Challenger

Ascent of Strength Challenger Technologies Limited ANNUAL REPORT

‘04

01

Mission Statement

02

Corporate Profile

03

Challenger Group of Companies

04

Chief Executive’s Message

06

Profile of Board of Directors

07

Profile of Key Management

08

Corporate Information

09

Financial Highlights

10

Operations Review

contents

12

Corporate Governance

19

Report of The Directors

22

Statement of Directors

23

Auditors’ Report

24

Audited Financial Statements

28

Notes to Financial Statements

47

Statistics of Shareholdings

49

Notice of Annual General Meeting

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mission statement TO ENSURE ALL CUSTOMERS GET THE VALUE FOR ALL PRODUCTS AND SERVICES PROVIDED BY US, AND HAVE A PLEASANT SHOPPING EXPERIENCE.

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02 03

CHALLENGER TECHNOLOGIES LIMITED ANNUAL REPORT 2004

Challenger Group of Companies

100%

100%

Matrix Integration Pte Ltd Singapore [Small Format Outlet - Retail]

Challenger Infortech (Beijing) Co. , Ltd People’s Republic of China 40% [Marketing and Development of Anti-Virus Software]

Itechcare (S) Pte Ltd Singapore [IT Service Provider]

Challenger Technologies Limited Singapore [Superstore - Retail]

OA Supplies Pte Ltd Singapore [Supplying Office Supplies] 80%

Challenger Technologies (M) Sdn Bhd* Malaysia [Superstore - Retail] CBD eVision Pte Ltd Singapore [Electronic Signage]

60%

CBD eVision (M) Sdn Bhd Malaysia [Electronic Signage]

52%

* = Currently dormant

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CBD eVision (Thailand) Company Limited* Thailand [Electronic Signage]

100%

55%

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Chief Executive’s Message

“ revenue of “Werevenue t believe our $75.5 million by t superstoresincreased and small12.2% profit of format outlets will w $3.7million remain profitable.” s The Group registered revenue of $75.5 million and profit before taxation of $3.7 million for the financial year ended 31 December 2004. Group revenue increased by 12.2%. 83% of group revenue was derived from providing IT products and services by our superstores. 10% revenue was derived from our small-format outlets, Matrix IT Gallery. The office supplies segment contributed 5% of the group revenue. Itechcare and CBD eVision group of companies contributed less than 2% to the total group revenue. Challenger Superstore and Matrix IT Gallery

To increase operational efficiency and productivity as well as

FY2004 saw some changes in our outlet structure. Our core

to reduce operational costs, Matrix IT Gallery, which is a

business in providing IT products and services by our two

business unit of Matrix Integration Pte Ltd, will be transferred

superstores remained strong, while our two small-format

in FY2005 to Challenger Technologies Limited, which operates

outlets in Sim Lim Square closed down due to expiry of leases

Challenger Superstores.

and poor business conditions. CBD eVision Pte Ltd Retailing in Singapore is a challenge with many chain store

The company’s principal activities are the supplying, installing

operators paying a premium on leases. In turn, mall owners

and maintenance of electronic signage and services. CBD

charge higher rentals as a result of higher rent expectations.

eVision’s expansion in Thailand and Malaysia in FY2004 were in line with our listing prospectus. The establishment of CBD

Despite this and other retail challenges, going forward, we

eVision’s Malaysia and Thailand subsidiaries in FY2004 are

believe our superstores and small-format outlets will remain

expected to contribute to higher sales in FY2005. CBD eVision

profitable. Matrix IT Gallery’s remaining two outlets in Funan

is expected to be profitable in FY2005.

The IT Mall are also expected to perform well and remain profitable in the coming year. There is also the possibility of

OA Supplies Pte Ltd

opening more outlets provided strategic locations with

The sales contribution from Office Supplies segment is likely

reasonable rentals are available.

to be significantly reduced due to the Group’s intention of disposing of OA Supplies in FY2005. This is due to a divergence

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04 05

CHALLENGER TECHNOLOGIES LIMITED ANNUAL REPORT 2004

“We will strive to achieve highest r the “We will strive standards to achieve the of highest standards of transparency as - transparency as well as to increase as to increase l well shareholders’ value.” ” shareholders’ value.” in strategy and differences in management culture between

The company has been profitable in FY2004 and is expected

the management of OA Supplies and the Company, as well

to remain profitable in FY2005.

as the additional capital required for commercial expansion of OA Supplies’ business.

