036 3,955,418

72,744,082 59,916,099

Less:

SELLING EXPENSES 1,873,257 1,608,048

ADMINISTRATIVE EXPENSES 47,661,967 34,112,929

FINANCE COSTS 30 15,953,056 17,431,296

65,488,280 53,152,273

7,255,802 6,763,826

Less:

EXCEPTIONAL ITEMS 31 (1,694,456) -

SHARE OF LOSS IN ASSOCIATED COMPANY (45,829) (71,156)

PROFIT BEFORE TAXATION 32 5,515,517 6,692,670

TAXATION 33 2,012,421 (1,897,501)

PROFIT AFTER TAXATION 7,527,938 4,795,169

PRE-ACQUISITION LOSS - (26,999)

PROFIT FOR THE YEAR 7,527,938 4,768,170

Attributable to:

Equity holders of the parent 7,532,838 4,768,170

Minority interests (4,900) -

7,527,938 4,768,170

BASIC EARNINGS PER SHARE (SEN) 34 0.599 0.471

DILUTED EARNINGS PER SHARE (SEN) 34 0.553 0.387

The above consolidated income statement is to be read in conjunction with the notes to the fi nancial state-ments on pages 55 to 122.

45

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n p

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46



CONSOLIDATED CASH FLOW STATEMENTFOR THE YEAR ENDED 31ST DECEMBER 2007

Note 2007RM

2006RM

CASH FLOW FROM OPERATING ACTIVITIES

Profi t before taxation 5,515,517 6,692,670

Adjustments for:

Allowance for contract foreseeable loss 988,770 -

Allowance for doubtful debts 2,315,247 1,786,797

Allowance for slow moving inventory 2,674,898 -

Amortisation of research and development expenditure 1,637,013 2,186,246

Amortisation of prepaid lease payments 308,597 308.292

Amortisation of patents, licenses and copyrights 1,380,058 1,380,058

Inventory written off - 1,184,065

Bad debts written off - trade 34,338 -

Property, plant and equipment written off 15 133,700

Depreciation of property, plant and equipment 8,682,972 9,518,680

Gain on disposal of property, plant and equipment (23,521) (53,364)

Interest expenses 15,399,289 16,965,840

Interest income (780,961) (1,017,918)

Unrealised gain / (loss) on foreign exchange 1,532,589 (351,506)

Development expenditure written off - 136,911

Share of loss in associated company 45,829 71,156

Allowance for impairment loss on other investment 2,377,980 -

Effect of subsidiary written off (683,524) -

Patent written off - 3,192

OPERATING PROFIT BEFORE WORKING

CAPITAL CHANGES 41,405,106 38,944,819

Increase in contract work in progress (15,624,483) -

Decrease/ (Increase) in inventories 12,786,452 (32,629,426)

Decrease/ (Increase) in receivables (14,076,110) (26,030,606)

Decrease in payables (17,921,410) (8,709,262)

CASH GENERATED FROM / (USED IN)

OPERATIONS 34,721,775 (28,424,475)

Interest paid (13,780,545) (15,343,792)

Interest received 780,961 1,017,918

Tax paid (75,000) (44,782)

NET CASH GENERATED FROM / (USED IN)

OPERATING ACTIVITIES 21,647,191 (42,795,131)

47

Note 2007 2006

RM RM

CASH FLOW FROM INVESTING ACTIVITIES

Acquisition of concession assets (15,798,339) -

Purchase of patent - (805,585)

Proceeds from withdrawal of fi xed deposits pledged 2,217,233 72,337

Fixed deposits pledged - (3,698,577)

Development expenditure (1,178,619) (3,179,290)

Proceeds from disposal of property, plant and

equipment 80,600 129,500

Purchase of property, plant and equipment (10,103,592) (6,972,102)

Purchase of investment in subsidiary A - (5,998,998)

Purchase of other investment (515,855) (912,000)

Purchase of investment in associated company (813,820) (5,200,000)

NET CASH USED IN INVESTING ACTIVITIES (26,112,392) (26,564,715)

CASH FLOW FROM FINANCING ACTIVITIES

Proceed of share through minority interest 4,900 -

Repayment of bonds (15,000,000) (15,000,000)

Issue of shares 27,927,347 60,994,252

Lease obtained - 1,803,050

Repayment of Murabahah Commercial Papers 5,000,000 -

Repayment of hire purchase and lease payables (5,797,618) (3,757,770)

NET CASH GENERATED FROM

FINANCING ACTIVITIES 2,134,629 44,039,532

Effect of exchange rate changes in cash and

cash equivalents during the year - (103)

Net decrease in cash and cash equivalents (2,330,572) (25,320,314)

Cash and cash equivalents at beginning of the year 23,286,550 48,606,967

CASH AND CASH EQUIVALENTS AT END OF

THE YEAR 35 20,955,978 23,286,550

48

(A) SUMMARY OF EFFECT OF ACQUISITION OF INVESTMENT IN SUBSIDIARY COMPANY

2007 2006

RM RM

Property, plant and equipment - 10,639

Other assets - 140,103

Inventory - 133,250

Trade receivables - 510,009

Other receivables and deposit - 16,868

Bank balance - 1,002

Cash in hand 3 -

Trade payables - (99,829)

Other payables - (425,950)

Goodwill - 5,713,908

Purchase consideration 3 6,000,000

Less:

Cash and cash equivalents of the subsidiaries acquired (3) (1,002)

NET CASH PAID FOR ACQUISITION OF

SUBSIDIARY COMPANIES - 5,998,998

* The summary of effect of investment in subsidiary written off in current fi nancial year is not dis-closed as the amount is insignifi cant.

The above consolidated statement is to be read in conjunction with the notes to the fi nancial statements on pages 55 to 122.

49


BALANCE SHEET AS AT 31ST DECEMBER 2007

Note 2007 2006

ASSETS RM RM

CONCESSION ASSETS 5 15,798,339 -

PROPERTY, PLANT AND EQUIPMENT 6 1,807,686 1,680,450

RESEARCH AND DEVELOPMENT

EXPENDITURE 8 10,277,901 10,736,295

PATENTS, LICENSES AND COPYRIGHTS 9 6,967,812 7,582,870

INVESTMENT IN SUBSIDIARY COMPANIES 36A 180,293,655 180,293,652

INVESTMENT IN ASSOCIATED COMPANIES 11 5,813,820 5,000,000

OTHER INVESTMENTS 12 406,400 2,268,525

PROMISSORY NOTES 32B 9,000,000 17,500,000

CURRENT ASSETS

Contract work in progress 4,718,778 -

Inventories 13 25,554,266 27,757,237

Trade receivables 14 26,198,818 31,140,245

Other receivables, deposits and prepayments 15 7,210,378 7,414,649

Amount due from associated company 16 7,692 7,692

Amount due from related company 17 93,920 -

Promissory notes 36B 8,500,000 8,500,000

Amount due from subsidiary companies 36C 14,911,043 8,520,405

Tax recoverable 50,000 -

Fixed deposits with licensed bank 18 9,468,470 24,854,071

Cash and bank balances 3,857,623 1,010,210

100,570,988 109,204,509

CURRENT LIABILITIES

Trade payables 19 6,879,707 11,111,591

Other payables and accruals 19 14,331,794 3,263,451

Amount due to subsidiary companies 36C 31,097,394 33,415,979

Amount due to related company 17 103,029 -

Amount due to a director 20 377,543 377,543


Bank borrowings 23 8,292,000 11,136,853

Bonds 24 25,000,000 15,000,000

86,177,491 74,380,009

NET CURRENT ASSETS 14,393,497 34,824,500

244,759,110 259,886,292

50

The above statement is to be read in conjunction with the notes to the fi nancial statements on pages 21 to 86.

Note 2007 2006

RM RM

Financed by:

CAPITAL AND RESERVES

SHARE CAPITAL 25 216,415,636 196,886,874

RESERVES 26 (36,981,537) (27,302,026)

SHAREHOLDERS’ FUNDS 179,434,099 169,584,848

LONG TERM LIABILITIES


Bonds 24 65,000,000 90,000,000

244,759,110 259,886,292

The above balance sheet is to be read in conjunction with the notes to the fi nancial statements on pages 55 to 122.

51


INCOME STATEMENTFOR THE YEAR ENDED 31ST DECEMBER 2007

Note 2007 2006

RM RM

REVENUE 29 55,036,897 66,301,609

Less: COST OF SALES (43,438,084) (62,473,083)

GROSS PROFIT 11,598,813 3,828,526

INTEREST INCOME 593,457 589,886

OTHER INCOME 363,285 78,000

12,555,555 4,496,412

Less:

SELLING EXPENSES 212,916 189,394

ADMINISTRATIVE EXPENSES 20,075,457 11,815,633

FINANCE COSTS 30 7,957,298 7,957,757

28,255,671 19,962,784

PROFIT BEFORE TAXATION AND

EXCEPTIONAL ITEMS (15,700,116) (15,466,372)

EXCEPTIONAL ITEMS 31 (2,377,980) -

LOSS BEFORE TAXATION 32 (18,078,096) (15,466,372)

TAXATION 33 - (19,782)

LOSS AFTER TAXATION (18,078,096) (15,486,154)

The above income statement is to be read in conjunction with the notes to the fi nancial statements on pages 55 to 122.

52


STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED 31ST DECEMBER 2007

Ordinary Share

CapitalRM

Non-Cumulative

Irredeemable Convertible Preference

Shares (“ICPS”)

RM

SharePremium

RM

Accumu-lated

LossesRM

TotalRM

Balance at 1st January 2006 137,100,770 - 25,444,983 (38,469,003) 124,076,750

Issue of shares 3,239,505 55,251,530 1,208,148 - 59,699,183

Conversion of ICPS into

ordinary shares 32,133,259 (32,133,259) - - -

Conversion of warrants into

ordinary shares 1,295,069 - - - 1,295,069

Loss for the year - - - (15,486,154) (15,486,154)

Balance at

31st December 2006 173,768,603 23,118,271 26,653,131 (53,955,157) 169,584,848

Issue of shares 19,528,762 - 8,398,585 - 27,927,347

Conversion of ICPS into

ordinary shares 11,998,868 (11,998,868) - - -

Loss for the year - - - (18,078,096) (18,078,096)

Balance at

31st December 2007 205,296,233 11,119,403 35,051,716 (72,033,253) 179,434,099


53


CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST DECEMBER 2007

Note 2007 2006

RM RM

CASH FLOW FROM OPERATING ACTIVITIES

Loss before taxation (18,078,096) (15,466,372)

Adjustments for:

Bad debts written off - trade 34,140 -

Property, plant and equipment written off - 133,700

Depreciation of property, plant and equipment 840,801 291,172

Gain on disposal of plant and equipment (14,329) (78,000)

Interest expenses 7,602,717 7,957,757

Interest income (593,457) (589,886)

Unrealised loss on foreign exchange 872,790 -

Amortisation of patent and licenses 615,058 615,058

Allowance for impairment loss on other investment 2,377,980 -

Allowance for slow moving investories 2,035,911 -

Allowance for doubtful debts 1,041,000 1,045,007

Amortisation of research and development expenditure 1,637,013 2,186,246

Inventory written off - 1,184,065

OPERATING LOSS BEFORE WORKING

CAPITAL CHANGES (1,628,472) (2,721,253)

Increase in contract work in progress (4,718,778) -

(Increase) / Decrease in inventories 167,060 461,230

Increase in receivables (4,409,420) (17,435,772)

(Increase) / (Decrease) in payables 4,340,903 (2,647,375)

CASH USED IN OPERATIONS (6,248,707) (22,343,170)

Interest paid (6,480,087) (6,831,824)

Interest received 593,457 589,886

Tax paid (50,000) (19,782)

NET CASH USED IN OPERATING ACTIVITIES (12,185,337) (28,604,890)

54

Note 2007 2006

RM RM

CASH FLOW FROM INVESTING ACTIVITIES

Acquisition on concession assets (15,798,339) -

Development expenditure (1,178,619) (3,179,290)

Fixed deposits uplift / (pledged) 2,727,233 (3,033,409)

Proceeds from disposal of plant and equipmet 59,275 78,000

Purchase of associated company (813,820) -

Purchase of subsidiary company (3) -

Purchase of plant and equipment (883,983) (508,234)

Purchase of investment (515,855) (11,912,000)

NET CASH USED IN INVESTING ACTIVITIES (16,404,111) (18,554,933)

CASH FLOW FROM FINANCING ACTIVITIES

Issue of shares 27,927,347 60,994,252

Repayment of hire purchase payables (84,001) (101,267)

Promissory notes 8,500,000 8,500,000

Repayment of bonds (15,000,000) (15,000,000)

NET CASH GENERATED FROM FINANCING ACTIVITES 21,343,346 54,392,985

Net (decrease) / increase in cash and cash equivalents (7,246,102) 7,233,162

Cash and cash equivalents at beginning of the year 15,677,019 8,443,857

CASH AND CASH EQUIVALENTS AT END OF THE YEAR 35 8,430,917 15,677,019

The above statement is to be read in conjunction with the notes to the fi nancial statements on pages 50 to 10


55



NOTES TO THE FINANCIAL STATEMENTS - 31ST DECEMBER 2007

1. GENERAL

The fi nancial statements of the Group and the Company are expressed in Malaysian Ringgit (RM).

The fi nancial statement of the Group and the Company have been approved by the Board of Directors for issuance on 18th April 2008.

The Company is a public listed company incorporated and domiciled in Malaysia and listed on the Malaysian Exchange of Securities Dealings and Automated Quotation Berhad (MESDAQ).

It is resident in Malaysia with its registered offi ce at Suite 1603, 16th Floor, Wisma Lim Foo Yong, 86, Jalan Raja Chulan, 50200 Kuala Lumpur and the principal place of business at 4th Floor, IRIS Smart Technology Complex, Technology Park Malaysia, Bukit Jalil, 57000 Kuala Lumpur.

2. PRINCIPAL ACTIVITIES

The Company is principally engaged in technology consulting, implementation research and develop-ment.

The principal activities of the subsidiaries are disclosed in Note 36 to the fi nancial statements.

There have been no signifi cant changes in the nature of these activities during the fi nancial year.

3. BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS

(a) Statement of compliance

The fi nancial statements of the Group and of the Company have been prepared in accord-ance with applicable approved accounting standards for entities other than private entities issued by the Malaysian Accounting Standards Board (“MASB”), accounting principles gen-erally accepted in Malaysia and the provisions of the Companies Act, 1965. These fi nancial statements also comply with the applicable disclosure provisions of the Listing Requirements of the Bursa Malaysia Securities Berhad.

56

(b) Changes in Signifi cant Accounting Policies

Standards, amendments to published standards and interpretations that are effective

All signifi cant accounting policies set out below are consistent with those applied in the pre-vious years except that, the Group’s and the Company’s fi nancial statements have been pre-pared in accordance with the following new/revised FRSs:

FRS 117 Leases FRS 124 Related Party Disclosures

The adoption of FRS 124 did not result in signifi cant changes to the Group’s and the Compa-ny’s fi nancial statements. The principal changes in accounting policies and the effects result-ing from the adoption of FRS 117 are disclosed in Note 3 (y)(i) to the fi nancial statements.

All changes in accounting policies have been made in accordance with the transitional provi-sions in the respective standards and amendments to published standards.

Standards, amendments to published standards and IC interpretations that are not yet effective and have not been early adopted

The new standards, amendments to published standards and IC interpretations that are man-datory for the Company’s fi nancial periods beginning on or after 1st January 2008 or later periods, but which the Company has not early adopted, are as follows:

Effective for accounting periods beginning on or after 1st July 2007

FRS 107 Cash Flow Statements FRS 112 Income Taxes

FRS 118 Revenue

FRS 120 Accounting for Government Grants and Disclosure of Government Assistance

Amendment The Effects of Changes in Foreign Exchange to FRS 121 Rates – Net Investment in a Foreign FRS 134 Interim Financial Reporting

FRS 137 Provision, Contingent Liabilities and Contingent Assets

57

IC Interpretation 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities

IC Interpretation 8 Scope of FRS 2 Share-based Payments

There will be no signifi cant impact on the Group’s and the Company’s policies and fi nancial statements should the Company choose to early adopt the above FRSs and IC Interpretation except for FRS 112, as disclosed in Note 3(y) (ii) to the fi nancial statements.

FRS 139 Financial Instruments: Recognition and Measurement (Effective date yet to be determined)

This new standard establishes principles for recognising and measuring fi nancial assets, fi nancial liabilities and certain contracts to buy and sell non-fi nancial items. Hedge account-ing is permitted only under strict circumstances. The Group and the Company will apply this standard when effective.

The Company has not adopted FRS 139 and by virtue of the exemption in paragraph 103AB of FRS 139, the impact of applying FRS 139 on its fi nancial statements upon fi rst adoption of this standard as required by paragraph 30(b) of FRS 108, Accounting Policies, Changes in Accounting Estimates and Errors is not disclosed.

(c) Basis of measurement

The fi nancial statements of the Group and the Company have been prepared under the his torical cost convention except as disclosed in the accounting policies below.

(d) Use of estimates and judgements

The preparation of fi nancial statements in conformity with the MASB Approved Accounting Standards for Entities other than Private Entities, requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the report-ed amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

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

58

In particular, information about signifi cant areas of estimation, uncertainty and critical judgements in applying accounting policies that have the most signifi cant effect on the amount recognised in the fi nancial statements are described as follows:-

(i) Depreciation of property, plant and equipment

Property, plant and equipment are depreciated on a straight line method over their estimaed useful lives as specified under Note 5. Management revised the residual value of certain plant and machinery and motor vehicles resulting in an increase/a reduction of the Group and the Company depreciation charge by RM1,977,375 (2006: RM Nil). Changes in the expected level of usage and technological developments could impact the economic useful lives and the residual values of these property, plant and equipment, therefore future depreciation charges could be revised.

(ii) Allowance for bad and doubtful receivables

The policy for allowances for bad and doubtful receivables of the Group and the Company is based on the evaluation of collectability and aging analysis of accounts and on management’s judgement. A considerable amount of judgement is required in assessing the ultimate realisation of these receivables, including the current creditworthiness and the past collection history of each customer. If the fi nancial conditions of customers of the Group and the Company were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

iii) Allowance for slow moving inventories

Reviews are made periodically by management on damaged, obsolete and slow moving in ventories. These reviews require judgement and estimates. Possible changes in these estimates could result in revisions to the valuation of inventories.

(iv) Contingent Liabilities

The directors’ are of the opinion that provision are not required in respect of the contingent liabilities as it is not probable that a future sacrifi ce of economic benefi t will be required.