The Group As a listed company with the interest of our shareholders at

Challenger Infortech (Beijing) Co. Ltd

stake, our group views corporate governance as a top priority.

The company was established as a joint venture with two

Thus, we will strive to achieve the highest standards of

Chinese nationals in Q2 FY2004, with 40% of shareholdings

transparency as well as to increase shareholders’ value.

held by Challenger Technologies Limited. The principal activities are the development and marketing of anti-virus,

Barring unforeseen circumstances, our Directors are of the

anti-spamming and data recovery software under the “Oriental

view that the group will continue to be profitable for the

Guard” brand name.

current financial year based on our performance achieved to-date.

With manpower of about 16 employees, the company has progressed into providing free online downloads of anti-virus

The final gross dividend declared was 3 cents per ordinary

software as an initial marketing program to more than 400,000

share, subject to shareholders' approval at the Annual General

subscribers in People’s Republic of China (”PRC”) as at 31

Meeting to be held on 12 April 2005. The company had earlier

December 2004. The English version of this software is

declared and paid out an interim gross dividend on 10

marketed under the “Hercules” brand name, which is now

September 2004 of 0.7 cents per ordinary share, bringing the

available in single-user version for distribution outside the

total gross dividend to 3.7 cents per ordinary share for FY2004.

PRC. The network version will be available in FY2005. I would like to thank my fellow directors, management team

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Currently, the company is developing anti-virus software for

and all employees for their hard work and commitment to

mobile phone users and online game operators, which will

the company, as well as suppliers and business associates

be ready in FY2005 to cater to a wider market base.

for their invaluable support.

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06 07

CHALLENGER TECHNOLOGIES LIMITED ANNUAL REPORT 2004

Profile of Key Management - FY2004

Mr Chia Kang Whye

Ms Lim Kim Huay

General Manager of CBD eVision Pte Ltd

Operations Manager

He is responsible for the day-to-day management of

She is responsible for the day-to-day operations of

the electronic signage business, which includes the marketing

the Challenger Superstore at Funan The IT Mall and also

of electronic signage products and overseeing turnkey projects

assists in merchandising. She joined the company in 1985

for the supply and installation of electronic signage. He also

and has more than 19 years of experience in the IT industry.

oversees the CBD eVision group of companies. He joined CBD

She holds a diploma in retail management from the

eVision in 1986 and has more than 18 years of experience in

Singapore Retailers’ Association.

the electronic signage business.

Ms Ding Tsui Eng Ms Chua Leh Suan Administration Director

Finance Manager She joined the group in April 2003 as finance manager

She is responsible for the day-to-day operations of the

and has been the overall in-charge of matters relating to

accounts and human resource department for the Singapore

accounting, financial and funding requirements of the group,

group of companies where she handles group accounts and

ad hoc investment project evaluations, compliance and

human resource matters. She is also in charge of the

reporting requirements of Singapore stock exchange

management information system (MIS) department of the

requirements. She is a fellow member of the Association of

Singapore group companies. She joined the company in 1984

Chartered Certified Accountants (United Kingdom) and a

and has more than 20 years of experience in the IT industry.

certified public accountant with the Institute of Certified Public Accountants of Singapore.

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Corporate Information

BOARD OF DIRECTORS

AUDIT COMMITTEE

REGISTERED OFFICE 109 North Bridge Road

Loo Leong Thye

Ho Boon Chuan Wilson (Chairman)

#06-00 Funan The IT Mall

Chief Executive

Choo Swee Cher

Singapore 179097

Ng Leong Hai

Tel: (65) 6336 7747

Ong Sock Hwee

Fax: (65) 6337 2588

Executive Director

Email: [email protected] NOMINATING COMMITTEE

Ng Leong Hai Non-Executive Director Ng Kian Teck

Choo Swee Cher (Chairman)

SHARE REGISTRAR AND

Ho Boon Chuan Wilson

SHARE TRANSFER OFFICE

Ng Leong Hai

Alternate Director to Ng Leong Hai

Lim Associates (Pte) Ltd 10 Collyer Quay

Ho Boon Chuan Wilson

REMUNERATION COMMITTEE

Independent Director

#19-08 Ocean Building Singapore 049315

Choo Swee Cher (Chairman) Choo Swee Cher

Ho Boon Chuan Wilson

Independent Director

Ng Leong Hai

AUDITORS Chio Lim & Associates

COMPANY SECRETARY

Certified Public Accountants (a member of Horwath International)