59

(v) Impairment of goodwill on consolidation

The Group determines whether goodwill is impaired at least on an annual basis, in accord ance with the accounting policy disclosed in Note 4(g). This requires an estimation of the value in use of the cash-generating units to which the goodwill is allocated. Estimating the value in use requires the Group to make an estimate of the expected future cash fl ows from the cash-generating unit and able to choose a suitable rate in order to calculate the present value of those cash fl ows. The carrying amount of the Group’s goodwill on consolidation at 31st December 2007 is disclosed in Note 10 to the fi nancial statements.

4. ACCOUNTING POLICIES

(a) Basis of Consolidation

Subsidiaries

Subsidiaries are those companies in which the Group has power to exercise control over the fi nancial and operating policies so as to obtain benefi ts from their activities, generally accom-panying a shareholding of more than one half of the voting rights. Subsidiaries are consoli-dated using the purchase method of accounting. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity.

When the purchase method is adopted for the acquisition of subsidiaries, the cost of an ac-quisition is measured at the fair value of the assets given, equity instruments issued and li-abilities incurred or assumed at the date of exchange plus costs directly attributable to the acquisition. Identifi able assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.

Subsidiaries are fully consolidated from the date on that control is transferred to the Group. They are deconsolidated from the date that control ceases.

Intra group transactions, balances and resulting unrealised gains are eliminated on consolida-tion and the consolidated fi nancial statements refl ect external transactions only. Unrealised losses are eliminated but considered as an impairment indicator of the asset transferred.

Accounting policy of subsidiaries is changed where necessary to ensure consistency with policy adopted by the Group.

60

(b) Property, Plant and Equipment

(i) Owned Assets

Property, plant and equipment are initially stated at cost less accumulated deprecia-tion and impairment losses. The cost of property, plant and equipment includes ex-penditure that is directly attributable to the acquisition of the items. Dismantlement, removal or restoration costs are included as part of the cost of property, plant and equipment if the obligation for dismantlement, removal or restoration is incurred as a consequence of acquiring or using the assets. When signifi cant parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

Subsequent expenditure that has already been recognised is added to the carrying amount of the asset or recognised as a separate asset, as appropriate only when it is probable that future economic benefi ts associated with the item will fl ow to the Group can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance cost are recognised as expense and charged to the income statement during the fi nancial year in which they are incurred.

Building is subsequently shown at market value based on valuations by independ-ent fi rm of valuers, less accumulated depreciation and impairment losses.

Revaluation of building is undertaken periodically whenever the fair value of the revalued assets is expected to differ materially from their carrying value. Surplus arising from revaluation are credited to revaluation reserve. Revaluation reserve is charged to income statement upon usage on annual basis over the lease period. Any defi cit arising from revaluation is offset against the revaluation reserve to the extent of a previous surplus held in the revaluation reserve for the same property. In all other cases, a decrease in carrying amount will be charged to income statement.

Depreciation is calculated to write off the cost of property, plant and equipment on a straight line basis over the estimated useful lives of the assets concerned. The annual rates used are as follows:-

Building 2% Offi ce equipment, furniture and fi ttings 10%-33.3% Motor vehicles 20% Plant and machinery 7.5% - 33.3%

61

Property, plant and equipment are derecognised upon disposal or when no future economy benefi ts are expected from their use or disposal.

Gains and losses on disposals are determined by comparing proceeds with carrying amounts and are recognized in the income statement. On disposal of revalued as-sets, amount in revaluation reserve relating to those asset is transferred to retained earnings.

The residual value and useful lives of property, plant and equipment are reviewed and adjusted as appropriate at each balance sheet date.

(ii) Property, Plant and Equipment Acquired Under Finance Lease and Hire Purchase Arrangements

The cost of the property, plant and equipment acquired under fi nance lease and hire purchase arrangements which in substance transfer the risk and rewards of owner-ship of the assets to the Group and the Company are capitalised.

The assets are recorded at the lower of the minimum lease and hire purchase pay-ments or the fair value of the lease and hire purchase assets at the beginning of the respective lease or hire purchase terms less accumulated depreciation and im-pairment loss. Assets acquired under such arrangements are depreciated over the useful lives of equivalent owned assets. The depreciation policy on these assets is similar to that of the Group’s and the Company’s property, plant and equipment de-preciation policy.

Outstanding obligations due under the fi nance lease or hire purchase arrangements after deducting fi nance expenses are included as liabilities in the fi nancial state-ments. Finance charges of fi nance lease or hire purchase agreements are allocated to income statement so as to give a constant periodic rate of interest on the outstand-ing liability at the end of the fi nancial year.

(iii) Prepaid Lease Payments and Operating Lease Arrangements

Leases of assets where a signifi cant portion of the risk and reward of ownership are retained by the lessor are classifi ed as operating leases. Payments made under operating leases (net of any incentive received from lessor) are charged to the income statement on a straight line basis over the lease period.

Leasehold land that normally has an indefi nite economic life and title is not expected to pass to the lessee by the end of the lease term is treated as an operating lease. The payment made on entering into or acquiring a leasehold land is accounted as prepaid lease payments that are amortised over the lease term in accordance with the pattern of benefi ts provided.

The Group had previously classifi ed a lease of land as fi nance lease and recognised the amount of prepaid lease payments as property within its property, plant and equipment. On adoption of FRS 117 Leases, the Group treats such a lease as an operating lease, with the unamortised carrying amount classifi ed as prepaid lease payments in accordance with the transitional provisions in FRS 117.

The prepaid lease payment is amortised over the lease term.

Where the Group and the Company had previously revalued the leasehold land, the Group and the Company will retain the unamortised revalued amount as the surrogate carrying amount of lease payments which is amortised over the lease term.

62

c) Concession Assets

Items classifi ed as Concession Assets comprise Electronic Passport System (“EPS”) and Solid Waste Disposal and Electricity Power Generation Plant.

(i) Electronic Passport System

EPS comprises computer hardware, software development and special equipment (to provide a fully integrated and highly secure system for production, issuance and authentication of e-passports) incurred in connection with the Concession.

EPS is stated at cost less accumulated amortisation and impairment losses. The poli-cy for the recognition and measurement of impairment losses is in accordance with Note 4(l) to the fi nancial statements

EPS is amortised over the Concession Period of 20 years. The amortisation formula applied in the preparation of the fi nancial statements to arrive at the annual amorti-sation charge for each fi nancial period is as follows:

Cumulative Inlay Revenue Cumulative AccumulatedTo date Actual Amortisation------------------------------- x Development - To dateProjected Total Inlay ExpenditureRevenue Of The Concession

(ii) Solid Waste Disposal and Electricity Power Generation Plant

The development expenditure comprises design, construction and maintenance ex-penditure of a 40-ton per day rated-capacity solid waste disposal and 1,500 kilowatt electricity generation plant in connection with the Concession.

Incinerator plant is stated at cost less accumulated amortisation and impairment losses. The policy for the recognition and measurement of impairment losses is in accordance with Note 4(l) to the fi nancial statements.

The annual amortisation in respect of plant is computed on a straight line basis over a 16-years concession period.

(d) Research and Development Expenditure

Research expenditure is recognised as an expense when incurred. Cost incurred on develop-ment project (relating to the design and testing of new or improved products) are recognised as intangible assets when the following criteria are fulfi lled:-

(i) it is technically feasible to complete the intangible assets so that it will be available for use or sale;

(ii) management intends to complete the intangible asset and use or sell it;

(iii) there is an ability to use or sell the intangible asset;

(iv) it can be demonstrated how the intangible asset will generate probable future economic benefi ts;

(v) adequate technical, fi nancial and other resources to complete the development and to use or sell the intangible asset are available;

(vi) the expenditure attributable to the intangible asset deriving its development can be reliably measured.

63

Development expenditure is stated at cost less amortisation and impairment loss. Develop-ment assets are tested for impairment annually. Development costs are recorded as intangi-ble assets and amortised from the point at which the asset is ready for use on a straight line basis over its useful life not exceeding fi ve years.

Other development expenditure that do not meet these criteria are recognised as an expense when incurred. Development costs previously recognised as an expense are not recognised as an asset in the subsequent period.

Development expenditure that was previously recognised as intangible asset which is found to be no longer qualifi ed according to the above criteria are written off immediately.

(e) Government Grants

Grants from government are recognised initially as deferred income where there is a reason-able assurance that the grant will be received and the Group will comply with all attached conditions associated with the grant.

Government grants relating to cost of development expenditure are deducted against the related cost, deferred and recognised in the income statement over the period necessary to match them with the costs they are intended to compensate.

(f ) Patents, licenses and copyrights

These represent the registration cost of patents and the cost of acquisition of rights and li-cences on technology know-how mainly for software and intellectual properties to sell, man-ufacture, market and distribute the related products. They are stated at cost and will be am-ortised when income is generated from utilisation of the technology on a straight line basis over their estimated useful lives of 20 years.

When an indication of impairment exists, the carrying amount of the patents, licenses and copyrights are assessed and written down immediately to their recoverable amount. When the patent right are found to be no longer usable, it is written off immediately.

(g) Goodwill

Goodwill represents excess of the cost of acquisition of subsidiaries and associates over the fair value of the Group’s share of their identifi able net assets and contingent liabilities at the date of acquisition.

Goodwill on acquisition of subsidiaries is included in intangible assets. Goodwill is tested at least annually for impairment and carried at cost less accumulated impairment losses. Impair-ment losses on goodwill are not reversed. Gain and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

64

Goodwill is allocated to cash-generating units (“CGU”) for the purpose of impairment testing. The allocation is made to those CGU or groups of CGU that are expected to benefi t from the synergies of the business combination. A CGU is the smallest identifi able asset group that generates cash fl ows that largely are independent from other assets and group.

For the excess of Group’s interest in net fair value of subsidiaries identifi able assets, liabilities and contingent liabilities over cost, the Group shall reassess the identifi cation and measure-ment of the subsidiary‘s identifi able assets, liabilities and contingent liabilities and the meas-urement of the cost of the combinations and recognise immediately in the income statement any excess remaining after that reassessment.

(h) Associated Companies

The Group treats as associated companies those companies in which the Group exercises signifi cant infl uences, but which it does not control, generally accompanying a shareholding between 20% to 50% of the voting rights. Signifi cant infl uence is the power to participate in the fi nancial and operating policy decisions of the associates but not the power to exercise control over those policies.

The investment in the associated companies is accounted for by using the equity method of accounting and are initially recognised at cost less impairment losses, where applicable. The Group’s investment in associates includes goodwill identifi ed on acquisition net of any ac-cumulated impairment loss.

The Group’s share of post acquisition profi t or losses of associated companies is included in the consolidated income statement and its share of post acquisition movements in reserves is recognised in reserves. The cumulative post acquisition movements are adjusted against the carrying amount of the investment . When the Group’s share of losses in an associate equal or exceeds its interest in the associates including any other unsecured receivables, the Group’s interest is reduced to nil and recognition of further losses is discontinued except to the extent the Group has incurred legal or construction obligations or made payments on behalf of the associates.

Unrealised gain on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates; unrealised losses are also eliminated unless the transaction provides evidence on impairment of the asset transferred. Adjustments are made to the fi nancial statements of the associates to be consistent with the policy of the Group.

(i) Investments

Investments in subsidiary companies which are eliminated on consolidation are stated at cost less impairment losses, where applicable.

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

65

(j) Other Investments

Other investment are stated at cost less impairment losses, where applicable.

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

(k) Promissory Notes

Promissory notes represent non-interest bearing promissory notes issued by its subsidiary namely IRIS Technologies (M) Sdn Bhd which is redeemable commencing 2005 to 2009. Promissory notes are recognised at cost when the contractual right to receive cash or another fi nancial asset from the subsidiary is established.

Promissory notes are classifi ed as current assets unless the subsidiary company has an un-conditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

(l) Impairment of Non-fi nancial Assets

Assets that have an indefi nite useful life and are not subject to amortisation are tested annually for impairment. Assets that have defi nite useful life and are subject to amortisation are reviewed for impairment whenever there is any indication that these assets may be impaired. If any such indication exists, the recoverable amount (i.e. the higher of the fair value less cost to sell and value in use) of the asset is estimated to determine the amount of impairment loss.

For the purpose of impairment testing of these assets, recoverable amount is determined on an individual asset basis unless the asset does not generate cash fl ows that are largely independent of those from other assets. If this is the case, recoverable amount is determined for the CGU to which the asset belongs to. A CGU is the smallest identifi able asset group that generates cash fl ows that largely are independent from other assets and group.

If the recoverable amount of the asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or CGU) is reduced to its recoverable amounts. The impairment loss is recognised in the income statement unless the asset is carried at revalued amount, in which case, such impairment loss is treated as a revaluation decrease. Impairment losses recognised in respect of CGU are allocated fi rst to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a prorate basis.

The recoverable amount of an asset (or CGU) is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash fl ows are discounted to their present value using a pre-tax discount rate that refl ects current market assessments of the time value of money and the risks specifi c to the asset.

Impairment losses recognised in prior periods are assessed at each reporting date for any indicators that the loss has decreased or no longer exists.

66

An impairment loss for an asset other than goodwill is reversed only if there has been a change in the estimates used to determine the assets recoverable amount since the last impairment loss was recognised. The carrying amount of an asset is increased to its revised recoverable amount, subject to this amount not exceeding the carrying amount that would have been determined (net of amortisation or depreciation) had no impairment loss been recognised for the asset in previous years. A reversal of impairment loss for an asset is recognised in the income statement, unless the asset is carried at revalued amount, in which case, such reversal is treated as a revaluation increase.

(m) Revenue Recognition and Contract Work-in-progress

(i) Sales and profi ts on contract work-in-progress are recognised on the percentage of completion method by reference to physical progress of each contract, and after making appropriate allowance for uncertainties and estimates to complete. This method is only used at a point where contract revenues and contract costs can be reliably estimated and the costs can be clearly compared with prior estimates. Otherwise revenue is recognised to the extent of contract cost incurred that it is probable will be recovered. Unbilled contract cost will be carried forward as work in progress.

Contract costs include all direct material and labour costs and those indirect costs related to contract performance. General and administrative costs are expensed as incurred. Allowances for foreseeable losses on uncompleted contracts are made in the period in which such losses are determined.

(ii) Revenue comprises the fair value of the consideration received or receivable for the sale of goods in the ordinary course of the Group’s activities. Revenue is shown net of returns and discounts and after eliminating sales within the Group. Revenue is recognised when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably and there is no continuing management involvement with the goods.

(iii) Interest income is recognised on a time proportion basis, taking into account the principal outstanding and the effective rate over the period to maturity when it is determined that such income will accrue to the Group and the Company.

(iv) Royalty income is recognised when the right to receive it has been established.

67

(n) Inventories

Inventories are stated at the lower of cost and net realisable value after adequate allowance had been made for deteriorated, damaged, obsolete and slow moving items. Cost is deter-mined on fi rst-in, fi rst-out basis. Costs of raw materials consists of direct material costs where-as cost of fi nished goods and work in progress include direct materials, direct labour, other direct costs and appropriate production overheads.

Net realisable value is the price of which the inventory can be realised in the normal course of business after allowing for the cost of realisation and where appropriate, the cost of conver-sion from the existing state to a fi nish condition.

(o) Receivables

Receivables are initially recognised at their cost when the contractual right to receive cash or another fi nancial asset from other entity is established. Subsequent to initial recognition, receivables are stated at cost less allowance for doubtful debts. The allowance is established when there is objective evidence that the Group and the Company will not be able to collect all amounts due according to the original terms of receivables. An estimate is made for doubt-ful debts based on a review of all outstanding amounts as at the balance sheet date.

(p) Payables

Payables are measured initially and subsequently at cost. Payables are recognised when there is a contractual obligation to deliver cash or another fi nancial asset to another entity.

(q) Borrowings and Borrowing Costs

Borrowings (except Bonds) are initially recognised based on proceeds received, net of trans-action costs incurred.

In subsequent periods, borrowings are stated at amortised cost using the effective yield method; difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings.

Bonds are recorded at redemption value. Discount on bonds issued are included in the other receivables and amortised through out the redemption period.

All borrowing costs are recognised as an expense in the income statement in the period in which they are incurred.

Borrowings are classifi ed as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

68

(r) Currency Conversion

(i) Functional and presentation currency

Items included in the fi nancial statements of each entity in the Group are measured using the currency of the primary economic environment in which the entity oper-ate (“the functional currency”). The consolidated fi nancial statements are presented in Ringgit Malaysia which is the Company’s functional and presentation currency.

(ii) Transaction and balances

Transactions in a currency other than the functional currency (‘foreign currencies’) are translated into functional currency at the exchange rates prevailing at the trans-action dates or, where settlement has not taken place at the balance sheet date, at the approximate exchange rate prevailing at that date. All exchange gains or losses, including those arising from translation, are taken up in the income statement.

(iii) Translation of Group entities fi nancial statements

The results and fi nancial position of all the group entities (none of which has the currency of a hyperinfl ationary economy) that have a functional currency different from the presentation currency are translated into presentation currency as follows:

Assets and liabilities for each balance sheet presented are translated at the exchange rates ruling at the fi nancial year end whereas the income and expenses for each in-come statement are translated at the average rate for the year. All exchange differ-ences are dealt with through foreign exchange reserves within equity.

Goodwill and fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of a foreign entity on or after 1st January 2006 are trans-lated at the closing rate. For acquisition prior to 1st January 2006, the exchange rates at the dates of acquisition were used.

(iv) Consolidation adjustments

On consolidation, currency translation differences arises from the net investment in foreign entities and borrowings and other currency instruments designated as hedges of such investments are taken to the foreign currency translation reserves. When a foreign operations is disposed of, such differences are recognised in the in-come statement as part of the gain or the loss on disposal.

69

(s) Taxation and Deferred Taxation

The Company has been granted MSC status by Multimedia Development Corporation Sdn Bhd for IT consultancy, implementations, research and development. Under this incentive, the Company’s statutory income will be exempted from Income Tax for a period of 5 years commencing 1st August 1997. This incentive has been extended for another 5 years to 31st July 2007. For other incomes, provision for taxation is made using the tax rates that have been enacted at the balance sheet date.

For income of subsidiary companies, provision for taxation is made based on the amount of tax estimated to be payable on profi ts adjusted for tax purposes calculated based on the applicable tax rate for the subsidiaries.

Deferred tax is provided only for taxable temporary differences that are expected to reverse after expiry of tax exempt incentive period on 31st July 2007. The provision is made by the balance sheet liability method by comparing carrying amounts of assets and liabilities and their corresponding tax bases.