Wee Woon Hong, LLB (Hons)

18 Cross Street #08-01 Marsh & McLennan Centre Singapore 048423 Partner In-charge: Lim Lee Meng (since financial year ended 31 December 2003)

PRINCIPAL BANKER United Overseas Bank Limited 80 Raffles Place UOB Plaza 1 Singapore 048624

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08 09

CHALLENGER TECHNOLOGIES LIMITED ANNUAL REPORT 2004

Financial Highlights For The Year Ended 31 December 2004

FY2004

FY2003

FY2002

FY2001

FY2000

$'000

$'000

$'000

$'000

$'000

75,478

67,265

59,058

56,095

61,323

Profit/(Loss) Before Tax

3,715

4,024

2,190

1,610

(4,011)

Profit/(Loss) After Tax

2,798

3,169

1,839

1,225

(3,993)

Earnings/(Loss) Per Share (cents)

1.88

2.61

1.51

1.01

(3.29)

14,573

6,129

4,649

9,368

9,982

9.48

5.01

3.83

7.71

8.22

Net Profit Margin (%)

4%

5%

3%

2%

-7%

Inventory Turnover (days)

36

40

37

39

27

Trade Receivable Turnover (days)

10

10

14

10

18

Return on Equity (%)

19%

52%

40%

13%

-40%

Quick Ratio (times)

1.93

0.87

0.79

1.51

1.80

Current Ratio (times)

2.69

1.73

1.45

2.20

2.45

Revenue

Shareholders' Funds

Net Tangible Assets Per Share (cents)

Key Financial Ratios

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Operations Review - FY2004

31.12.2004 $'000

31.12.2003 $'000

75,478

67,265

8,213

12%

Other operating income

303

95

208

219%

Changes in inventories

(421)

1,171

(1,592)

n.m.

Cost of goods purchased

(60,326)

(55,226)

5,100

9%

Increase in cost of goods purchased of 9% was in line with higher revenue and was attributable to: (1) higher purchase of inventories in line with increased small format outlets and IT shows; and (2) new acquisition of OA Supplies in FY2004.

Other consumables used

(229)

(111)

118

106%

Increase in other consumable used by 106% was in line with higher volume of trading and purchase transactions.

(4,891)

(3,998)

893

22%

Staff costs increased by 22% mainly due to higher number of staff recruited to cater for expansion of small format outlets and higher commission paid in line with achievement of higher revenue.

(526)

(470)

56

12%

(5,231)

(4,774)

457

10%

Other (charges) / credits

(407)

75

(482)

n.m.

Profit from operations

3,750

4,027

(277)

-7%

(39)

(3)

36

n.m.

Profit before share of profit of associate

3,711

4,024

(313)

-8%

Share of profit of associate

4

4

n.m.

Revenue

Staff costs

Depreciation expense Other operating expenses

Finance costs

Profit before income tax

3,715

4,024

(309)

-8%

Income tax expense

(917)

(855)

62

7%

Net profit for the year

2,798

3,169

(371)

-12%

-

76

n.m.

3,169

(295)

-9%

Minority interest Net profit attributable to shareholders

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-

Inc/(Dec) $'000 %

76 2,874

Revenue increased by 12% mainly due to: (1) small format outlets (i.e. Matrix), which were established in second half FY2003, being fully operational in FY2004; (2) Itechcare (established in March 2003) being fully operational in FY2004; (3) higher revenue achieved at the four IT shows in FY2004; and (4) acquisition of a new subsidiary, OA Supplies in April 2004.

Increase mainly due to interest income from fixed deposits.

Other operating expenses increased by 10% mainly due to: (1) increase in rental expense in line with full year operations of small format outlets and increase in rental rates for superstores; and (2) increase in travelling expenses for overseas expansion programme.

Finance costs increased mainly due to higher interest expense incurred by OA Supplies on short-term borrowings.

Increase due to share of profit in investment in associated company in People’s Republic of China, Beijing.

Income tax increased by 7% mainly due to underprovision of income tax in prior years and higher income tax provision for FY2004.

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10 11

CHALLENGER TECHNOLOGIES LIMITED ANNUAL REPORT 2004

Operations Review - FY2004

31.12.2004 $'000

31.12.2003 $'000

Inc/(Dec) $'000

1,208

1,139

69

-

-

-

313

-

313

22 1,543

39 1,178

(17)

12,737

3,519

9,218

Increase mainly due to proceeds from the issue of new shares to public from the Company's IPO on 14 January 2004.

2,011

1,764

247

Increase mainly due to trade receivables from a new subsidiary in the Group.

435

809

(374)

5,976 21,159 22,702

6,063 12,155 13,333

(87)

852

-

852

5,713

5,651

62

318

518

(200)

13

14

(1)

963

854

109

16 7,875

3 7,040

13

92

-

92

127 219

164 164

(37)

Capital and Reserves Share capital

6,140

4,860

1,280

Increased in line with the issuance of 32 million new ordinary shares at par value $0.04 per share to public from the Company's IPO on 14 January 2004.

Share premium

5,155

-

5,155

Share premium arose from the issuance of 32 million new ordinary shares at IPO price $0.23 per share and net of IPO expenses.

Accumulated profits

3,283

1,269

2,014

Translation reserve

(5)

-

(5)

14,573

6,129

35

-

14,608 22,702

6,129 13,333

Non-Current Assets Plant and equipment Investments in subsidiaries Investment in associate Other assets Current Assets Cash and cash equivalents Trade receivables Other receivables and prepayments Inventories Total Assets Current Liabilities Short-term borrowings Trade payables and accrued liabilities Other payables Deferred franchise fee income Income tax payable Current portion of finance leases Non-Current Liabilities Finance leases Deferred taxation

Total equity Minority ineterests Total liabilities and equity

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35

Increase due to new investment in Challenger Infortech (Beijing), in the People’s Republic of China.

Decrease mainly due to partial prepayments of IPO expenses in FY2003.

Increase in short-term borrowings drawn down by a subsidiary, OA Supplies for working capital purposes.

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12 13

CHALLENGER TECHNOLOGIES LIMITED ANNUAL REPORT 2004

Corporate Governance

1. THE BOARD’S CONDUCT OF ITS AFFAIRS (cont’d) To ensure new Directors have an insight to the workings of the Group, management or such other appropriate persons will brief these newly appointed members to the Board on the Group’s business operations and corporate governance practices. From time to time, the Directors will be informed of developments relevant to the Group, including changes in laws, regulations and risks that may impact the Group. The Directors will be sent to certain external seminars to obtain the latest updates in business and regulatory changes from time to time.

2. BOARD COMPOSITION AND BALANCE The Board has 5 Directors, comprising 2 Executive Directors, 1 Non-Executive Director and 2 Independent Directors. This composition complies with the Code’s requirement that at least one-third of the Board should be made up of Independent Directors. The independence of each director is reviewed annually by the NC. The NC is of the view that the current Board has an independent element ensuring objectivity in the exercise of judgment on corporate affairs independently from the management. The NC is also of the view that no individual or small group of individuals dominates the Board’s decision making process. The Board is of the opinion that its current board size of 5 Directors is appropriate, taking into account the nature and scope of the Group’s operations. The Board composition reflects the broad range of experience, skills and knowledge necessary for the effective stewardship of the Group. The Board comprises business persons and professionals with industry and financial backgrounds and its composition enables the management to benefit from a diverse and objective external perspective on issues raised before the Board. The profile of the Directors are set out on page 6 of this Annual Report.

3. ROLE OF CHAIRMAN AND CHIEF EXECUTIVE OFFICER Mr Loo Leong Thye, is the Chief Executive Officer (“CEO”) of the Group. His responsibilities pertaining to the workings of the Board and his executive responsibilities pertaining to the Group’s business are kept distinct, increasing the accountability and greater capacity of the Board for independent decision making. The chairman shall: (i)

in consultation with the management, schedule meetings that enable the Board to perform its duties responsibly while not interfering with the flow of the company’s operations; (ii) prepare meeting agenda in consultation with the management; (iii) in consultation with the management, exercise control over quality, quantity and timeliness of the flow of information between the management and the Board; and (iv) assist in ensuring compliance with company’s guidelines on corporate governance. However, the Company has not created a separate Chairman position as the Directors are of the view that the current Board composition is appropriate and effective for the purposes for which the Board’s roles and responsibilities are set up. The Directors are satisfied that the establishment of the three committees, namely AC, NC and RC would be sufficient to provide the necessary increased accountability and independence for decision-making.

4. BOARD MEMBERSHIP The NC comprises three members, two of whom are Independent Directors. Chairman: Members:

Choo Swee Cher Ho Boon Chuan Wilson Ng Leong Hai

(Independent Director) (Independent Director) (Non-Executive Director)

The NC meets at least twice a year to discuss issues relating to Board appointments.