Deferred tax assets are recognised for deductible temporary differences, unused tax losses and unused tax credits to the extent that it is probable that taxable profi t will be available against which the deductible temporary differences, unused tax losses and unused tax credit can be utilised. Deferred tax is not recognised if the temporary difference arises from goodwill or negative goodwill or from the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction, affects neither accounting profi t nor taxable profi t.

Deferred tax is measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates that have been enacted or substantively enacted at the balance sheet date. Deferred tax is recognised in the income statement, ex-cept when it arises from a transaction which is recognised directly in equity, in which case the deferred tax is also charged or credited directly in equity.

Deferred taxation is provided at statutory income tax rate on surplus arising from the revaluation of property, plant and equipment as it is not the intention of the directors to dispose these assets in the normal course of business of the Group.

(t) Cash and Cash Equivalents

The Group and the Company adopts the indirect method in the preparation of cash fl ow statements.

Cash and cash equivalents consists of cash and bank balances, deposits with licensed fi nan-cial institutions, bank overdrafts and other short term, highly liquid investments with original maturities of three months or less.

70

(u) Financial Instruments

(i) Financial instruments recognised on the balance sheet

Financial instruments are recognised in the balance sheet when the Group and the Company have become parties to the contractual provisions of the instruments.

Financial instruments are classifi ed as liabilities or equity in accordance with the substance of the contractual arrangement. Interests, gains and losses relating to a fi nancial instrument classifi ed as a liability are reported as expense or income. Distributions to holders of fi nancial instruments classifi ed as equity are charged directly to equity. Financial instruments are offset when the Company has a legally enforceable right to set off the recognised amount and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

The measurement basis, extent and nature of the fi nancial instruments, are disclosed in the respective notes to the fi nancial statements.

(ii) Financial instruments not recognised on the balance sheet

The Group and the Company are parties to fi nancial instruments that comprise contingent assets/liability. The Group and the Company do not recognise a contingent asset/liability but disclose its existence in the financial statements. A contingent asset/liability is a possible asset obligation that arises from past event and its existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the Group and the Company. A contingent liability is not recognised if it is not probable that an outfl ow of resources will be required to settle the obligation. A contingent liability also arises in the extremely rare case where there is a liability that cannot be recognised because it cannot be measured reliably. A contingent asset usually arise from unexpected past events that give rise to the possibility of an inflow of economic benefits to the Group and the Company and is not recognised unless it is realised.

(v) Segmental Reporting

Segment reporting is presented for enhanced assessment of the Group’s risk and returns. A segment is a distinguishable component of the Group that is engaged either in providing product or services (business segment), or in providing products or services within a particu-lar economic environment (geographical segment), which is subject to its risks and rewards that are different from the other segments.

Segment information is presented in respect of the Group’s business and geographical segments. The primary format, business segments, is based on the Group’s management and internal reporting structure.

71

Segment revenues and expenses are those amounts resulting from the operating activities of a segment that are directly attributable to the segments and include any joint revenue and expenses where a reasonable basis of allocation exists. Segment assets include all assets used by a segment and consist principally of cash, receivables, inventories, intangibles and prop-erty, plant and equipment, net of allowances, accumulated depreciation, amortisation and impairment. Most segment assets can be directly attributed to the segments on a reasonable basis. Segment assets and liabilities do not include income tax assets and liabilities. Segment revenue, assets and liabilities are determined before intra-group balances and intra-group transactions are eliminated as part of the consolidation process, except to the extent that such intra-group balances and transactions are between group within a single segment.

Inter-segment pricing is determined based on terms mutually agreed between the respective companies.

(w) Employee Benefi ts

(i) Short term employee benefi ts

Wages, salaries, social security contributions, paid annual leave, paid sick leave, bo-nuses and non-monetary benefi ts are recognised as an expense in the fi nancial year when employees have rendered their services to the Group and the Company.

Bonuses are recognised as an expense when there is a present, legal or constructive obligations to make such payments, as a result of past events and when a reliable estimate can be made of the amount of the obligations.

(ii) Defi ned contribution plans

The Group and the Company make contributions to a statutory provident fund and recognise the contribution payable as an expense in the fi nancial year in which the employees render their services. Once the contribution have been paid, the Group and the Company have no further payment obligation.

(iii) Share based compensation

As the Company’s share based payment contracts were signed and vested before 31st December 2004, the Company adopts the transitional provision of FRS 2: Share Based Payment which allows the Company to recognise the effect of the share op-tions transactions when the options are exercised.

72

(x) Earnings per share

The Group presents basic and diluted earnings per share (EPS) for its ordinary shares. Basic EPS is calculated by dividing the profi t or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the year. Diluted EPS is determined by adjusting the profi t or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilu-tive potential ordinary shares which comprise employees share options granted to employ-ees, non-cumulative irredeemable convertible preference shares and warrants.

(y) Effects on Financial Statements on Adoption of Revised FRS

(i) The effects on adoption of the following FRS in 2007 are set out below:-

FRS 117: Leases

The adoption of FRS 117 has resulted in a retrospective change in the accounting policy relating to the classifi cation of leasehold land. The upfront payment made for the leasehold land are now refl ected as prepaid lease payments and are amortised on a straight line basis over the remaining lease term. Prior to 1st January 2007, leasehold land were classifi ed under property, plant and equipment and were car-ried at cost less accumulated depreciation and impairment loss, if any.

Upon the adoption of FRS 117 at 1st January 2007, the unamortised amount of lease-hold land are retained as the surrogate carrying amount of prepaid lease payments as allowed by the transitional provisions of FRS 117. The reclassifi cation of leasehold land as prepaid lease payments has been accounted for retrospectively and com-parative fi gure as at 31st December 2006 have been restated accordingly.

The effects on the fi nancial statements of the Group as at 31st December 2007 are set out below:-

(a) Consolidated Balance Sheet as at 31st December 2007 --Increase/(Decrease)--

Description of change

RM

Property, plant and equipment (6,268,217)

Prepaid lease payments 6,268,217

73

(b) ) Consolidated Income Statement as at 31st December 2007 --Increase/(Decrease)--

Description of change

RM

Depreciation (308,597)

Amortisation of prepaid lease payment 308,597

(ii) The effects on adoption of the following FRS when it becomes effective are set out below:-

FRS 112: Income Taxes

The main changes introduced by FRS 112 affecting the Group is on the removal of the relevant provisions in FRS 1122004 which explicitly prohibit the recognition of deferred tax on the reinvestment allowances or other allowances in excess of capital allowance. With the removal, entities can now account for these items as tax credits or investment tax credits.

The adoption of the revised standard will result in a retrospective change in the accounting policy relating to the recognition of the potential deferred tax benefi ts arising from unutilised reinvestment allowances. The details and impact to the fi nancial statements should the Group choose to early adopt this revised standard are outlined below:-

74

RM

Deferred Tax Liabilities

As at 31st December 2006, as currently stated 7,543,931

Effect of adopting FRS 112 (1,985,000)

As at 31st December 2006, as restated 5,558,931


Effect of adopting FRS 112 -


Income Tax Expense

For the year ended 31st December 2006, as currently stated 1,897,501

Effect of adopting FRS 112 (1,907,250)

For the year ended 31st December 2006, as restated (9,749)

For the year ended 31st December 2007, as currently stated (2,012,421)

Effect of adopting FRS 112 1,985,000

For the year ended 31st December 2007, as restated (27,421)

Retained Earings

As at 31st December 2006, as currently stated (5,590,469)

Effect of adopting FRS 112 1,985,000



Effect of adopting FRS 112 -


75

5. CONCESSION ASSETS

Group / Company

2007RM

2006RM

Electronic Passport System 5,669,487 -

Solid Waste Disposal and Electricity

Power Generation Plant 10,128,852 -

15,798,339 -

Details of Concession Assets are as follows:-

2007Cost:

Electronic Passport System

RM

Solid Waste Disposal and

Electricity Power

Generation Plant

RMTotalRM

At 1st January 2007 - - -

Addition 5,669,487 10,128,852 15,798,339

At 31st Decmber 2007 5,669,487 10,128,852 15,798,339

Note: No amortisation had been made as the concession assets are still in progress.

2006: Nil

76

6. PROPERTY, PLANT AND EQUIPMENT

The details of property, plant and equipment are as follows:-

Group2007Cost:

At 1st

JanuaryRM

AdditionRM

Reclassifi cationRM

ReversalRM

Disposal/ Written off

RM

At 31st December

RM

Buildings

- cost 55,797,942 - 626,058 - - 56,424,000

- valuation 4,806,947 - (626,058) - - 4,180,889

Offi ce furniture and

equipment 15,004,936 1,668,350 - (193,219) (13,590) 16,466,477

Motor vehicles 1,359,044 144,864 - - (60,000) 1,443,903

Plant and machinery 73,014,744 8,612,597 - - (2,060,688) 79,566,653

Total 149,983,613 10,425,811 - (193,219) (2,134,278) 158,081,927

Accumulated Depreciation:

At 1st

JanuaryRM

Charge for the Year

RM

Reclassi-fi cation

RMReversal

RM

Disposal/ Written off RM

At 31st December

RM

Net Book Value at 31st

DecemberRM

Buildings

- cost 1,859,932 929,966 - - - 2,789,898 53,634,102

- valuation 412,748 209,405 - - - 622,153 3,558,736


equipment 6,928,152 2,074,585 - (10,818) (1,150) 8,990,769 7,475,708

Motor vehicles 717,066 215,672 - (20,064) (59,999) 852,675 591,233Plant and machinery

37,136,641 7,241,537 - (1,957,311) (2,016,035) 40,404,832 39,161,821

Total 47,054,539 10,350,967 (181,671) (1,988,193) (2,077,184) 53,660,327 104,421,600

77



Group2006Cost:

At 1st

JanuaryRM

AdditionRM

Acquisition of

subsidiaryRM

Returned/Reclassi-fi cation

RM


RM

At 31st December

RM

Buildings

- cost 55,797,942 - - - - 55,797,942

- valuation 4,806,947 - - - - 4,806,947


equipment 11,085,9761 3,512,360 406,615 - - 15,004,936

Motor vehicles 1,762,757 178,443 74,765 - (656,921) 1,359,044

Plant and machinery 63,393,727 10,798,262 - *(890,932) (286,313) 73,014,744

Total 136,847,334 14,489,065 481,380 (890,932) (943,234) 149,983,613


At 1st

JanuaryRM

Charge for the Year

RM

Acquisition of

subsidiaryRM

Returned/Reclassi-fi cation

RM

Disposal/ Written off RM

At 31st December

RM


DecemberRM

Buildings

- cost 929,966 929,966 - - - 1.859.932 53,938.010

- valuation 206,374 206,374 - - - 412.748 4.394.199


equipment 5,252,232 1,507,089 395,977 (227,146) - 6.928.152 8.076.784

Motor vehicles 978,702 214,335 74,764 30,050 (580.785) 717.066 641.978

Plant and machinery 30,431,242 7,018,120 - *(160,108) (152.613) 37.136.641 35.878.103

Total 37,798,516 9,875,884 470,741 (357,204) (733.398) 47.054.539 102.929.074

* During the fi nancial year ended 31st December 2006, the Group had returned a defective machine costing RM890,932 to supplier. The accumulated depreciation for the machine of RM160,108 has been reversed to income statement in the same year.

78



Group2007Cost:

At 1st

JanuaryRM

AdditionRM

Reclassifi cationRM


RM

At 31st December

RM


equipment 3,450,095 689,632 - (11,790) 4,127,937

Motor vehicles 660,218 144,864 - (60,000) 745,082

Plant and machinery 306,230 178,487 - (34,290) 450,427

Total 4,416,543 1,012,983 - (106,080) 5,323,446


At 1st

JanuaryRM

Charge for the Year

RMReclassifi cation

RM


RM

At 31st December

RM


DecemberRM


equipment 2,159,425 652,056 - (1,135) 2,810,346 1,317,591

Motor vehicles 352,422 106,959 - (59,999) 399,382 345,700

Plant and machinery 224,246 81,786 - - 306,032 144,395

Total 2,736,093 840,801 - (61,134) 3,515,760 1,807,686

Group2006Cost:

At 1st

JanuaryRM

AdditionRM

Reclassifi cationRM


RM

At 31st December

RM


equipment 2,949,104 500,991 - - 3,450,095

Motor vehicles 888,142 101,243 - (329,167) 660,218

Plant and machinery 592,543 - - (286,313) 306,230

Total 4,429,789 602,234 - (615,480) 4,416,543


At 1st

JanuaryRM

Charge for the Year

RMReclassifi cation

RM


RM

At 31st December

RM


DecemberRM


equipment 2,034,768 351,803 (227,146) - 2,159,425 1,290,670

Motor vehicles 569,190 82,349 30,050 (329,167) 352,422 307,796

Plant and machinery 322,743 47,173 6,943 (152,613) 224,246 81,984

Total 2,926,701 481,325 (190,153) (481,780) 2,736,093 1,680,450

79

All of the above building, plant and equipments are charged to the bank for banking facilities granted to a subsidiary company and for the bonds issued by them.

The building was revalued on 31st December 2004 based on the market value at that date by a professional valuer.

Cost of plant and equipment acquired during the year which were fi nanced by hire purchase payments are:-

Group Company

2007 2006 2007 2006RM RM RM RM

Offi ce furniture and equipment - 557,463 - -

Motor vehicles 129,000 159,500 129,000 94,000

Plant and machinery - 6,800,000 - -

129,000 7,516,963 129,000 94,000

The net book value of the plant and equipment which were acquired under hire purchase and fi nance lease agreement are:-

Group Company

2007 2006 2007 2006RM RM RM RM

Offi ce furniture and equipment 352,257 538,060 - -

Motor vehicles 562,211 606,444 34,595 307,79

Plant and machinery 17,227,850 20,372,176 - -

18,142,318 21,516,680 34,595 307,79

80

7. PREPAID LEASE PAYMENTS

Group

2007 2006

RM RM

Valuation:

At 1st January 7,193,398 -

Effect of adopting FRS 117 - 7,193,398

As at 31st December 7,193,398 7,193,398

Accumulated Amortisation

At 1st January 616,584 -

Effect of adopting FRS 117 - 308,292

Amortisation during the year 308,597 308,292

At 31st December 925,181 616,584

Net Book Value

at 31st December 6,268,217 6,576,814

The short term leasehold land is charged to bank for credit facilities granted to the Group and the Company.

The short term leasehold land comprise leasehold interest with an unexpired lease tenure of 18 (2006: 19) years and were revalued on 21st December 2004 based on the market value as at that date by a professional valuer.

81

8. RESEARCH AND DEVELOPMENT EXPENDITURE

The balances are made up as follows:-

Group Company

2007 2006 2007 2006RM RM RM RM

Balance at beginning of the year 10,736,295 9,743,251 10,736,295 9,743,251

Addition during the year 3,031,829 4,824,964 3,031,829 4,824,964

Addition through subsidiary

acquired - 136,911 - -

13,768,124 14,705,126 13,768,124 14,568,215

Expensed during the year (1,637,013) (2,186,246) (1,637,013) 2,186,246

Abortive expenses written off - (136,911) - -

Charged out as purchases

during the year (1,853,210) (463,134) (1,853,210) (463,134)

10,277,901 11,918,835 10,277,901 11,918,835

Government grant received

during the year* - (1,182,540) - (1,182,540)

Balance at end of the year 10,277,901 10,736,295 10,277,901 10,736,295

* The Group and the Company had obtained government grant totalling RM3,700,000 of which RM1,182,540 were received during the fi nancial year ended 31st December 2006. The grant is given for the development of technology related products.

9. PATENTS, LICENSES AND COPYRIGHTS

Group Company

2007 2006 2007 2006

RM RM RM RM

These consist of:-

Patents at cost:


Addition during the year - 805,585 - -

Expensed during the year (113,626) (113,626) (113,626) (113,626)


82

9. PATENTS, LICENSES AND COPYRIGHTS

Group Company

2007 2006 2007 2006

RM RM RM RM

License fee at cost:


Expensed during the year (501,432) (501,432) (501,432) (501,432)


Copyright at cost:

Balance at beginning of the year 8,670,000 9,435,000 - -

Expensed during the year (765,000) (765,000) - -

Balance at end of the year 7,905,000 8,670,000 - -

Total at end of the year 15,678,397 17,058,455 6,967,812 7,582,870

10. GOODWILL

Group

2007 2006

RM RM

Subsidiary companies:

At beginning of the year 134,126,066 128,412,158

Addition during the year - 5,713,908

At end of the year 134,126,066 134,126,066

The recoverable amount of the investments in subsidiaries and purchased goodwill were based on its value in use and the recoverable amount is higher than the carrying amount of these intangible assets. There is no impairment loss recognised during the year.

Value in use was determined by discounting the future cash fl ows generated from the continuing use of the investment in a subsidiary and purchased goodwill and was based on the following assumptions:-

83

(a) Cash fl ows were projected based on actual operating results and the 5 year business plan;

(b) the subsidiary will continue its operation indefi nitely; and

(c) The size of operation will remain with at least or not lower than the current results.

The key assumptions represent management’s assessment of future trends in the information technology industry and are based on both external sources and internal sources (historical data).

11. INVESTMENT IN ASSOCIATED COMPANY

Group Company

2007 2006 2007 2006

RM RM RM RM

Unquoted shares, at cost 7,013,820 6,200,000 5,813,820 5,000,000

Share of post acquisition loss (792,739) (746,910) - -

6,221,081 5,453,090 5,813,820 5,000,000

The Group’s investment in the associated company is analysed as follows:-

Group Company

2007 2006

RM RM

Share of net tangible assets 5,171,912 4,679,614

Goodwill 1,049,169 773,476

6,221,081 5,453,090

The associated companies are:-

Place of Effective

Name Incorporation Principal Activities Interest

2007 2006

% %

GMPC Corporation Sdn Bhd * (Company No: 334028 H)

Malaysia

Provision of multipurpose Smart Cards to the Malaysian Government

20 20

84

Place of Effective Name Incorporation Principal Activities Interest

2007 2006 % %

Multimedia Display Malaysia Research, development, 44.44 44.44Technologies Sdn Bhd* marketing and (Company No: distribution of CRT/LCD522281 U) display monitors and Radio frequency identity system (RFID). Loyalty Wizards Malaysia Provision of solutions 20 20 Sdn Bhd* for loyalty management(Company No: program.621640 D)

Paysys (M) Sdn Bhd* Malaysia Provision of terminals 30 - (Company No: and solutions for credit496263 K) card transactions.

* Equity accounting was done based on management fi nancial statements as the audited fi nancial statements of these companies were not available.

Group’s share of the associated companies revenue, expenses, assets and liabilities are as follows:-

Group Company

2007 2006 2007 2006

RM RM RM RM

Revenue 17,091,421 18,817,807 3,186,333 2,070,139

Expenses 17,137,250 17,273,647 3,157,440 2,153,479

Total Assets 12,413,627 13,285,856 6,655,392 10,363,966

Total Liabilities 7,715,857 8,606,446 1,857,574 835,141

85

12. OTHER INVESTMENTS - at cost

Group / Company

2007 2006

RM RM

Unquoted investment in incorporated in Singapre 2,377,980 1,862,125

Unquoted investment incorporated in Hong Kong 981,000 981,000

Golf Club Membersip incorporated in Malaysia 406,400 406,400

3,765,380 3,249,525

Less:

Allowance for impairment loss in value

of unquoted investment (3,358,980) (981,000)

406,400 2,268,525

The fair value of the investment in Golf Club Membership, incorporated in Malaysia, as at 31st December 2007 was RM406,400 (2006: RM406,400) estimated based on subscription price offered to new members.

13. INVENTORIES Group Company

2007 2006 2007 2006

RM RM RM RM

Inventories are stated at cost

and consist of:-

Raw material 43,883,661 54,874,734 22,831,757 23,852,470

Work in progress 10,638,715 14,136,967 - -

Finished goods 31,774,158 30,336,451 7,175,828 6,322,175

Goods held for resale at cost 265,166 - - -

86,561,700 99,348,152 30,007,585 30,174,645

Less:

Allowance for slow moving

Inventories (10,848,022) (8,173,124) (4,453,319) (2,417,408)

75,713,678 91,175,028 25,554,266 27,757,237

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14. TRADE RECEIVABLES

Group Company

2007 2006 2007 2006

RM RM RM RM

Trade receivables 86,153,051 86,575,668 28,722,832 32,965,252

Less:

Allowance for doubtful debts (6,917,493) (4,914,519) (2,524,014) (1,825,007)

Allowance for doubtful debts

through acquisition of

Subsidiary - (978) - -

79,235,558 81,660,171 26,198,818 31,140,245

The Group’s and the Company’s normal trade credit terms are between 30-60 days (2006: 30-60 days) except for certain cases where the credit terms are assessed and approved on negotiated terms.

Included in trade receivables is an amount due from a related party namely MCS Microsystems Sdn Bhd amounting to RM Nil (2006: RM39,250).

15. OTHER RECEIVABLES, DEPOSITS AND PREPAYMENTS Group Company

2007 2006 2007 2006

RM RM RM RM

Other receivables 18,604,170 17,287,841 55,613 55,613

Deposits 1,588,807 3,095,124 1,322,200 2,637,544

Prepayments 12,001,375 13,513,510 5,832,565 4,721,492

32,194,352 33,896,475 7,210,378 7,414,649

Less:

Allowance for doubtful debts (2,659,944) (2,659,944) - -

29,534,408 31,236,531 7,210,378 7,414,649

Other receivables represent amounts advanced for projects which have credit term based on the completion period of each project.

Included in the prepayments of the Group and the Company are RM4,212,230 (2006: RM5,830,974) and RM2,806,573 (2006: RM3,929,203) respectively representing amount discounted from proceeds from issue of bonds (Note 24) which will be amortised over the bonds repayment period of 7 years from the bonds issue date.

87

16. AMOUNT DUE FROM ASSOCIATED COMPANY

Group/Company

The amount due represents trade balances and is interest free with no fi xed term of repayment. The amount due is charged against the bonds.

17. AMOUNT DUE FROM/(TO) RELATED COMPANY

Group/Company

The amounts due from/(to) the related companies represent trade balances and are interest free with no fi xed term of repayment.

18. FIXED DEPOSITS WITH LICENSED BANKS

Group/Company

Fixed deposits of the Group and the Company amounting to RM6,992,232 (2006: RM9,209,465) and RM4,895,176 (2006: RM7,622,409) respectively are charged to the bank for credit facilities granted to the Group and the Company.

The fi xed deposits of the Group and the Company earned effective interest of 3.0% - 4.5% (2006: 3.0%-4.5%) per annum.

The average maturity period of fi xed deposits of the Group and the Company range from 6 to 365 (2006: 6 to 365) days.

19. TRADE AND OTHER PAYABLES AND ACCRUALS

Group/Company

The normal trade credit terms granted to the Group and the Company range from 30 to 120 (2006: 30 to 120) days except for certain cases where the credit terms are obtained on negotiated basis.

Included in trade payables of the Group and the Company is amount due to an associated company namely Paysys (M) Sdn Bhd amounting to RM14,135 (2006: RM Nil).

Included in trade payables of the Group is amount due to a related party namely MCS Microsystems Sdn Bhd amounting to RM 169,767 (2006: RM8,946).

Included in other payables of the Group and the Company is amount due to a related party namely MCS Microsytems Sdn Bhd amounting to RM Nil (2006: RM1,254).

88

20. AMOUNT DUE TO A DIRECTOR

Group/Company

The amount due represents advances made and is unsecured, interest free with no fi xed term of repayment.

21. HIRE PURCHASE PAYABLES Group Company

2007 2006 2007 2006

RM RM RM RM

Mimiumum hire purchase

payments:

Not later than 1 year 945,667 977,530 113,676 89,280

Later than 1 year and not

later than 5 years 766,436 1,561,930 357,191 320,692

Later than 5 years 21,888 39,011 21,888 39,011

1,733,991 2,578,471 492,755 448,983

Less:

Future fi nance charges (147,843) (273,618) (71,720) (72,947)

Present value of hire

purchase liabilities 1,586,148 2,304,853 421,035 376,036


purchase liabilities:

Not later than 1 year 868,889 838,294 96,024 74,592


later than 5 years 697,068 1,433,664 304,820 268,549

Later than 5 years 20,191 32,895 20,191 32,895

1,586,148 2,304,853 421,035 376,036

Instalments due:

Within next 12 months 868,889 838,294 96,024 74,592

After next 12 months 717,259 1,466,559 325,011 301,444

1,586,148 2,304,853 421,035 376,036

The hire purchase payables of the Group and the Company bear interest at rates ranging from 2.5% to 5.13% (2006: 2.5% to 5.13%) per annum.

The effective interest rate of the Group and the Company ranges from 4.25% to 7.14% (2006: 4.25% to 7.14%)

89

22. LEASE PAYABLES

Group

2007 2006

RM RM

Mimiumum lease payments:

Not later than 1 year 6,071,760 6,077,411


later than 5 years 7,315,053 13,386,573

13,386,813 19,463,984

Less:

Future fi nance charges (1,128,038) (2,255,296)


purchase liabilities 12,258,775 17,208,688


purchase liabilities:

Not later than 1 year 5,345,796 4,949,913


later than 5 years 6,912,979 12,258,775

12,258,775 17,208,688

Instalments due:

Within next 12 months 5,345,796 4,949,913

After next 12 months 6,912,979 12,258,775

12,258,775 17,208,688

The Group’s lease payables bear interest of 3.01% - 5.65% (2006: 3.01 – 5.65%) per annum.

The effective interest rate of the Group and the Company ranges from 5.70% to 10.22% (2006: 5.70% to 10.22%)

90

23. BANK BORROWINGS

Group Company

2007 2006 2007 2006

RM RM RM RM

Revolving credit 5,925,511 10,385,277 - -

Murabahah Commercial

Papers 15,000,000 20,000,000 - -

Bank overdraft (Note 35) - 2,565,133 - 2,564,853

Bankers’ acceptance 12,062,000 14,044,000 8,292,000 8,572,000

32,987,511 46,994,410 8,292,000 11,136,853

Group/Company

Bank Overdraft and Bankers Acceptance

The bank overdraft and bankers acceptance facility are secured against the following:-

(a) Debenture creating fi xed and fl oating charges over all the present and future assets of the Company ranking pari-passu with the Al-Bai Bithaman Ajal Islamic Debt securities bond holders;

(b) Joint and several guarantee by directors namely Dato’ Tan Say Jim, Lee Kwee Hiang and Yap Hock Eng; and

(c) A facility agreement executed between the customers and the bank.

The bank overdraft bear interest rate at 2% (2006: 2%) per annum above Bank’s Base Lending Rate (BLR). Current year’s BLR is 6.25%.

The bankers acceptance bears interest ranging from 5.44%-6.15% (2006: 5.44%-6.15%) per annum. They are redeemable within 30 days to 120 days (2006: within 127 days to 150 days) from the issue date and are secured by letter of undertaking from the Group and the Company to effect Deed of As-signment on future contracts.

Murabahah Commercial Papers

The Murabahah Commercial Papers are redeemable within 183 to 365 days (2006: within 365 days) from issue date and are secured by second charge over the short term leasehold building and bear interest of 6.0%-6.5% (2006: 5.3%-5.5%) per annum.

Revolving Credit

Revolving credit are secured by assignment of contract proceeds which is credited into Project Ac-count and will be maintained with a bank. It bears interest at bank cost of funds (COF) plus a margin of 1.75 % per annum.

91

24. BONDS

The bonds, Bai Bithaman Ajil Islamic Debt Securities (“bonds”) at year end are made up as follows:-

Group Company

2007 2006 2007 2006

RM RM RM RM

Amount redeemable within:

- next 2 years 55,000,000 40,000,000 55,000,000 40,000,000

- next 2 to 5 years 95,000,000 125,000,000 35,000,000 65,000,000

150,000,000 165,000,000 90,000,000 105,000,000

Less:

Amount redeemable within

next 12 months (25,000,000) (15,000,000) (25,000,000) (15,000,000)

125,000,000 150,000,000 65,000,000 90,000,000

Consists of:

- Fixed profi t rate bonds 60,000,000 60,000,000 - -

- Variable profi t rate bonds 90,000,000 105,000,000 90,000,000 105,000,000

The principal features of the bonds are as follows:-

(a) The fi xed profi t rate bonds are required to pay profi t on principal at 7% per annum while the variable profi t rate bonds are required to pay profi t ranging from 5.25% to 6.70% per annum gradually increasing from the date of issue until full redemption date as shown in the following Note (b) and (c) below.

(b) The fi xed profi t rate bonds and variable profi t rate bonds were issued on 31st October 2003 and 27th June 2003 respectively.

(c) The fi xed profi t rate bonds are redeemable on its maturity date which is 7 years from issue date. The variable profi t rate bonds redemption dates and values are as follows:-

Redemption date Profi t rate

Nominal Amount from issue date Per annum

RM15,000,000 2 years 5.25%

RM15,000,000 3 years 5.75%

RM15,000,000 4 years 6.10%

RM25,000,000 5 years 6.30%

RM30,000,000 6 years 6.50%

RM35,000,000 7 years 6.70%

92

(d) The above bonds are secured by:-

(i) Fixed and fl oating charge over all present and future assets of the Company;

(ii) An assignment over the Promissory Notes issued by IRIS Technologies (M) Sdn Bhd for RM17,500,000 (2006: RM26,000,000) together with all rights thereon;

(iii) A fi rst charge over the Designated Account which consist of Debt Service Reserve Account, Principal Redemption Account and the Proceeds Account, all were created to maintain bond redemption fund in the Company and ranked fi rst in priority;

(iv) A second ranking charge over all proceeds and receivable balances of certain projects of the subsidiary company, IRIS Technologies (M) Sdn Bhd; and

(v) A fi rst ranking charge over all building, land , plant and machinery of IRIS Technologies (M) Sdn Bhd.

Fair values of the above bonds for the Group and the Company as at year end are RM146,455,352 (2006:RM177,052,277) and RM88,001,610 (2006: RM102,544,336) respectively.

25. SHARE CAPITAL Group/Company

2007 2006

No. of shares RM No. of shares RM

(a) Authorised:

Ordinary shares of RM0.15 each

At end of the year 2,500,000,000 375,000,000 2,500,000,000 375,000,000

Non-Cumulative Irredeemable

Convertible Preference Shares

(“ICPS”) of RM0.15 each

At end of the year 700,000,000 105,000,000 700,000,000 105,000,000

93

25. SHARE CAPITAL Group/Company

2007 2006

No. of shares RM No. of shares RM

(a) Issued and fully paid:

Ordinary shares of RM0.15 each

At beginning of the year 1,158,457,350 173,768,603 914,005,133 137,100,770

ESOS exercised during the year 6,191,600 928,740 21,596,700 3,239,505

ICPS conversion to ordinary

Share 79,992,451 11,998,868 214,221,726 32,133,259

Warrant exercised during

the year 150 22 8,633,791 1,295,069

Private placement 124,000,000 18,600,000 - -

At end of the year 1,368,641,551 205,296,233 1,158,457,350 173,768,603

Non-Cumulative Irredeemable Convertible Preference Shares (“ICPS”) of RM0.15 each

At beginning of the year 154,121,807 23,118,271 - - Issued during the year - - 368,343,533 55,251,530 Conversion to ordinary Share (79,992,451) (11,998,868) (214,221,726) (32,133,259) At end of the year 74,129,356 11,119,403 154,121,807 23,118,271

Total 216,415,636 196,886,874

EMPLOYEE SHARE OPTION SCHEME

The Company initiated Employee Share Option Scheme (“ESOS”) on 16th February 2004. The ESOS is governed by the by-laws which were approved by the shareholders on 28th January 2004. The main features of the ESOS are as follows:-

(a) The total number of ordinary shares to be issued by the Company under the ESOS shall not exceed 10% of the total issued and paid-up ordinary shares of the Company and ranked pari passu in all respects with the existing issued ordinary shares of the Company except that they will not be entitled to any dividends, rights or other distributions if the entitlement date is before allotment date;

b) The initial option price offered was RM0.28 and has been reduced to RM0.24 after revision on 15th June 2006;

(c) The options granted may be exercised at any time before the expiry of the ESOS on 15th February 2009;

(d) Only 12.5% of the options can be exercised in the fi rst year, 12.5% in the second year, 20% in the third year, 25% in the fourth year and the remaining 30% in the fi fth year; and

(e) The persons to whom the options have been granted have no right to participate by virtue of the options in any issued shares of any other Company.

94

As at 31st December 2007, 28,460,100 units of shares under ESOS have since been subscribed and 54,873,253 share options were outstanding under the scheme.

Options are conditional on the employee completing one year’s service (the vesting period). The options are exercisable starting one year from the grant date and have a contract term of fi ve years. The Group has no legal or constructive obligation to repurchase or settle the options in cash.

Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:-

Year Ended 31.12.2007

AverageExercise

Price Options RM/share

At beginning of the year 0.24 61,064,853

Exercised 0.24 (6,191,600)

At end of the period 0.24 54,873,253

NON-CUMULATIVE IRREDEEMABLE CONVERTIBLE PREFERENCE SHARES

On 27th June 2006, the Company issued 368,343,533 units of 3% Non-cumulative Irredeemable Convertible Preference shares (“ICPS”) at RM0.15 each. The main features of the ICPS are as follows:-

(a) ICPS are unsecured and shall rank pari passu amongst all ICPS in all respects and without discrimination or preference;

(b) Not redeemable for cash. Unless previously converted, all ICPS will be mandatorily converted into new ICB shares at the Conversion Price on the Maturity Date of the ICPS;

(c) The tenor of the ICPS is fi ve (5) years commencing from and inclusive of the date of issue (27th June 2006);

(d) Annual non-cumulative preferential dividend rate of 3% per annum upon declaration calculated based on the nominal value of RM0.15 per ICPS;

(e) Preferential dividends on the ICPS shall be payable on an ICPS dividend date up to the maturity date. ICPS dividend date means the market day immediately before the ICPS anniversary date of the issue date and if such anniversary date falls on a date which is not a market day, than the next market day;

(f ) The registered holder of the ICPS has the right to convert the ICPS at the conversion price into new ordinary shares of RM0.15 each in ICB or at any time from the date of listing up to and including the maturity date of the ICPS;

(g) The conversion price is fi xed at RM0.15 per share;

(h) The conversion price shall be satisfi ed by surrendering one (1) ICPS for each new ordinary share in ICB;

95

(i) The ICPS shall carry no right to vote at any general meeting of ICB except with regard to any proposal to reduce the capital of ICB to dispose of the whole of ICB’s property, business and undertaking, to wind up ICB, during the winding-up of ICB and on any proposal that affects the rights attached to the ICPS. In any case, the holders of ICPS shall be entitled to vote together with the holders of ordinary shares and to one (1) vote for each ICPS held;

Each ICPS shall entitle a holder to one (1) vote at any class meeting in relation to any proposal by ICB to vary or abrogate the rights of ICPS as stated in the Articles of Association of ICB. In all class meetings, each ICPS shall entitle the holder to one (1) vote;

(j) The new ICB shares to be issued upon conversion of the ICPS shall upon allotment and issue, rank pari passu in all respects with ICB’s existing shares except that such new ICB shares shall not be entitled to any dividends, rights, allotments and/or other distributions that may be declared, the entitlement date of which is prior to the date of allotment of the said new ICB shares;

(k) The right on a winding up offer or other return of capital, in priority to any payment to the holders of any other ICB shares (but pari passu amongst the ICPS holders) then in issue in the capital of ICB;

(l) The ICPS holders shall not be entitled to participate in surplus assets and profi ts, and in any distribution and/or offers of further securities until and unless such ICPS holders convert their ICPS into new ICB shares; and

(m) The conversion price may be adjusted from time to time by ICB, in consultation with ICB’s professional advisers (auditors, merchant banks or universal brokers), in certain circumstances such as capitalization of reserves, or rights issues of shares, or capital distribution whether by way of reduction of capital or otherwise (but excluding any cancellation of capital that is lost or unrepresented by available assets), which would in the opinion of the ICB’s Board have the effect of diluting the interest of the ICPS holders provided that in no event shall any adjustment involve a reduction of the conversion price below the par value of the ordinary shares for the time being.

WARRANTS

On 24th April 2006, the Company executed a deed poll (“Deed Poll”) pertaining to creation and issuance of 55,251,530 2006/2016 warrants on the basis of three (3) warrant for every fi fty (50) existing ordinary shares held in the Company. The warrants were listed on Malaysian Exchange of Securities Dealings and Automated Quotation Berhad (“MESDAQ).

On 27th June 2006, the Company issued 55,251,530 units of detachable warrants to the shareholders of the Company on the basis of twenty (20) ICPS and three (3) free warrants for every fi fty (50) existing ordinary shares of RM0.15 each held in the Company.

A premium of RM0.15 is payable on conversion of each warrant into ordinary shares.