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Corporate Governance

4. BOARD MEMBERSHIP (cont’d) The functions of the NC include the following: i.

recommendations to the Board on all Board appointments or re-appointments;

ii.

assessment of the effectiveness of the Board as a whole and the contributions of each Director to the effectiveness of the Board;

iii. determination of the independence of the members of the Board; and iv. determination of whether a Director is able to and has adequately carried out his duties as a director of the Company, in particular, where the Director concerned has multiple Board representations. Board appointments are made by way of a Board resolution after the NC has recommended such appointment to the Board, reviewed his or her resume and conducted appropriate interviews. Pursuant to the Articles of Association of the Company, each Director is required to retire at least once every three years by rotation and all newly appointed Directors would have to retire at the next Annual General Meeting following their appointment. The retiring Directors are eligible to offer themselves for re-election. The dates of initial appointment and re-election of the Directors are set out below: Director

Position

Date of Initial Appointment

Date of Last Re-election

Loo Leong Thye

Chief Executive Officer

14 January 1984

21 April 2004

Ong Sock Hwee

Executive Director

28 December 1994

30 June 2003

Ng Leong Hai

Non-Executive Director

15 July 2003

21 April 2004

Ho Boon Chuan Wilson

Independent Director

17 November 2003

21 April 2004

Choo Swee Cher

Independent Director

17 November 2003

21 April 2004

The NC in determining whether to recommend a Director for re-appointment will have regard to such Director’s performance and contribution to the Group and whether such Director has adequately carried out his or her duties as a Director. The NC has nominated Ong Sock Hwee and Ng Leong Hai, who will be retiring as directors at the forthcoming Annual General Meeting, to the Board for their re-election as directors at the forthcoming Annual General Meeting.

5.

BOARD PERFORMANCE The Board’s performance is ultimately reflected in the performance of the Group. The members of the Board shall, at all times, act honestly and use reasonable diligence and care in the discharge of the duties of their office. They have to carry their duties in the best interests of the Company and its shareholders. Board members must attend at least 75% of all Board Meetings. The NC in considering the re-appointment of a Director evaluates such Director’s contribution and performance, such as his or her attendance at meetings of the Board or Board committees, where applicable, participation, candour and any other special contributions. The NC is tasked with the assessment of the Board’s performance and is in the process of adopting performance criteria which will take into consideration quantitative and qualitative criteria such as the success of the strategic and long term objectives set by the Board.

6.

ACCESS TO INFORMATION The members of the Board in their individual capacities have complete access to information on a timely basis in the form and quality necessary for the discharge of their duties and responsibilities. Prior to each Board meeting, the members of the Board are each provided with the relevant documents and information to enable them to obtain a comprehensive understanding of the issues to be deliberated upon to enable them to arrive at an informed decision. Management will update the Independent Directors on a regular basis on the Group’s operations and performance.

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14 15

CHALLENGER TECHNOLOGIES LIMITED ANNUAL REPORT 2004

Corporate Governance

6. ACCESS TO INFORMATION (cont’d) The Directors have direct access to management and the advice and services of the Company Secretary, who attends all Board meetings and is responsible for ensuring that Board meeting procedures are followed and that applicable rules, acts and regulations are complied with. The Board (whether individually or as a Group), has direct access to the independent professional advisors to obtain advice. Any cost of obtaining such professional advice will be borne by the Company.

7. REMUNERATION MATTERS The RC comprises of 3 Directors, a majority of whom are Independent Directors. Chairman: Choo Swee Cher Members: Ho Boon Chuan Wilson Ng Leong Hai

(Independent Director) (Independent Director) (Non-Executive Director)

The RC meets at least twice a year to discuss matters relating to remuneration of the Board and key management personnel. The main terms of reference of the RC are as follows: i.

recommendation to the Board of a framework of remuneration for the Board and key management personnel, which covers all aspects of remuneration, including but not limited to Directors’ fees, salaries, allowances, bonuses and benefits in kind; ii. recommend to the Board the remuneration of non-executive Directors (which should be appropriate to the level of contribution and the responsibilities of the Directors); iii. determine specific remuneration packages for each Executive Director; and iv. determine targets for any performance-related pay schemes operated by the Company. The recommendations of the RC should be submitted to the Board for endorsement. The RC has access to expert professional advice on human resource matters whenever there is a need to consult externally. In its deliberations, the RC will take into consideration industry practices and norms in compensation in addition to the Company’s performance relative to the industry and the performance of the individual Directors. No individual Director should be involved in deciding his or her own remuneration.