The main features of the 2006/2016 warrants are as follows:-

(a) Each warrant will entitle the registered holder to subscribe for one (1) new ordinary share of par value of RM0.15 each in the Company at an exercise price of RM0.15 each subject to adjustment in accordance with the conditions stipulated in the Deed Poll;

(b) The warrants may be exercised at any time on or before the maturity date falling ten years (2006/2016) from the date of issue of the warrants on 27th June 2006. Warrants not exercised after the exercise period will thereafter lapse and cease to be valid;

96

(c) The new shares to be issued pursuant to the exercise of the warrants shall, upon allotment and issue, rank pari passu in all respects with the existing ordinary shares of the Company in issue except that they will not be entitled to any dividends, rights, allotment or other distributions, the entitlement date of which is before the allotment and issuance of the new shares; and

(d) The persons to whom the warrants have been granted have no rights to participate in any distribution and/on offer of further securities in the Company until/and unless warrants holders exercise their warrant for new shares.

During the year, 150 units of warrants have been converted into ordinary shares of RM0.15 each by virtue of the exercise of warrants to take up unissued shares of the Company. As of the end of the fi nancial year, 46,617,589 warrants remained unexercised.

26. RESERVES

Group Company

2007 2006 2007 2006

RM RM RM RM

NON-DISTRIBUTABLE:

SHARE PREMIUM

At beginning of the year 26,653,131 25,444,983 26,653,131 25,444,983

Arising during the year 8,398,585 1,208,148 8,398,585 1,208,148

At end of the year 35,051,716 26,653,131 35,051,716 26,653,131

TRANSLATION RESERVE

At beginning of the year (2,274,887) (2,244,663) - -

Realisation of translation

reserve on subsidiary

written off 2,274,887 - - -

Translation of foreign

subsidiary’s reserve - (30,224) - -

At end of the year - (2,274,887) - -

REVALUATION RESERVE

At beginning of the year 14,255,821 14,448,027 - -

Realisation on building

cost (626,058) - -

Overprovided deferred taxation 175,296 - -

Realisation on usage of

property (289,083) (192,206) - -

At end of the year 13,515,976 14,255,821 - -

97

DISTRIBUTABLE:

RETAINED PROFIT/

(ACCUMULATED LOSSES)

At beginning of the year (5,590,469) (10,550,845) (53,955,157) (38,469,003)

Profi t/(Loss) for the year 7,532,838 4,768,170 (18,078,096) (15,486,154)

Realisation on usage of

property 289,083 192,206 - -

At end of the year 2,231,452 (5,590,469) (72,033,253) (53,955,157)

TOTAL 50,799,144 33,043,596 (36,981,537) (27,302,026)

27. OTHER PAYABLES

Included in other payables is amount due to lessor for leasehold land as follows:-

Group

2007 2006

RM RM

Portion repayable within next 2 years 753,199 759,954

Portion repayable within next 2-5 years 455,973 455,973

Portion repayable after 5 years 2,129,801 2,281,793

3,338,973 3,497,720

Less:

Portion repayable within next 12 months

(included in current liabilities) (601,208) (607,964)2,737,765 2,889,756

28. DEFERRED TAXATION Group

2007 2006

RM RM

Deferred taxation liability arising from

revaluation of the property, plant and equipment:

At beginning of the year 7,543,931 5,666,212

Effect of different tax rate at beginning of the year (214,246) -

Transferred to income statement (Note 33) (112,421) (122,281)

Recognised in current year 5,200,000 560,044

Overprovided deferred

taxation on revaluation reserve in prior year (175,296) -

(Over)/Underprovided in prior year (6,885,754) 1,439,956

At end of the year 5,356,214 7,543,931

Presented after appropriate offsetting as follows:-

98

2007 2006

RM RM

Deferred tax asset 3,100,000 3,853

Deferred tax liabilities (8,456,214) (7,547,784)

(5,356,214) (7,543,931)

Deferred Tax Asset Unabsorbed Tax Losses

2007 2006

RM RM

At 1st January 3,853 -

Recognised in the income statement

- effect of diferent tax rate (453) -

- transfer from income statement (3,900,000) (971,279)

- underprovision in prior year 6,996,600 975,132

At 31st December 3,100,000 3,853

Deferred Tax Liability

Excess of capital allowance over

depreciation

RM

Revaluation Reserve

RM

Total

RM

At 1st January 2007 2,003,853 5,543,931 7,547,784


- transfer from/(to) income statement 1,300,000 (112,421) 1,187,579

- underprovision in prior year 110,846 - 110,846

- overprovided of deferred

taxation on revaluation reserve in prior year - (175,296) (175,296)

- effect of different tax rate (214,699) - (214,699)

At 31st December 2007 3,200,000 5,256,214 8,456,214

Excess of capital allowance over

depreciation

RM

Revaluation Reserve

RM

Total

RM

At 1st January 2006 - 5,666,212 5,666,212


- transfer from income statement (411,235) (122,281) (533,516)

- underprovision in prior year 2,415,088 - 2,415,088

At 31st December 2006 2,003,853 5,543,931 7,547,784

99

29. REVENUE

Group/Company

Revenue represents invoiced value of sales and services rendered net of discounts and are as follows:- Group Company

2007 2006 2007 2006

RM RM RM RM

Technology consulting,

implementation research

and development 218,727,482 233,748,844 55,036,897 66,301,609

Agricultural 801,858 1,131,742 - -

219,529,340 234,880,586 55,036,897 66,301,609

30. FINANCE COSTS Group Company

2007 2006 2007 2006

RM RM RM RM

Commercial papers interest 1,139,760 986,667 - -

Bank overdraft interest 5,207 195,031 5,207 195,031

Bond interest 12,146,243 12,317,229 7,450,129 7,621,115

Commitment fee 546,772 465,456 364,581

Other interest payment - 1,121,700 - -

Lease and hire purchase

interest 1,269,559 1,288,231 17,513 21,816

LC charges 6,995 - -

Letter of credit and bankers

acceptance interest 838,520 1,056,982 129,868 119,795

15,953,056 17,431,296 7,967,298 7,957,757

31. EXCEPTIONAL ITEMS Group Company

2007 2006 2007 2006

RM RM RM RM

Allowance for impairment

loss on other investment 2,377,980 - 2.377,980 -

Effect of subsidiary written

off (Note 36E) (683,524) - - -

1,694,456 - 2.377,980 -

100

32 . PROFIT/(LOSS) BEFORE TAXATION

Group Company2007RM

2006RM

2007RM

2006RM

Profi t/(Loss) before taxation is

stated after charging/ (crediting):-

Allowance for contract

foreseeable loss

(included in cost of sales) 988,770 - - -

Amortisation of prepaid

lease payments 308,597 308,292 - -

Allowance for slow moving inventories 2,674,898 - 2,035,911 -

Allowance for impairment loss on other investment 2,377,980 - 2,377,980 -

Audit fees

- current year 54,250 61,021 25,020 25,030

- underprovision in prior year 50,535 - 27,330 -

Bad debts written off

-trade 34,338 - 34,140 -

Property, plant and equipment

written off 15 133,700 - 133,700

Inventories written off - 1,184,065 - 1,184,065

Allowance for doubtful debts 2,315,247 1,786,797 1,041,000 1,045,007

Amortisation of patents and copyrights (included in cost of sales) 1,380,058 1,380,058 615,058 615,058

Amortisation of research and development expenditure (Included in cost of sales) 1,637,013 2,186,246 1,637,013 2,186,246Development expenditure

written off - 136,911 - -

Depreciation

- included in cost of sales 5,852,643 6,835,371 198,585 54,116

- included in administrative

expenses 2,830,329 2,683,309 642,216 237,056

Directors’ emoluments 1,331,535 642,575 1,175,535 413,075

Directors’ fees 905,800 1,309,000 637,000 1,069,000

Gain on disposal of property, plant

and equipment (23,521) (53,364) (14,329) (78,000)

(Gain)/Loss on foreign exchange

- realised (1,352,687) (2,001,941) 780,770 392,396

- unrealised 1,532,589 (351,506) 872,790 -

Realised gain on translation

reserve from subsidiary

written off (683,524) - - -

Interest income (780,961) (1,017,918) (593,457) (589,886)

Lease rental 793,338 5,562 793,338 5,562

101

Group Company

2007 2006 2007 2006

Rental

- included in cost of sales - - 754,313 673,797


expenses 651,836 85,038 431,072 195,276

Rental of mould 9,975 26,732 - -

Research and development

expenses

- included in cost of sales 1,495,109 877,916 - -


expenses 103,405 481,932 - 466,756

Rental income (923,792) (855,405) - -

Royalty expenses

- included in cost of sales 27,298 7,826,976 15,330 620,776


expenses 124,447 - - -

Staff cost

- included in cost of sales 12,798,629 14,090,005 6,484,695 7,091,616


expenses 14,974,785 16,576,037 1,278,326 3,469,279

33. TAXATION Group Company

2007 2006 2007 2006

RM RM RM RM

Underprovision in

prior year - 19,782 - 19,782

Effect of different tax rate

at beginning of the year (214,246) - - -

Deferred Tax Liability

(Note 28)

- recognised in current year 5,200,000 560,044 - -

- (over)/underprovided in (6,885,754) 1,439,956 - -

prior year

Realisation of deferred

taxation on usage of

factory building and

leasehold land (Note 28) (112,421) (122,281) - -

(2,012,421) 1,897,501 - 19,782

102

There is no charge to taxation as the Company’s statutory income was tax exempted for a period of 10 years commencing from 1st August 1997 to 31st July 2007 as mentioned in Note 4(s) and the Company had utilised its reinvestment allowances to set off its chargeable income, therefore there is no chargeable income during the fi nancial year.

The Group has available unabsorbed tax losses and capital allowances of approximately RM25,734,100 (2006: RM36,284,000) and RM 605,100 (2006: RM718,400) respectively for utilisation against future taxable income.

The Company has available unabsorbed losses and capital allowances of approximately RM9,341,400 (2006: RM5,962,000) and RM Nil (2006: RM666,800) for utilisation against future taxable income.

The Group also has available unabsorbed reinvestment allowances of approximately RM Nil (2006: RM7,940,000) for utilisation against future taxable income.

The Company and its subsidiaries have tax exempt income of approximately RM39,893,200 (2006: RM39,893,200) and RM140,893,200 (2006: RM79,943,000) respectively credited to tax exempt account from which tax exempt dividend can be declared.

The Group and the Company has tax credit of approximately RM133,048 (2006: RM133,048) under Section 108 of the Income Tax Act 1967 to frank distributable reserves as dividend.

The Tax Budget 2008 introduced a single tier company income tax system with effect from the year of assessment 2008. As such, the Section 108 Tax Credit as at 31st December 2007 will be available to the Company until the tax credit is fully utilised or upon expiry of the six years transitional period on 31st December 2013.

As at 31st December 2007, the Group and the Company have unrecognised deferred tax assets arising from temporary differences as follows:-

Group Company

2007 2006 2007 2006

RM RM RM RM

Unabsorbed tax losses 3,598 2,157,913 2,486,800 1,550,200

Unabsorbed capital allowances 152,896 155,900 - 142,300

Deferred tax benefi ts 3,751,596 2,313,813 2,486,800 1,692,500

Excess of capital allowance

claimed on plant and

equipment over

accumulated depreciation (321,769) (110,700) (194,500) (104,700)

Unrecognised deferred tax

asset 3,429,827 2,203,113 2,292,300 1,587,800

Deferred tax assets have not been recognised in respect of these balances because there is no as-surance that future taxable profi t will be available against where the Company and subsidiaries can utilise the benefi ts and they may not be used to offset taxable profi ts of other subsidiaries in the Group.

The above are subject to the approval of the tax authorities.

103

A reconciliation of income tax expense applicable to profi t/(loss) before taxation at the statutory income tax rate to income tax expense at the effective income tax rate of the Group and the Company is as follows:- Group Company

2007 2006 2007 2006

RM RM RM RM

Profi t/(Loss) before taxation 5,515,517 6,692,670 (18,078,096) (15,466,372)

Taxation at Malaysian

Statutory tax rate of 27%

(2006: 28%) 1,489,190 1,873,948 (4,881,086) (4,330,584)

Income not subject to tax (2,965,092) (285,429) - (187,008)

Tax savings (196,691) - - -

Expenses not deductible for

tax purposes 9,689,567 3,804,764 4,171,214 2,956,392

Effect of different tax rate 46,186 - - -

(Over) Underprovision of

deferred tax in prior year (6,885,754) 1,439,956 - -

Deferred tax assets not

recognised during the year 1,287,191 1,808,915 709,872 1,561,200

Utilisation of reinvestment

allowance (4,150,351) (2,266,318) - -

Utilisation of investment tax

allowances - (4,375,836) - -

Underprovision in prior year - 19,782 - 19,782

Realisation of deferred

taxation on usage of factory

building and leasehold land (112,421) (122,281) - -

Effect of different tax rate at

beginning of the year (214,246) - - -

Tax expenses/(income) for

the year (2,012,421) 1,897,501 - 19,782

104

34. EARNINGS PER SHARE

(A) Basic

Basic earnings per share is calculated by dividing the net profi t for the year by the weighted average number of ordinary shares in issue during the fi nancial year. Group

2007 2006

RM RM

Net profi t for the year 7,532,838 4,768,170

Weighted average number of

ordinary shares in issue 1,257,885,248 1,011,555,214

Basic earnings per share (sen) 0.599 0.471

Group

2007 2006

No. of Shares No. of Shares

RM RM

Weighted average number of ordinary

shares in issue at 1st January

Issue ordinary shares at 1st January 1,158,457,350 914,005,133

Effect of private placement 35,769,231 -

Effect of ESOS 4,908,645 11,903,775

Effect of ICPS 58,749,904 82,055,366

Effect of warrant 118 3,590,940

Weighted average number of ordinary

shares in issue at 31st December 1,257,885,248 1,011,555,214

(B) Diluted Earnings Per Share

For the purpose of calculating diluted earnings per share, the adjusted weighted average number of ordinary shares is the weighted average number of ordinary shares issued during the year plus the weighted average number of ordinary share which would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares. ESOS, warrant and ICPS are deemed to have been exercised or converted into ordinary shares at the beginning

of the year.

105

Group

2007 2006RM RM

Net profi t for the year 7,532,838 4,768,170

Weighted average number of ordinaryshares in issue 1,257,885,248 1,011,555,214

Adjustment for assumed conversion of ICPS 74,129,356 154,121,807

Adjustment for assumed subscriptionof ESOS 9,274,880 32,881,064

Adjustment for assumed exercise ofwarrant 21,643,881 33,170,314Adjusted weighted average number of

ordinary shares in issue and issuable 1,362,933,365 1,231,728,399

Diluted earnings per share (sen) 0.553 0.387

The average market value of the Company’s shares for the purpose of calculating the dilutive effect of ESOS, warrants and ICPS were based on quoted market prices for the year.

35. CASH AND CASH EQUIVALENTS AT END OF THE YEAR

Group Company

2007 2006 2007 2006

RM RM RM RM

Bank overdraft - (2,565,133) - (2,564,853)

Unpledged fi xed deposit 6,789,710 20,255,716 4,573,294 17,231,662

Cash and bank balances 14,166,268 5,595,967 3,857,623 1,010,210

20,955,978 23,286,550 8,430,917 15,677,019

36. INVESTMENT IN SUBSIDIARY COMPANIES (A) INVESTMENT IN SUBSIDIARIES

Company

2007 2006

RM RM

Unquoted shares, at cost 190,022,155 190,022,152

Less: Allowance for impairment in value (9,728,500) (9,728,500)

180,293,655 180,293,652

106

(a) Direct Subsidiaries The subsidiary companies are:-

Place of Effective


2007 2006

% %

TL Automation Electronics (M) Sdn Bhd (Company No: 318967 U)

Malaysia

Development and manufacture of hardware and software

75 75

Asiatronics Sdn Bhd (Company No: 380605 H)

Malaysia

Marketing and development of airline and airport security systems

80 80

TL Technology Research (Aust) Pty Limited ( “TLTRA” )

AustraliaInvestment holding(in Liquidation)

- 100

Iris Technologies (M) Sdn Bhd (“ITech”) (Company No: 302552 H)

Malaysia

Research, development and manufacture of contact and contactless smart technology based products

100 100

Capillary Agrotech (Malaysia) Sdn Bhd (“CA”) (Company No: 90389 H)

Malaysia Professional design, construction and maintenance of automatic watering and feeding system for agricultural hoostricultural and other purposes.

100 100

IRIS Corporation North America Ltd(“ICNA”)

United States of America

Dormant 100 -

107

(b) Indirect Subsidiaries

The subsidiary company of IRIS Technologies (M) Sdn Bhd are:-

Place of Effective


2007 2006

% %Iris Information Malaysia Technologiy Systems Sdn Bhd ( Company No: 222819 K)

Malaysia Maintaining and servicing qutogate, image retrieval identifi cation system (I.R.I.S) and marketing of contact and contactless smart technology based products.

100 100

Versatile P4 Power Resources Sdn Bhd (Company No: 742045 T)

Malaysia Manufacture, supply and trading of power and energy related equipment, the manufacture and supply of incinerators and the manufacture and supply of desalination equipment.

51 100

The above subsidiaries were all audited by HALS & Associates except for TL Technology Research (Aust) Pty Limited (in Liquidation) and IRIS Corporation North America Ltd.

(B) PROMISSORY NOTES Company

2007 2006RM RM

Receivable within next 2 years 17,500,000 17,000,000

Receivable after next 2 years but

within 5 years - 9,000,000

17,500,000 26,000,000

Receivable within next 12 months

(Included in current assets) (8,500,000) (8,500,000)

9.000,000 17,500,000

The above represents non-interest bearing promissory notes issued by ITech of RM43,000,000 which is redeemable commencing 2005 to 2009. This is to ensure that the Company can meet its commitments over bond redemptions from 2005 to 2009. The promissory notes are secured by fi xed charge over ITech receivable accounts and proceeds from certain projects.

108

(C) AMOUNT DUE FROM/(TO) SUBSIDIARY COMPANIES

The amount due from subsidiaries comprise:-

Company2007 2006RM RM

TL Automation Electronics (M) Sdn Bhd - 774,905

Capillary Agrotech (Malaysia) Sdn Bhd 2,722,722 730,193

Asiatronics Sdn Bhd - 2,031,526Versatile P4 Power Resources Sdn Bhd - 135,473

TL Technology Research (Aust) Pty Limited - 5,274,082

Iris Information Technologies Systems Sdn Bhd 12,188,321 7,630,056

14,911,043 16,576,235Less: Allowance for doubtful debts - (8,055,830)

14,911,043 8,520,405

The amount due to subsidiaries comprise:-

Company

2007 2006

RM RM

Versatile P4 Power Resources Sdn Bhd 10,128,852 -

Iris Technologies (M) Sdn Bhd 20,968,542 33,415,976

31,097,394 33,415,979

The amount due represent trade and non-trade advances and are unsecured, interest free with no fi xed term of repayment.

(D) ACQUISITION OF SUBSIDIARY COMPANIES

(i) Direct Subsidiaries

(a) On 9th April 2007, the Company acquired 100% equity interest in a dormant company incorporated in United States of America, ICNA for a total cash consideration of USD1.00 which is equivalent to RM3.45.

(b) The effect of the acquisition of the above subsidiary is not disclosed as the

subsidiary was dormant as at 31st December 2007.

(c) The effects of the acquisition of the subsidiary on the Group’s fi nancial position for the fi nancial year are as follows:-

2007RM

Cash and bank balances 3

Net assets as at year end 3

Add:

Group’s share of loss had the Group not

acquired the additional equity interest -

Increase in Group net assets 3

109

(d) The impact of the acquisition of subsidiary during the fi nancial year on the cash fl ows of the Group is disclosed in the consolidated cash fl ow statements.

(E) SUBSIDIARY WRITTEN OFF

On 11th January 2008, the Board of Directors of the Company announced that its wholly owned subsidiary, TLTRA was placed in creditors voluntary liquidation due to sustained losses. The effect of the write off have been recognised in the fi nancial statements of the Group during the fi nancial year (Note 31).

(a) The effects of the subsidiary written off on the Group’s fi nancial results for the fi nancial year are as follows:-

2007

RM

Revenue -

Operating costs -

Profi t from operations -

Exceptional items 683,524

Taxation -

Profi t from ordinary activities after tax 683,524

Minority interests -

Increase in Group net profi t 683,524

The effects of the subsidiary written off on the Group’s fi nancial position for the fi nancial year are as follows:-

2007

RM

Property, plant and equipment -

Inventories -

Trade and other receivables -

Cash and bank balances -

Trade and other payables -

Bank balance 291

Net assets as at year end 291

Add:

Group’s share of profi t had the Group not

claim disposal of the equity interest -

Increase in Group net assets 291

(c) The impact of the acquisition of subsidiary during the fi nancial year on the cash fl ows of the Group is disclosed in the consolidated cash fl ow statements.

110

37. SEGMENTAL INFORMATION

Group2006


implementationresearch anddevelopment

RM

AgriculturalRM

Investmentholding

(Discontin-ued holding

RM

EliminationRM

Consoli-dated

RM

By Business Segmen

REVENUE

External sales 218,727,482 801,858 - - 219,529.340

Intersegment sales 28,315,003 - - (28,315,003) -

Total revenue 247,042,485 801,858 - (28,315,003) 219,529.340

RESULTS

Segment result 22,644,230 (1,410,550) - 640,450 21,874,130

Unallocated corporate

expenses - - - - -

Operating profi t/(loss) 22,644,230 (1,410,550) - 640,450 21,874,130

Interest expenses (15,588,475) - - 189,186 (15,399,289)

Interest income 780,961 - - - 780,961

Share of loss of associate

(74,722) - - 28,893 (45,829)

Income taxes 2,012,421 - - - 2,012,421

Profi t/(Loss) from ordinary

activities 9,774,415 (1,410,550) - 858,529 9,222,394

Exceptional items

-Write back of non-trade debts

2,815,629 - (2,815,629) -

-Effect of subsidiary written off

- - 8,675,601 (7,992,077) 683,524

-Allowance for impairment loss on other investment

(2,377,980) - - - (2,377,980)

Net profi t/(loss) 10,212,064 (1,410,550) 8,675,601 (9,949,177) 7,527,938

OTHER INFORMATION

Segmental assets 634,446,088 1,512,861 - (114,742,453) 521,216,496

Investment in associate

6,275,528 - - (54,447) 6,221,081

Consolidated total assets

640,721,616 1,512,861 - (114,796,900) 527,437,577

Segment liabilities 351,363,417 3,098,526 - (99,514,160) 254,947,783

Capital expenditure 28,421,718 122,608 - (5,101) 28,539,225

111

Depreciation and amortisation 11,940,661 122,608 - (54,629) 12,008,640

Non-cash expenses other than depreciation and amortisation 9,952,389 - - (54,121) 9,898,268

By Geographical Location

Carrying amounts Capital

Sales Revenue of segment assets Expenditure

RM RM RM

Malaysia 219,529,340 527,437,574 28,539,225

United States of America - 3 -

219,529,340 527,437,577 28,539,225

37. SEGMENTAL INFORMATION

Group2006By Business Segment


implementation research anddevelopment

RMAgricultural

RM

Investmentholding

RMElimination

RMConsolidated

RM

REVENUE

External sales 233,748,844 1,131,742 - - 234,880,586

Intersegment sales 14,024,417 - - (14,024,417) -

Total revenue 247,773,261 1,131,742 - (14,024,417) 234,880,586

RESULTS

Segment result 23,156,143 (434,309) (10,086) - 22,711,748

Unallocated corporate

expenses - - - - -

Operating profi t/(loss) 23,156,143 (434,309) (10,086) - 22,711,748

Interest expenses (16,965,840) - - - (16,965,840)

Interest income 1,017,918 - - - 1,017,918

Share of loss of an associate

12,184 - - (83,340) (71,156)

Income taxes (1,897,501) - - - (1,897,501)

Profi t/(Loss) from ordinary

activities 5,322,904 (434,309) (10,086) (83,340) 4,795,169

Pre-acquisition loss - - - (26,999) (26,999)

Net profi t/(loss) 5,322,904 (434,309) (10,086) (110,339) 4,768,170

OTHER INFORMATION

Segment assets 653,382,258 1,043,174 217,288 (116,773,602) 537,869,118

Investment in associate 5,536,430 - - (83,340) 5,453,090

Consolidated total assets

658,918,688 1,043,174 217,288 (116,856,942) 543,322,208

Segment liabilities 407,157,498 1,218,290 8,415,610 (110,937,391) 305,854,007

112

Capital expenditure 21,042,253 72,231 - - 21,114,484

Depreciation and

amortization 13,369,334 26,555 - (2,613) 13,393,276

Non-cash expenses other

than depreciation and

Amortization 3,092,378 140,103 - 83,340 3,315,821

By Geographical Location

Carrying amounts Capital

Sales Revenue of segment assets Expenditure

RM RM RM

Malaysia 234,880,586 543,104,920 21,114,484

Australia - 217,288 -

234,880,586 543,322,208 21,114,484

38. CAPITAL COMMITMENT Group Company

2007 2006 2007 2006

RM RM RM RM

Contracted but not provided

for:-

- construction of greenhouse 3,006,000 - - -

- purchase of property, plant

and equipment 5,309,728 1,027,260 5,309,728 -

8,315,728 1,027,260 5,309,728 -

39. LEASE COMMITMENT Group/Company

2007 2006

RM RM

Lease rental payable:

- within next 2 years 6,784,293 -

- within next 3 to 5 years 8,992,212 -

15,776,505 -

Less:

Payable within next 12 months (3,347,651) -

12,428,854 -

40. CONTINGENT ASSETS/(LIABILITIES/)

Contingent Liabilities

Company

- Secured

Corporate guarantees given to banks for credit facilities granted to a subsidiary company amounting to RM62,600,000 (2006: RM42,600,000).

Counter guarantees given to foreign bank for a Performance Bond to be issued on behalf of a subsidiary company amounting to RM4,589,000 (2006: RM4,589,000).

113

Contingent Assets

Company

On 12th July 2006, ICB entered into a Sales and Purchase Agreement with Enve Hitech Farming Solutions Sdn Bhd (“ENVE”) to purchase Capillary Agrotech (Malaysia) Sdn Bhd (“CA”) to which ENVE would guarantee ICB a profi t before taxation of RM6,000,000 before 30th June 2008.

In the event of CA’s inability to achieve cumulative profi t of RM6,000,000 at the stipulated date, ENVE would be liable to compensate ICB for an amount of 70% of the shortfall in cumulative profi t before tax.

41. RELATED PARTIES DISCLOSURES

Parties are considered to be related if one party has the ability to control the other party or exercise signifi cant infl uence over the other party in making fi nancial or operational decisions, or if one other party controls both.

The related parties of the Company and their relationship are as follows:-

Country of

Related parties Incorporation Relationship

Iris Technologies (M) Sdn Bhd (Company No: 302552 H)

Malaysia Subsidiary company

Iris Information Technology Systems Sdn Bhd (Company No: 222819 K)

MalaysiaSubsidiary company of Iris Technologies (M) Sdn Bhd

GMPC Corporation Sdn Bhd (Company No: 334028 H)

MalaysiaAssociated company of Iris Technologies (M) Sdn Bhd

MCS Microsystems Sdn Bhd (Company No: 469491 P)

MalaysiaCompany which is related to director

Versatile Paper Boxes Sdn Bhd (Company No: 93498 D)

MalaysiaCompany which is related to director

TL Technology Research (HK) Ltd (Company No: 623808)

Hong KongCompany which is related to director

Related parties transactions

The related party transactions arising from normal business transactions during the fi nancial year between the Company and its related parties are as follows:-

114

Company2007 2006RM RM

Transactions with subsidiary companies:

Iris Technologies (M) Sdn Bhd - Sales 4,511,724 8,986,879 - Purchases 12,597,902 1,470,917 - Rental payable 1,076,525 1,076,525

Iris Information Technology Systems Sdn Bhd - Sales 5,059,025 3,930,000

Versatile P4 Power Resources Sdn Bhd - Sales 10,128,852 -

Group Company

2007 2006 2007 2006

RM RM RM RM

Transactions with common

director companies:

MCS Microsystems Sdn Bhd

- Purchases 14,373,940 23,299,740 91,300 1,704,418

- Royalties payable - 630,512 - 630,512

- Rental received 81,648 117,751 81,648 117,751

Versatile Paper Boxes

Sdn Bhd

- Purchases 25,201 50,924 16,648 16,879

TL Technology Research

(HK) Ltd

- Purchases 687,430 502,403 665,724 502,403

Group Company2007 2006 2007 2006

RM RM RM RM

Transactions with an

associated company:

GMPC Corporation Sdn Bhd

- Sales 38,913,397 31,551,636 - -

- Rental received 6,000 6,000 - -

Related party balances at the balance sheet date are disclosed elsewhere in the fi nancial statements.

Key management personnel compensation are disclosed in Note 45 to the fi nancial statements.

115

42. SIGNIFICANT EVENTS DURING AND AFTER THE END OF THE YEAR

Company (“ICB”)

(a) Allotment of ESOS Shares

During the year, shares under ESOS of 6,191,600 units have been subscribed and 54,873,253 share options were outstanding under the scheme after these subscriptions.

None of the remaining ESOS shares have been exercised up to 16th April 2008.

(b) Acquisition of a subsidiary company

On 9th April 2007, ICB acquired 100% equity interest in a dormant company, incorporated in United States of America, ICNA for a total cash consideration of USD1.00 which is equivalent to RM3.45.

(c) Acquisition of an associated Company

On 25th June 2007, ICB acquired 300,000 ordinary shares of RM1.00 each of the issued and paid-up share capital of Paysys (M) Sdn Bhd which represents 30% equity interest by way of a cash consideration of RM813,820.

(d) Proposed Private Placement of up to 10% of the issued and paid-up share capital of ICB (“Proposed Private Placement”)

On 11th July 2007, ICB proposed to implement a private placement of up to 142,488,730 new ordinary shares of RM0.15 each in ICB (“Placement Shares”), representing not more than ten percent (10%) of the issued and paid-up share capital of ICB, to investors to be identifi ed (“Proposed Private Placement”).

On 21st September 2007, ICB successfully completed its proposed private placement of up to 10% of the issued and paid up share capital of ICB. A total of 124,000,000 new ordinary shares were issued at an issued price of RM0.22 per share. These new shares have been listed on the MESDAQ.

On 19th February 2008, ICB announced a proposed placement of up to 155,431,281 new ordinary shares of RM0.15 each in ICB representing not more than ten percent (10%) of the issued and paid-up share capital of ICB. The proceeds of the exercise will be utilized for the repayment of principal to bond holders.

(e) Conversion of Non-Cumulative Irredeemable Convertible Preference Shares (“ICPS”)

After the fi nancial year ended, between the period from 1st January 2008 to 16th April 2008, ICB had issued 800,400 ordinary shares of RM0.15 each pursuant to the conversion of ICPS.

(f) Creditors Voluntary Liquidation of TL Technology Research (Aust) Pty Limited (“TLTRA”)

On 21st December 2007, TLTRA, a wholly owned subsidiary of ICB was placed into voluntary liquidation. TLTRA had suffered losses from its investing activities and had been dormant. The negative net book value of TLTRA had been provided for in the fi nancial statements of ICB for the fi nancial year ended 31st December 2004. The effect of the write off was recognised in the fi nancial statements of the Group during the fi nancial year (Notes 31 and 36E).

116

(g) Material Litigation

(i) On 29th November 2006, ICB had fi led a lawsuit against United States (“US”) Government in the U.S Court of Federal Claims in Washington D.C. The claim based on the ICB US Patent No. 6,041,412 which relates to Basic Access Control (“BAC”) and Extended Access Control (“EAC”) e passport reader. ICB is claiming for reasonable compensation, in this case, royalties, from the US Government in respect of readers in use by the US Government, which were purchased from Richford Thompson of Newbury, England and supplied to the US Government by Richford’s agent, Government Micro Resources, Inc of Virginia (now known as Fulcrum IT Services).The US Government has brought Fulcrum IT Services into the litigation alleging that ICB should be reimbursed by the party, should they be found to be liable to pay royalties to ICB. A schedule of case management has been fi xed, subject to the Court’s revision.

(ii) On 29th November 2006, ICB had fi led a lawsuit against Japan Air Lines (“JAL”) in the U.S. District Court, Eastern District of New York. The claim is in relation to the ICB US Patent No. 6,111,506 which claims, among others, a method of manufacturing an electronic passport (“the ICB US patented process”). ICB’s claim is based on allegation that JAL uses electronic passports that have been manufactured overseas by entities that practise the steps of the ICB US patented process, when checking in passengers at JAL’s US passenger check-in facilities.

JAL has fi led a motion to dismiss the claim. ICB’s solicitors, Messrs Moses & Singer LLP, have opposed the motion to dismiss. The briefs on the motion had been fi led in June 2007 and the matter is now pending a decision by court.

In both (i) and (ii) mentioned above, ICB is seeking monetary damages, the quantum of which has not been specifi ed to date.

(iii) A Writ of Summons and Statement of Claim dated 13th April 2007 was fi led in the High Court of Malaya at Penang by Sigma Range Sdn Bhd (“SRSB”) against ICB. SRSB is seeking damages for loss of profi ts in the sum of RM17,466,840.00 on sale together with general damages, interests, costs and further and/or other relief for the alleged breach of an agreement for the sale and purchase of the 5,000 units of ICB’s Smart Team product lines comprising 4,600 units of Mobile SmartTerm ST4e and 400 units of Desktop SmartTerm TC6000. ICB has fi led its Statement of Defence on 13.06.2007. Thereafter SRSB has fi led a Summons in Chambers together with an Affi davit in Support on 25th June 2007 to transfer the proceedings to the Kuala Lumpur High Court and the same is currently pending extraction.

Group

IRIS Technologies (M) Sdn. Bhd. (“ITech”)

(a) Disposal and leaseback of land and building.

On 11th July 2007, ITech accepted a Conditional Letter of Offer issued by Mapletree Industrial Fund Management Pte Ltd for the proposed disposal and leaseback of two plots of leasehold land and a four (4) and a half storey offi ce and manufacturing building bearing the post-al address Lot 8 & 9, IRIS Smart Technology Complex, Technology Park Malaysia, Bukit Jalil, 57000 Kuala Lumpur with an estimated land area of approximately 188,179 sq ft to Mapletree Industrial Fund Management Pte Ltd or its nominee for a disposal consideration of RM91.5 million.

On 25th February 2008, ICB and Mapletree agreed to extend the period to negotiate on the terms of the defi nitive Sale and Purchase Agreement for a further two (2) months from 5th March 2008 to 4th May 2008.

117

Capillary Agrotech (Malaysia) Sdn. Bhd. (“CA”)

(a) Lease commitment with PKNS

Subsequent to the fi nancial year, CA has received an approval-in-principal from the Selangor Agriculture Development Corporation to lease 50 acres (approximately 20 hectares) of land located at PKNS Fasa 111 LOT 10220 PN 17397 Mukim Tanjung Dua Belas Daerah Kuala Langat, Selangor for the purpose of carrying out farming activities utilising modern farming techniques. The fi nal terms and conditions of the lease agreement have not been fi nalised to date.

Versatile P4 Power Resources Sdn Bhd (“VP4”)

(a) Issue of shares

On 8th February 2007, VP4 issued 5,098 and 4,900 units of ordinary shares to ITech and a third party respectively. As a result, VP4 then ceased to be a wholly owned subsidiary of ITech and will become a 51% held subsidiary of ITech.

43. FINANCIAL INSTRUMENTS

(A) Financial Risk Management Objectives and Policies

The Group’s fi nancial risk management policy seeks to ensure that adequate fi nancial resources are available for the development of the Group businesses whilst managing its risks. The Group operates within clearly defi ned guidelines that are approved by the Board and the Group’s policy is not to engage in speculative transactions.

The main areas of fi nancial risks faced by the Group and the policy in respect of the major areas of treasury activity are set out as follows:-

(i) Foreign Currency Risk

The Group is exposed to foreign currency risk as a result of its normal trading activities both external and intra-Group where the currency denomination differs from the local currency, Ringgit Malaysia (RM). The Group’s policy is to minimise the exposure of overseas operating subsidiary to transactions risk by matching local currency income against local currency costs. For overseas trading activities, the Group monitors the currency used for such trading on ongoing basis.

118

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120

(ii) Interest Rate Risk

The Group’s policy is to borrow principally on the fl oating rate basis but to retain a proportion of fi xed rate debt. The objectives for the mix between fi xed and fl oating rate borrowings are set to reduce the impact of an upward change in interest rates while enabling benefi ts to be enjoyed if interest rates fall.

The interest rate risk that fi nancial instrument values will fl uctuate as a result of changes in market interest rates and the effective interest rates for the current fi nancial year are disclosed in the notes to the fi nancial statements of the respective fi nancial instrument.

(iii) Credit Risk

The Group seeks to control credit risk by setting counterparty limits and ensuring that sales of products and services are made to customers with an appropriate credit history.

The maximum credit risk associated with recognised fi nancial assets is the carrying amount shown in the balance sheet.

At 31st December 2007, the Group and the Company had no signifi cant credit risk associated with its exposure to potential counterparty failure to settle outstanding foreign currency.

(iv) Market Risk

For key components purchases, the Group and the Company establish fl oating and fi xed priced levels that they consider acceptable. The Group and the Company do not face signifi cant exposure from the risk of changes in debt and equity prices.