8. LEVEL AND MIX OF REMUNERATION The remuneration, including an incentive bonus, of the Executive Directors, Mr Loo Leong Thye and Madam Ong Sock Hwee are based on service agreements made on 15 September 2003 as disclosed to shareholders in the Company’s Prospectus dated 5 January 2004. The service agreements are for an initial period of three years commencing on 1 October 2003 and thereafter shall be automatically renewed for successive periods of two years each on such terms and conditions as the parties may agree. Either party may terminate the service agreement by giving 3 months’ written notice or payment in lieu of notice. Both Mr Loo Leong Thye and Mdm Ong Sock Hwee are spousal to each other. The Independent Directors are each paid a director’s fee for their efforts and time spent, responsibilities and contribution to the Board, subject to approval by the shareholders at the Annual General Meeting. Future service contracts to be entered into by the Company with Directors shall have a fixed appointment period and shall not be excessively long or contain onerous removal clauses. The RC will consider what compensation the Directors’ contracts of service would entail in the event of early termination and will aim to be fair and avoid rewarding poor performance. The RC will also consider whether Directors should be eligible for benefits under long-term incentive schemes, such as share option scheme. Currently, the Executive Directors do not have long-term incentive schemes because they are also the major shareholders of the Company and their interests are aligned with the interests of the Company.

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Corporate Governance

9. DISCLOSURE ON REMUNERATION Remuneration is fixed in accordance with the experience of the person in question, the role performed, market comparison, the contribution of the individual and/or the performance of the Company. Breakdown of remuneration of each Director by % (financial year 31 December 2004). Remuneration Band & Name of Directors

Fixed Salary

Directors’ Fees

Variable or Performance Related Income/Bonus

Total

Below $250,000

Loo Leong Thye

92%

-

8%*

100%

Ong Sock Hwee

92%

-

8%*

100%

Ng Leong Hai

-

-

-

-

Ng Kian Teck

77%

-

23%

100%

Ho Boon Chuan Wilson

-

100%

-

100%

Choo Swee Cher

-

100%

-

100%

*

In view of the lower recorded Group profit in FY2004 as compared to FY2003, both Mr Loo Leong Thye and Mdm Ong Sock Hwee have waived their incentive bonus entitlement as per their respective service agreements dated 15 September 2003.

The Company has no share option plans. Accordingly, no share option has been granted to the above Directors. Breakdown of remuneration of each Key Executive (who are not Directors) by % (financial year 31 December 2004).

Remuneration Band & Name of Key Executives

Fixed Salary

Variable or Performance Related Income/Bonus

Total

Below $250,000

Chia Kang Whye

89%

11%

Chua Leh Suan

77%

23%

100% 100%

Lim Kim Huay

70%

30%

100%

Ding Tsui Eng

86%

14%

100%

The Company has no share option plans. Accordingly, no share options have been granted to the above Key Executives. No employee of the Company or its subsidiaries is an immediate family member of any Director or the CEO and whose remuneration has exceeded $150,000 during the financial year ended 31 December 2004. “Immediate family member” means the spouse, child, adopted child, stepchild, brother, sister and parent.

10. ACCOUNTABILITY The Company recognises that the Board should provide shareholders with a balanced and understandable assessment of the Group’s performance, position and prospects on a regular basis and adopts the practice of communicating major developments in its business operations to the SGX-ST, its shareholders and its employees. Management provides the Directors with balanced and understandable management accounts of the Group on a quarterly basis. The halfyear and full-year accounts will be provided to Directors prior to Board meetings. The Directors also have separate and independent access to all levels of key personnel in the Group.

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CHALLENGER TECHNOLOGIES LIMITED ANNUAL REPORT 2004

Corporate Governance

11. AUDIT COMMITTEE The AC comprises three non-executive Directors, two of whom are independent. Chairman: Members:

Ho Boon Chuan Wilson Choo Swee Cher Ng Leong Hai

(Independent Directors) (Independent Director) (Non-Executive Director)

The members of the AC have the relevant experience in the areas of business, accounting and finance, and are appropriately qualified to discharge their responsibilities. The detailed profile of the members of the AC are set out in the “Profile of Board of Directors” section on page 6 in this Annual Report. The main terms of reference of the AC are as follows: i. ii. iii. iv. v. vi. vii. viii. ix. x.