(v) Technology Risk

The Group seeks to insulate itself from cloning and outdated technology by conducting continuous research in computerised technology to overcome competition by way of securing patents, licenses and copyrights for all technology on hand.

(vi) Liquidity and Cash Flow Risks

The Group and the Company seek to achieve a balance between certainty of funding and fl exible, cost-effective borrowing structure. This is to ensure that at the minimum, all projected net borrowing needs are covered by committed facilities. Also, the objective for debt maturity is to ensure that the amount of debt maturing in any one year is not beyond the Group’s mean to repay and refi nance.

(B) Fair Value of Financial Instruments

The carrying amounts of the fi nancial assets and fi nancial liabilities as refl ected in the balance sheet approximate to their respective net fair values due to their short term nature except as disclosed below:-

(i) Other Investments

The fair value of investment in Golf Club Membership was estimated based on subscription price offered to new members. It is not practical to estimate the fair value of the Company’s other unquoted investments in shares due to the lack of quoted market prices and the inability to estimate fair value without incurring excessive costs. Other unquoted investments have been stated at cost less impairment losses.

121

(ii) Bonds

The fair value of bonds are estimated by discounting the future contractual cash fl ows of the effective interest rate available to the Group and the Company for similar fi nancial instruments.

(iii) Hire Purchase and Lease Payables

The carrying amount of hire purchase and lease payables approximate their fair values.

(iv) Contingent Assets/(Liabilities)

It is not practical to estimate the fair value of contingent assets/(liabilities) reliably due to uncertainties of timing, cost and eventual outcome.

44. COMPARATIVE FIGURES

The following comparative fi gures are restated as at 31st December 2006 to refl ect the adoption of FRS 117 Leases and to conform with Group current year’s presentation:

Group As previously

As restated ReportedBALANCE SHEET RM RM

Property, plant ang equipment 102,929,074 109,505,888Prepaid lease payments 6,576,814 -Other payables (current iablities) 16,420,266 19,310,022Other payables (long term iablities) 2,889,756 -

CASH FLOW STATEMENT

Depreciation 9,518,680 9,826,972Amortisation of prepaid lease payments 308,292 -

Notes to the Financial Statements (Note 27)

Portion repayable within next 2 years 759,954 -Portion repayable within 2 to 5 years 455,973 -Portion repayable after 5 years 2,281,793 -

3,497,720 -

Less: Portion repayable within next 12 months(included in current liabilities) (607,964) -

2,889,756 -

(Note 32)

Amortisation of prepaid lease payments 308,292 -Depreciation- included in administrative expenses 2,683,309 2,991,601

(Note 33)

Unabsorbed tax losses 36,284,000 9,123,500

The changes in unabsorbed tax losses is due to revise estimation by tax authorities on prior year balances.

122

45. KEY MANAGEMENT PERSONNEL COMPENSATION

The key management personnel compensation are as follows:-

Group Company2007 2006 2007 2006

RM RM RM RM

Executives Directors

- Emoluments and fees 1,891,535 1,634,575 1,735,535 1,405,075

Non-Executive Directors

- Emoluments and fees 345,800 317,000 77,000 77,000

2,237,335 1,951,575 1,812,535 1,482,075

Key management personnel comprises directors of the Company and subsidiaries having authority and responsibility for planning, directing and controlling their activities of the entity either directly or indirectly.

123



STATEMENT BY DIRECTORS

We, DATO’ TAN SAY JIM and LEE KWEE HIANG, being two of the directors of IRIS CORPORATION BERHAD, do hereby state that in our opinion, the fi nancial statements on pages 42 to 122 are drawn up in accordance with applicable approved Accounting Standards in Malaysia so as to give a true and fair view of the state of affairs of the Group and the Company as at 31st December 2007 and of the results of their operations and of the cash fl ows of the Group and the Company for the year ended on that date.

On behalf of the Board

DATO’ TAN SAY JIM LEE KWEE HIANGDirector Director

KUALA LUMPUR

DATE: 18 April 2008

STATUTORY DECLARATION

I, DATO’ TAN SAY JIM, being the director primarily responsible for the accounting records and fi nan-cial management of IRIS CORPORATION BERHAD, do solemnly and sincerely declare that the fi nancial statements on pages 42 to 122 are to the best of my knowledge and belief, correct and I make this solemn declaration conscientiously believing the same to be true and by virtue of the provisions of the Statutory Declarations Act, 1960.

Subscribed and solemnly declared by the abovenamed at Kuala Lumpur in Wilayah Persekutuan on 18 April 2008

Before me,

DATO’ TAN SAY JIM Zulkifl e Mohd DahlimDirector COMMISSIONER FOR OATHS

124

AUDITORS’ REPORT TO THE MEMBERS OF IRIS CORPORATION BERHAD

AND ITS SUBSIDIARIES(Company No: 302232 X )

We have audited the fi nancial statements set out on pages 42 to 122. These fi nancial statements are the responsibility of the Company’s directors.

It is our responsibility to form an independent opinion, based on our audit, on the fi nancial statements and to report our opinion to you, as a body, in accordance with Section 174 of the Companies Act, 1965 and for no other purpose. We do not assume responsibility to any other person for the content of this report.

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

In our opinion:-

(a) the fi nancial statements are properly drawn up in accordance with applicable MASB approved Accounting Standards and the provisions of the Companies Act, 1965 as amended so as to give a true and fair view of:

(i) the state of affairs of the Group and the Company as at 31st December 2007 and of the results of their operations and of the cash fl ows of the Group and the Company for the year ended on that date; and

(ii) the matters required by Section 169 of the Act to be dealt with in the fi nancial statements.

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

Suite 1602, 16th Floor, Wisma Lim Foo Yong, 86 Jalan Raja Chulan, 50200 Kuala Lumpur

P.O. Box 11688, 50754 Kuala Lumpur Tel :03-27320322(Hunting) Fax :03-21423116AFFILIATED WITH GMN INTERNATIONAL

125

We have considered the fi nancial statements of subsidiaries which we have not acted as auditors, as disclosed in Note 36 to the fi nancial statements, that have been included in the consolidated fi nancial statements.

We are satisfi ed that the fi nancial statements of the subsidiaries that have been included in the Group’s fi nancial statements are in form and content appropriate and proper for the purposes of the preparation of the consolidated fi nancial statements and we have received satisfactory information and explanations required by us for these purposes.

The auditors’ report on the fi nancial statements of the subsidiaries were not subject to any material qualifi cation and did not include any comments made under Section 174 (3) of the Act.

HALS & ASSOCIATES A.F. 0755 CHARTERED ACCOUNTANTS Subramaniam Sankar Bil 925/02/10 (J/PH) Partner

KUALA LUMPUR

DATE: 18 April 2008

126

STATISTICS ON SHAREHOLDINGS at 5 May 2008

Authorized Share Capital Ordinary Shares of RM0.15 each : RM375,000,000 Non-cumulative Irredeemable Convertible Preference Shares of RM0.15 each : RM105,000,000 RM480,000,000 ===========

Issued and Fully Paid-Up share Capital Ordinary Shares of RM0.15 each : RM205,296,233 Non-cumulative Irredeemable Convertible Preference Shares of RM0.15 each : RM 11,119,403 RM216,415,636 ===========

ORDINARY SHARES

Size of ShareholdingsNo of

ShareholdersNo of

Shares Held% of

Shares Held

Less than 99 18 659 -

100 to 1,000 928 803,989 0.06

1,001 to 10,000 9,228 61,567,082 4.50

10,001 to 100,000 8,650 323,735,383 23.64

100,001 to 68,472,096 1,432 798,736,171 58.33

68,472,097 and above (5% of issued Shares)

2 184,598,667 13.47

TOTAL 20,258 1,369,441,951 100.00

NON-CUMULATIVE IRREDEEMABLE CONVERTIBLE PREFERENCE SHARES (ICPS)


ShareholdersNo of

Shares Held% of

Shares Held

Less than 99 8 359 -

100 to 1,000 227 142,290 0.19

1,001 to 10,000 661 2,825,143 3.85

10,001 to 100,000 155 4,761,000 6.49

100,001 to 3,666,446 13 6,958,999 9.49

3,666,447 and above (5% of issued shares)

5 58,641,165 79.98

TOTAL 1,069 73,328,956 100.00

127

WARRANTS


ShareholdersNo of

Shares Held% of

Shares Held

Less than 99 249 9,864 0.02

100 to 1,000 516 201,570 0.43

1,001 to 10,000 719 4,310,925 9.25

10,001 to 100,000 588 20,605,573 44.20

100,001 to 2,330,878 79 18,689,657 40.09

2,330,879 and above (5% and above of issued shares)

1 2,800,000 6.01

TOTAL 2,152 46,617,589 100.00

DIRECTORS’ SHAREHOLDINGS AT 5 MAY 2008( as per Register of Directors’ Shareholdings)

ORDINARY SHARES

No. Shareholder No of Shares

Direct % Indirect %

1. Tan Sri Razali Bin Ismail 39,493,333 2.88 58,400 -

2.YAM Tunku Dato’ Seri Shahabuddin Bin Tunku Besar Burhanuddin

2,666,6670.19 - -

3. Dato’ Tan Say Jim 14,843,333 1.08 130,504,5679.54

4. Lee Kwee Hiang 16,100,000 1.18 6,000,000 0.44

5. Yap Hock Eng 31,022,200 2.27 65,333,333 4.77

6. Eow Kwan Hoong 1,593,333 0.12 - -

7. Syed Abdullah Bin Syed Abd Kadir 333,333 0.04 - -

8.Dato’ Syed Abdul Rahman Bin Syed Abdul Kadir

- -

9. Dato’ Suparadi Md. Noor 667 - - -

10. Datuk Kamaruddin Bin Taib - - - -

11. Dato’ Noorazman Bin Abd Aziz - - - -

TOTAL 106,052,866 7.76 201,896,300 14.75

128

ICPS


Direct % Indirect %

1. Tan Sri Razali Bin Ismail - - - -

2. YAM Tunku Dato’ Seri Shahabuddin Bin Tunku Besar Burhanuddin

1,866,666 2.55 - -

3. Dato’ Tan Say Jim - - 31,268,366 42.64

4. Lee Kwee Hiang 6,840,000 9.33 2,400,000 3.27

5. Yap Hock Eng - - - -

6. Eow Kwan Hoong - - - -

7.Syed Abdullah Bin Syed Abd Kadir

133,333 0.04 - -

8.Dato’ Syed Abdul Rahman Bin Syed Abdul Kadir

- - -

9. Dato’ Suparadi Md. Noor - - - -


11. Dato’ Noorazman Bin Abd Aziz - - - -

TOTAL 8,839,999 11.92 33,668,366 45.91

WARRANTS


Direct % Indirect %

1. Tan Sri Razali Bin Ismail - - - -

2.YAM Tunku Dato’ Seri Shahabuddin Bin Tunku Besar Burhanuddin

280,000 0.60 - -

3. Dato’ Tan Say Jim 677,000 1.45 708,000 1.52

4. Lee Kwee Hiang 1,026,000 2.20 360,000 0.77

5. Yap Hock Eng 738,000 1.58 2,800,000 6.01

6. Eow Kwan Hoong - - - -

7. Syed Abdullah Bin Syed Abd Kadir 19,999 0.04 - -

8.Dato’ Syed Abdul Rahman BinSyed Abdul Kadir

- - -

9. Dato’ Suparadi Md. Noor - - - -


11. Dato’ Noorazman Bin Abd Azi - - - -

TOTAL 2,740,999 5.87 3,868,000 8.30

129

SUBSTANTIAL SHAREHOLDERS AS AT 5 MAY 2008(as per Register of Substantial Shareholders )

ORDINARY SHARES


Direct % Indirect %

1.EB Nominees ( Tempatan) S/BPledged Securities A/C for Versatile Papar Boxes Sdn Bhd

98,855,667 7.22 - -

2.DB (Malaysia) Nominee (Asing) S/B Exempt AN for Deutche Bank AGLondon (PB Priam)

85,743,000 6.26 - -

3. Dato’ Tan Say Jim 14,843,333 1.08 130,504,567 9.54

4. Yap Hock Eng 31,022,200 2.27 65,333,333 4.77

TOTAL 230,464,200 16.83 195,837,900 14.31

ICPS


Direct % Indirect %

1.EB Nominees ( Tempatan) S/BPledged Securities A/C for Versatile Paper Boxes Sdn Bhd

31,268,366 42.64 - -

2. UOBM Nominees (Asing) S/B Exempt An for Societe Generale Bank & Trust,Singapore Branch (Cust Asset)

8,463,440 11.54 - -

3. HSBC Nominees (Asing) S/B Exempt An for Morgan Stanley & Co

8,323,359 11.35 - -

4. Lee Kwee Hiang 6,840,000 9.33 2,400,000 3.27

5. HSBC Nominees (Asing) Sdn Bhd Exempt An For Credit Suisse ( SG BR-TST-Asing)

3,746,000 5.11 - -

6. Dato’ Tan Say Jim - - 31,268,366 42.64

TOTAL 58,641,165 79.97 33,668,366 45.91

WARRANTS


Direct % Indirect %

1. Yap Hock Eng - - 2,800,000 6.01

2. MCS Microsystems Sdn Bhd 2,800,000 6.01 - -

TOTAL 2,800,000 6.01 2,800,000 6.01

130

30 LARGEST SHAREHOLDERS as at 5 May 2008

Ordinary Shares

No. Shareholder No of Shares %

1.EB NOMINEES (TEMPATAN) SENDIRIAN BERHADPLEDGED SECURITIES ACCOUNT FOR VERSATILE PAPER BOXES SDN BHD (JTR)

98,855,667 7.22

2.DB (MALAYSIA) NOMINEE (ASING) SDN BHDEXEMPT AN FOR DEUTSCHE BANK AG LONDON (PB PRIAM)

85,743,000 6.26

3. MCS MICROSYSTEMS SDN BHD 65,333,333 4.77

4. TL TECHNOLOGY RESEARCH (HK) LIMITED 56,000,000 4.09

5. RAZALI BIN ISMAIL 39,493,333 2.88

6. YAP HOCK ENG 31,022,200 2.27

7.UOBM NOMINEES (ASING) SDN BHDEXEMPT AN FOR SOCIETE GENERALE BANK & TRUST,SINGAPORE BRANCH ( CUST ASSET)

29,158,600 2.13

8.RC NOMINEES (TEMPATAN) SDN BHDPLEDGED SECURITIES ACCOUNT FOR TAN SAY JIM (CO3RNS2NST215M)

16,648,900 1.22

9. LEE KWEE HIANG 16,100,000 1.18

10.OSK NOMINEES (TEMPATAN) SDN BERHADPLEDGED SSECURITIES ACCOUNT FOR TAN SAY JIM

15,000,000 1.10

11. TAN SAY JIM 14,843,333 1.08

12.TA NOMINEES (TEMPATAN) SDN BHDPLEDGED SECURITIES ACCOUNT FOR OH KIM SUN

8,718,000 0.64

13. WONG SENG HUAT 8,020,600 0.59

14.DB (MALAYSIA) NOMINEE (ASING) SDN BHDDEUTSCHE BANK AG LONDON

6,750,000 0.49

15.AMSEC NOMINEES (TEMPATAN) SDN BHDPLEDGED SECURITIES ACCOUNT FOR LEE KWEE HIANG

6,000,000 0.44

16.CITIGROUP NOMINEES (ASING) SDN BHDCBHK PBGSGP FOR SUNNYVALE HOLDINGS LTD

5,335,700 0.39

17.RC NOMINEES (TEMPATAN) SDN BHDPLEDGED SECURITIES ACCOUNT FOR CHIN CHIN SEONG (CO3DSH2SHC053M)

5,000,000 0.37

18. LIM KIM HUA 4,698,400 0.34

19.HDM NOMINEES (ASING) SDN BHDDBS VICKERS SECS (S) PTE LTD FOR PANG KWEE CHIN NORA

4,375,000 0.32

20.AMSEC NOMINEES (TEMPATAN) SDN BHDPLEDGED SECURITIES ACCOUNT FOR SATKUNABALAN A/L SABARATN

4,054,000 0.30

21.RHB CAPITAL NOMINEES (TEMPATAN) SDN BHDPLEDGED SECURITIES ACCOUNT FOR SOR AH KEE (CEB)

3,651,000 0.27

22. CHANG CHENG HUAT 3,512,400 0.26

23.HLB NOMINEES (ASING) SDN BHDPLEDGED SECURITIES ACCOUNT FOR POON SENG FATT (SIN 9913-9)

3,000,000 0.22

24.CITIGROUP NOMINEES (ASING) SDN BHDUBS AG SINGAPORE FOR THISTLE HILL LIMITED

3,000,000 0.22

25. TUNKU SHAHABUDDIN BIN TUNKU BESAR BURHANUDDIN 2,666,667 0.19

26. TEOH HOOI BIN 2,630,000 0.19

27.PUBLIC NOMINEES (TEMPATAN) SDN BHDPLEDGED SECURITIES ACCOUNT FOR KOAY EAN CHIM (IMO/TAS)

2,550,000 0.19

28. YAP AH CHENG 2,500,000 0.18

29. YAP LAI KUAN 2,300,000 0.17

30. CHONG FEE HAA 2,300,000 0.17

Total 549,260,133 40.14

131

30 LARGEST SHAREHOLDERS as at 5 May 2008ICPS

No. Shareholder No of Shares %

1.EB NOMINEES (TEMPATAN) SENDIRIAN BERHAD PLEDGED SECURITIES ACCOUNT FOR VERSATILE PAPER BOXES SDN BHD (JTR)

31,268,366 42.64

2.UOBM NOMINEES (ASING) SDN BHD EXEMPT AN FOR SOCIETE GENERALE BANK & TRUST,SINGAPORE BRANCH (CUST ASSET)

8,463,440 11.54

3.HSBC NOMINEES (ASING) SDN BHD EXEMPT AN FOR MORGAN STANLEY & CO. INCORPORATED

8,323,359 11.35

4. LEE KWEE HIANG 6,840,000 9.33

5.HSBC NOMINEES (ASING) SDN BHD EXEMPT AN FOR CREDIT SUISSE (SG BR-TST-ASING)