review the audit plans, the system of internal accounting controls, the audit report, the management letter and the management’s response in conjunction with the external auditors; review the assistance given by the Company’s officers to the external auditors; ensure that the internal audit function is adequate and has appropriate standing within the Company, (such adequacy of the internal audit function to be reviewed at least annually) and review the scope and results of the internal audit procedures; ensure a review of the effectiveness of the Company’s material internal controls, including financial, operational and compliance controls, and risk management, is conducted at least annually by the external auditors; review and discuss with the external auditors if necessary any suspected fraud or irregularity or suspected failure of internal controls, which may have a material impact on the Group’s operating results; review the scope and results of the external audit and its cost effectiveness, as well as the independence and objectivity of the external auditors annually; consider the appointment or re-appointment of the external auditors; review the financial statements of the Company, including the half-year and full-year results and the respective announcements before the submission to the Board of Directors; approve internal control procedures and arrangements for all interested person transactions; and give due consideration to the requirements of the Stock Exchange Listing Rules.

The AC has direct access to and enjoys the full co-operation of the Company’s management. It has full discretion to invite any Director or executive officer to attend its meetings and has been given reasonable resources to enable it to discharge its functions. The AC is to meet at least twice a year to review the announcements of the half-year and full-year results before being approved by the Board for release to the SGX-ST. The AC also meets with the external auditors and reviews the scope and results of the external audit. The AC may meet the external auditors at any time, without the presence of the Company’s management. The aggregate amount of non-audit fees paid to the external auditors for the financial period review was approximately $7,000 in FY2004. The AC having reviewed all non-audit services to the Group by the external auditors is satisfied that the nature and extent of such services will not prejudice the independence and objectivity of the external auditors. The AC has recommended to the Board the nomination of Chio Lim & Associates, for re-appointment as auditors of the Company at the forthcoming Annual General Meeting.

12. INTERNAL CONTROLS The Group’s internal controls and systems are designed to provide reasonable assurance as to the integrity and reliability of the financial information and to safeguard and maintain accountability of its assets. Procedures are in place to identify major business risks and evaluate potential financial effects, as well as for the authorisation of capital expenditure and investments. Comprehensive budgeting systems are in place to develop annual budgets covering key aspects of the business. Actual performance is compared against budgets and revised forecasts for the year are prepared on a regular basis. The Board believes that the system of internal controls and risk management maintained by the Group is adequate to safeguard shareholders’ investments and the Group’s assets.

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Corporate Governance

13. INTERNAL AUDIT The Board recognises that it is responsible for maintaining a system of internal control processes to safeguard shareholders’ investments and the Group’s business and assets. The effectiveness of the internal financial control systems and procedures are monitored by the management and the internal audit function is out-sourced to a qualified CPA firm. The internal auditors report primarily to the Chairman of the Audit Committee. The internal auditor plans its internal audit schedules in consultation with, but independent of the management. The audit plan is submitted to the Audit Committee for approval prior to the commencement of the audit. The Audit Committee reviews the activities of the internal auditors on a regular basis, including overseeing and monitoring of the implementation of improvements required on internal control weakness identified.

14. COMMUNICATIONS WITH SHAREHOLDERS The Board is mindful of its obligations to provide timely disclosure of material information to shareholders and does so through: i. ii. iii. iv. v.

annual reports issued to all shareholders. Non-shareholders may access the SGX-ST’s website for a soft copy of the annual report; announcement of half-year and full-year results on the SGXNET; other SGXNET announcements; press releases on major developments of the Company; and company’s website through which shareholders can access information on the Company.

The Board regards the Annual General Meeting as an opportunity to communicate directly with shareholders and encourages greater shareholder participation. The CEO and the other Directors attend the Annual General Meeting and are available to answer questions from shareholders at the Annual General Meeting.

15. CODE ON SECURITIES TRANSACTIONS BY OFFICERS In compliance with the Best Practices Guide, Directors and employees of the Company have been advised not to deal in the Company’s shares on short term considerations or when they are in the possession of unpublished price-sensitive information. Dealings in the Company’s shares during the period commencing one month before any announcement of the Company’s financial statements and ending on the date of announcements of the results is prohibited.

16. INTERESTED PERSON TRANSACTIONS (“IPT”) The Company has established internal control policies to ensure that transactions with interested persons are properly reviewed and approved, and are conducted at arm’s length basis. For the period under review, the Group carried out an interested person transaction with Columbia Computer Products, Inc (“Columbia”) involving the sales of IT products to the Group. Mr Ng Leong Hai is the director of Columbia as well as the Company, and hence an interested person. The total value of all transactions with Columbia for the financial year ended 31 December 2004 was approximately $805,000.