3,746,000 5.11

6.AMSEC NOMINEES (TEMPATAN) SDN BHD PLEDGED SECURITIES ACCOUNT FOR LEE KWEE HIANG

2,400,000 3.27

7. TUNKU SHAHABUDDIN BIN TUNKU BESAR BURHANUDDIN 1,866,666 2.55

8. CHANG YANG @ CHEN YONG 660,000 0.90

9. ZALINA SHAHARAH BINTI AZMAN 400,000 0.55

10. LAW SIEW LAN 400,000 0.55

11. LIM CHUI KUI @ LIM CHOOI KUI 240,000 0.33

12.MAYBAN NOMINEES (TEMPATAN) SDN BHD PLEDGED SECURITIES ACCOUNT FOR TAN CHU CHIN

180,000 0.25

13. YEOH POH CHOO 150,000 0.20

14.UNITED OVERSEAS NOMINEES (TEMPATAN) SDN BHD PLEDGED SECURITIES ACCOUNT FOR YAP PAK LEONG (MKK)

140,000 0.19

15. LIM JIT HAI 139,000 0.19

16. SYED ABDULLAH BIN SYED ABD KADIR 133,333 0.18

17. AZMI BIN LUDDIN 130,000 0.18

18. ANOUSCHKA SHIAMIN LIM 120,000 0.16

19. TEO TIEN HIONG @ TEO THIN PEE 100,000 0.14

20.TA NOMINEES (TEMPATAN) SDN BHD PLEDGED SECURITIES ACCOUNT FOR GURJEET SINGH A/L CHANAN SINGH

100,000 0.14

21. KOH SIEW HEE 100,000 0.14

22. KEE SONG SWA 100,000 0.14

23. GAN LAY HAR 100,000 0.14

24. GOH JIU SIN 99,800 0.14

25. SIM WANG LENG 80,000 0.11

26.HDM NOMINEES (ASING) SDN BHD DBS VICKERS SECS (S) PTE LTD FOR CHIEW KIN HUAT

80,000 0.11

27. CHING SIEW ENG 80,000 0.11

28. BOUNTY LEISURE SDN BHD 80,000 0.11

29. TAN TCHEN LEE 74,500 0.10

30. PHUA KIM CHONG 72,000 0.10

Total 66,666,464 90.95

132

30 LARGEST SHAREHOLDERS as at 5 May 2008Warrants

No. Name No of Warrants %

1. MCS MICROSYSTEMS SDN BHD 2,800,000 6.01

2.UOBM NOMINEES (ASING) SDN BHD EXEMPT AN FOR SOCIETE GENERALE BANK & TRUST,SINGAPORE BRANCH ( CUST ASSET)

1,269,516 2.72

3. LEE KWEE HIANG 1,026,000 2.20

4. YAP HOCK ENG 738,000 1.58

5.RC NOMINEES (TEMPATAN) SDN BHD PLEDGED SECURITIES ACCOUNT FOR TAN SAY JIM (C03RNS2NST215M)

708,000 1.52

6. TAN SAY JIM 677,000 1.45

7. IBRAHIM BIN HAMZAH 670,000 1.44

8.TA NOMINEES (TEMPATAN) SDN BHD PLEDGED SECURITIES ACCOUNT FOR LIEW YAM FEE

600,000 1.29

9. KONG CHOY FUN 370,000 0.79

10. CHAN WENG HONG 360,000 0.77

11.AMSEC NOMINEES (TEMPATAN) SDN BHD PLEDGED SECURITIES ACCOUNT FOR LEE KWEE HIANG

360,000 0.77

12. YEW MING CHIN 300,000 0.64

13. ONG SENG KHEK 300,000 0.64

14. THEIVARANI A/P MUNIANDY 291,000 0.62

15. TUNKU SHAHABUDDIN BIN TUNKU BESAR BURHANUDDIN 280,000 0.60

16. SHU KAM LAN 280,000 0.60

17.MAYBAN NOMINEES (TEMPATAN) SDN BHD PLEDGED SECURITIES ACCOUNT FOR WAN YUSOP BIN WAN DAUD

260,600 0.56

18. HO MEE LEE 260,000 0.56

19.MAYBAN NOMINEES (TEMPATAN) SDN BHD PLEDGED SECURITIES ACCOUNT FOR BONG YOON PAH @ WONG YOON PAH

250,000 0.54

20. TAN LYE PENG 243,200 0.52

21. NORAZLINA BINTI ZAINI 242,400 0.52

22. HA POH KEE 230,000 0.49

23.CIMSEC NOMINEES (ASING) SDN BHD EXEMPT AN FOR CIMB-GK SECURITIES PTE LTD (RETAIL CLIENTS)

228,015 0.49

24.JF APEX NOMINEES (TEMPATAN) SDN BHD PLEDGED SECURITIES ACCOUNT FOR MOHD SANI BIN MD DAHLAN

214,150 0.46

25. WONG CHIEW SIAN 200,000 0.43

26. TOO MEAU FAT 200,000 0.43

27. SOH LEY YAP 200,000 0.43

28.PUBLIC NOMINEES (TEMPATAN) SDN BHD PLEDGED SECURITIES ACCOUNT FOR TOH CHIONG JIN (E-CST)

200,000 0.43

29. MOKHTI BIN SIDOL 200,000 0.43

30. LEE KWAI 200,000 0.43

Total 14,157,881 30.36

133

IRIS CORPORATION BERHAD

(302232-X)

(Incorporated in Malaysia)

NOTICE OF ANNUAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that the Fourteenth Annual General Meeting of the Company will be held

at the Auditorium, 1st Floor, Lot 8 & 9, IRIS Smart Technology Complex, Technology Park Malaysia,

Bukit Jalil, 57000 Kuala Lumpur on Tuesday, 24 June 2008 at 11.00 a.m. for the following purposes:

A G E N D A

ORDINARY BUSINESS:

1. To receive the Audited Financial Statements for the year ended 31 December 2007 together with the Reports of the Directors and Auditors thereon

Resolution 1

2. To re-elect the following Directors who retire pursuant to Article 86 and Article 93 of the Company’s Articles of Association and Section 129 of the Companies Act, 1965: - Article 86i. Dato’ Tan Say Jimii. Dato’ Syed Abdul Rahman Bin Syed Abdul Kadiriii. Dato’ Mohamad Suparadi Bin Md Noor - Article 93iv Dato’ Noorazman Bin Abd Aziz - Section 129v. Tunku Dato’ Seri Shahabuddin bin Tunku Besar Burhanuddin

Resolution 2Resolution 3Resolution 4

Resolution 5

Resolution 6

3. To approve the payment of Directors’ Emoluments amounting to RM1,475,535.00 for the fi nancial year ended 31 December 2007.

Resolution 7

4. To approve the payment of Directors’ Fees amounting to RM761,800.00 for the fi nancial year ended 31 December 2007.

Resolution 8

5. To appoint Auditors and to authorise the Board of Directors to fi x their remuneration.

Notice of Nomination pursuant to Section 172(11) of the Companies Act, 1965 (a copy of which is annexed and marked as “Annexure A” in the Annual Report 2007) has been received by the Company for the nomination of Messrs Horwath for appointment as Auditors and of the intention to propose the following ordinary resolution:

“That Messrs Horwath be and are hereby appointed as Auditors of the Company in place of the retiring Auditors, Messrs HALS & Associates to hold offi ce until the conclusion of the next Annual General Meeting and that the Directors be authorised to determine their remuneration.”

Resolution 9

134

SPECIAL BUSINESS: 6. To consider and if thought fi t, to pass the following Ordinary Resolutions:

Ordinary Resolution No.1Authority to Issue Shares pursuant to Section 132D of the Companies Act, 1965

Resolution 10

“That, subject always to the Companies Act, 1965 (“Act”), the Memorandum and Articles of Association of the Company and the approvals of Bursa Malaysia Securities Berhad and the relevant regulatory authorities, the Directors be and are hereby empowered, pursuant to Section 132D of the Act, to issue shares in the Company at any time until the conclusion of the next Annual General Meeting and upon such terms and conditions and for such purposes as the Directors may, in their absolute discretion, deem fi t provided that the aggregate numbers of shares to be issued does not exceed 10% of the total issued share capital of the Company for the time being.”

Ordinary Resolution No.2 Shareholders’ Mandate for Recurrent Related Party Transactions of A Revenue or Trading Nature involving the ICB Group and MCS Microsystems Sdn. Bhd.

Resolution 11

“THAT, subject to the Companies Act, 1965 (“Act”), the Memorandum and Articles of Association of the Company and the Listing Requirements of Bursa Malaysia Securities Berhad for MESDAQ Market, approval be and is hereby given for the Group to enter into recurrent transactions of a revenue or trading nature with MCS Microsystems Sdn Bhd as set out in Section 2.2 of the Circular to shareholders which are necessary for the Group’s day-to-day operations.

THAT the Company and its subsidiaries be and are hereby authorised to enter into the recurrent transactions with the related parties mentioned therein provided that:

a) the transactions are in the ordinary course of business and are on normal commercial terms which are not more favourable to the related parties than those generally available to the public and not detrimental to the minority shareholders of the Company; and

b) disclosure is made in the annual report of the breakdown of the aggregate value of transactions conducted pursuant to the shareholders’ mandate during the fi nancial year, including details of the type of transactions, the names of the related parties involved, and their relationship with the Company where:

i) the consideration, value of the assets, capital outlay or costs of the aggregate transactions is equal to or exceeds RM1 million; or

ii) any one of the percentage ratios of such aggregated transactions is equal to or exceeds 1%;

whichever is lower.

135

THAT such approval shall continue to be in force until:

a. the conclusion of the next Annual General Meeting (“AGM”) of the Company following the forthcoming AGM, at which time it will lapse, unless by a resolution passed at the said AGM, such authority is renewed;

b. the expiration of the period within which the next AGM of the Company is required to be held pursuant to Section 143(1) of the Act (but shall not extend to such extension as may be allowed pursuant to Section 143(2) of the Act); or

c. revoked or varied by resolution passed by the shareholders in general meeting;

whichever is the earlier.”

AND THAT the Directors of the Company be 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 this resolution.”

Ordinary Resolution No.3Shareholders’ Mandate for Recurrent Related Party Transactions of A Revenue or Trading Nature involving the ICB Group and Versatile Paper Boxes Sdn. Bhd.

Resolution 12

“THAT, subject to the Companies Act, 1965 (“Act”), the Memorandum and Articles of Association of the Company and the Listing Requirements of Bursa Malaysia Securities Berhad for MESDAQ Market, approval be and is hereby given for the Group to enter into recurrent transactions of a revenue or trading nature with Versatile Paper Boxes Sdn. Bhd. as set out in Section 2.2 of the Circular to shareholders which are necessary for the Group’s day-to-day operations.

THAT the Company and its subsidiaries be and are hereby authorised to enter into the recurrent transactions with the related parties mentioned therein provided that:

a) the transactions are in the ordinary course of business and are on normal commercial terms which are not more favourable to the related parties than those generally available to the public and not detrimental to the minority shareholders of the Company; and

b) disclosure is made in the annual report of the breakdown of the aggregate value of transactions conducted pursuant to the shareholders’ mandate during the fi nancial year, including details of the type of transactions, the names of the related parties involved, and their relationship with the Company where:

136

i) the consideration, value of the assets, capital outlay or costs of the aggregate transactions is equal to or exceeds RM1 million; or

ii) any one of the percentage ratios of such aggregated transactions is equal to or exceeds 1%;

whichever is lower.

THAT such approval shall continue to be in force until

a) the conclusion of the next Annual General Meeting (“AGM”) of the Company following the forthcoming AGM, at which time it will lapse, unless by a resolution passed at the said AGM, such authority is renewed;

b) the expiration of the period within which the next AGM of the Company is required to be held pursuant to Section 143(1) of the Act (but shall not extend to such extension as may be allowed pursuant to Section 143(2) of the Act); or

c) revoked or varied by resolution passed by the shareholders in general meeting;

whichever is the earlier.”

AND THAT 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 this resolution.”

7. To transact any other business of which due notice shall have been given.

BY ORDER OF THE BOARD

Chew Weng Kit (MIA 6048) Tai Keat Chai (MIA 1688) Eow Kwan Hoong (MIA 3184)

Company Secretary Company Secretary Company Secretary

Kuala Lumpur

Date : 2 June 2008

137

NOTES:

1. A proxy may but need not be a member of the Company and the provisions of Section 149(1)(b) of the Act shall not apply to

the Company. To be valid the proxy form duly completed must be deposited at the Registered Offi ce of the Company at Suite

1603, 16th Floor, Wisma Lim Foo Yong, No. 86, Jalan Raja Chulan, 50200 Kuala Lumpur not less than forty-eight (48) hours

before the meeting.

2. A member shall be entitled to appoint more than one proxy to attend and vote at the same meeting, provided that

the provisions of Section 149(1) (c) of the Act are complied with. Where a member appoints more than one proxy the

appointment shall be invalid unless he specifi es the proportions of his holdings to be represented by each proxy.

3. If the appointer is a corporation, this form must be executed under its Common Seal or under the hand of its offi cer or

attorney duly authorised.

4. Explanatory Notes on Special Business :

a. The proposed Ordinary Resolution 10 if passed is primarily to give fl exibility to the Board of Directors to issue and allot

shares at any time in their absolute discretion without convening a general meeting. This authority will expire at the

next Annual General Meeting of the Company.

b. The proposed Ordinary Resolution 11 and 12 if passed will empower the Company to conduct transactions of a

revenue or trading nature with the parties related to the Company. Please refer to the Circular to Shareholders for more

information.

138

STATEMENT ACCOMPANYING NOTICE OF ANNUAL GENERAL MEETING

PURSUANT TO RULE 8.36(2) OF THE LISTING REQUIREMENTS OF BURSA MALAYSIA SECURITIES BERHAD FOR MESDAQ MARKET (“BURSA SECURITIES”)

1. DIRECTORS WHO ARE STANDING FOR RE-ELECTION The Directors of the Company who are standing for re-election at the Fourteenth Annual General Meeting of the Company are as follows: - Article 86i. Dato’ Tan Say Jimii. Dato’ Syed Abdul Rahman Bin Syed Abdul Kadiriii. Dato’ Mohamad Suparadi Bin Md Noor - Article 93iv. Dato’ Noorazman Bin Abd Aziz - Section 129i. Tunku Dato’ Seri Shahabuddin bin Tunku Besar Burhanuddin 2. DETAILS OF ATTENDANCE OF DIRECTORS AT BOARD MEETINGS Four (4) Board of Directors’ Meeting were held during the fi nancial year ended 31 December 2007. Details of attendance of Directors at the Board Meetings are as follows:

Name of Directors Attendance Tan Sri Razali Bin Ismail 4/4 Yam Tunku Dato’ Seri Shahabuddin Bin Tunku Besar Burhanuddin 4/4 Dato’ Syed Abdul Rahman Bin Syed Abdul Kadir 4/4 Dato’ Tan Say Jim 3/4 Lee Kwee Hiang 4/4 Yap Hock Eng 4/4 Syed Abdullah Bin Syed Abd Kadir 3/4 Eow Kwan Hoong 4/4 Datuk Kamaruddin Bin Taib 3/4 Dato’ Mohamad Suparadi Bin Md Noor 2/4

3. DATE, TIME AND VENUE OF THE FOURTEENTH ANNUAL GENERAL MEETING

Date : 24 June 2008

Time : 11.00 a.m Venue : Auditorium, 1st Floor, Lot 8 & 9, IRIS Smart Technology Complex, Technology Park Malaysia, Bukit Jalil, 57000 Kuala Lumpur

139

IRIS CORPORATION BERHAD(302232-X)

(Incorporated in Malaysia)PROXY FORM

Number of shares held CDS Account No.

I/We ________________________________________________________________________________________________

(full name in block letters)

NRIC No./Company No. __________________________________ of ____________________________________________

____________________________________________________________________________________________________ (full address)

being a member/members of IRIS Corporation Berhad hereby appoint __________________________________________

_________________________________________________ NRIC No. ___________________________________________ (full name in block letters)

of __________________________________________________________________________________________________

(full address)

or failing him/her, ___________________________________________ NRIC No. __________________________________

(full name in block letters)

of __________________________________________________________________________________________________

(full address)

as my/our proxy to vote for me/us on my/our behalf, at the Fourteenth Annual General Meeting of the Company to be held on 24 June 2008 at 11.00 a.m., and at any adjournment thereof and to vote as indicated below:-

No. Resolution FOR AGAINST

1To receive the Audited Financial Statements for the period ended 31 December 2006 together with the Reports of the Directors and Auditors thereon

2 Re-election of Dato’ Tan Say Jim

3 Re-election of Dato’ Syed Abdul Rahman Bin Syed Abdul Kadir

4 Re-election of Dato’ Mohamad Suparadi Bin Md Noor

5 Re-election of Dato’ Noorazman Bin Abd Aziz

6 Re-election of YAM Tunku Dato’ Seri Shahabuddin bin Tunku Besar Burhanuddin

7 To approve the payment of Directors’ Emoluments

8 To approve the payment of Directors’ Fees

9 To appoint Messrs Horwath as Auditors of the Company

10Approval for the Directors to issue shares pursuant to Section 132D of the Companies Act, 1965

11Approval for the the Company and/or its subsidiaries to enter into recurrent transactions of a revenue or trading nature with MCS Microsystems Sdn Bhd

12Approval for the Company and/or its subsidiaries to enter into recurrent transactions of a revenue or trading nature with Versatile Paper Boxes Sdn Bhd

Please indicate with an “X” in the respective box of the resolution. Unless voting instructions are indicated in the space above, the proxy will vote or abstain from voting as he/she thinks fi t.

Signed this....................day of..............................................2008

______________________________Signature of member / Common Seal

140

Affi xpostage

here

Notes:

1. A member of the Company entitled to attend and vote, is entitled to appoint a proxy (or in the case of a corporation, to appoint a representative) to attend and vote in his stead. A proxy may but need not be a member of the Company and the provisions of Section 149(1)(b) of the Companies Act, 1965 shall not apply to the Company.

2. A member shall be entitled to appoint more than one proxy to attend and vote at the same meeting, provided that the provisions of Section 149(1) (c) of the Act are complied with. Where a member appoints more than one proxy, the appointment shall be invalid unless he specifi es the proportions of his holdings to be represented by each proxy.

3. The proxy form must be signed by the appointor or his attorney duly authorised in writing or in the case of a corporation, executed under its common seal or attorney duly authorised in that behalf.

4. All proxy forms must be deposited at the Registered Offi ce of the Company at Suite 1603, 16th Floor, Wisma Lim Foo Yong, No. 86, Jalan Raja Chulan, 50200 Kuala Lumpur not less than forty-eight (48) hours before the time for holding the meeting.

fold here

fold here

The Company SecretariesIRIS Corporation Berhad.

Suite 1603, 16th Floor,Wisma Lim Foo Yong,

No. 86, Jalan Raja Chulan,50200 Kuala Lumpur

IRIS CORPORATION BERHAD - MalaysiaStock.Biz

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