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CHALLENGER TECHNOLOGIES LIMITED ANNUAL REPORT 2004

Report Of The Directors

The directors of the company are pleased to present their report together with the audited financial statements of the company and of the group for the financial year ended 31 December 2004.

1.

DIRECTORS AT DATE OF REPORT The directors of the company in office at the date of this report are: Loo Leong Thye Ong Sock Hwee Ng Leong Hai Ng Kian Teck Ho Boon Chuan Wilson Choo Swee Cher (a) (b) (c)

2.

(Chief Executive) (Executive Director) (Non-Executive Director) (a) (b) (c) (Alternate Director to Ng Leong Hai) (Independent Director) (a) (b) (c) (Independent Director) (a) (b) (c)

Members of Audit Committee Members of Remuneration Committee Members of Nominating Committee

ARRANGEMENTS TO ENABLE DIRECTORS TO ACQUIRE BENEFITS BY MEANS OF THE ACQUISITION OF SHARES AND DEBENTURES Neither at the end of the financial year nor at any time during the financial year did there subsist any arrangement whose object is to enable the directors of the company to acquire benefits by means of the acquisition of shares or debentures in the company or any other body corporate.

3.

DIRECTORS' INTERESTS IN SHARES AND DEBENTURES The directors of the company holding office at the end of the financial year had no interests in the share capital of the company and related corporations as recorded in the register of directors' shareholdings kept by the company under section 164 of the Companies Act, Cap. 50 except as follows : Name of directors and companies in which interests are held

At beginning of year

At end of year

Challenger Technologies Limited (the company)

Ordinary shares of $0.04 each

Ordinary shares of $0.04 each

Loo Leong Thye

64,175,000

Ong Sock Hwee

13,825,000

65,693,000 14,019,000

Ng Leong Hai

37,750,000

37,830,000

Ng Kian Teck

200,000

200,000

Ho Boon Chuan Wilson

100,000

100,000

Choo Swee Cher

100,000

100,000

By virtue of section 7 of the Companies Act, Cap. 50, Mr Loo Leong Thye and Mr Ng Leong Hai with the above shareholdings in the company are deemed to have an interest in all the related corporations of the company. The directors’ interests as at 21 January 2005 were the same as those at the end of the year.

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Report of the Directors

4.

CONTRACTUAL BENEFITS OF DIRECTORS Since the beginning of the financial year, no director of the company has received or become entitled to receive a benefit which is required to be disclosed under section 201(8) of the Companies Act, Cap. 50 by reason of a contract made by the company or a related corporation with the director or with a firm of which he is a member, or with a company in which he has a substantial financial interest. There were certain transactions (shown in the financial statements) with corporations in which certain directors have an interest.

5. OPTIONS TO TAKE UP UNISSUED SHARES During the financial year, no option to take up unissued shares of the company or any corporation in the group was granted.

6. OPTIONS EXERCISED During the financial year, there were no shares of the company or any corporation in the group issued by virtue of the exercise of an option to take up unissued shares.

7. UNISSUED SHARES UNDER OPTION At the end of the financial year, there were no unissued shares of the company or any corporation in the group under option.

8. AUDIT COMMITTEE The members of the audit committee at the date of this report are as follows: Ho Boon Chuan Wilson Choo Swee Cher Ng Leong Hai

Chairman of audit committee and Independent Director Independent Director Non-Executive Director

The audit committee was established after the company became a listed company on 14 January 2004. The audit committee performs the functions specified by section 201B (5) of the Companies Act, Cap. 50. Among others, it performed the following functions: • • • • • •

reviewed with the external auditors the external audit plan; reviewed with the external auditors their evaluation of the company’s internal accounting controls and their audit report; reviewed the adequacy of the assistance provided by the company’s officers to the external auditor; reviewed with the internal auditors the scope and results of the internal audit procedures; reviewed the financial statements of the group and the company prior to their submission to the directors of the company for adoption; and reviewed the interested party transactions (as defined in Chapter 9 of the Listing Manual of the SGX).

The audit committee has recommended to the board of directors that the auditors, Chio Lim & Associates, be nominated for re-appointment as auditors at the next annual general meeting of the company. Other functions performed by the audit committee are described in the report on corporate governance included in the annual report.

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CHALLENGER TECHNOLOGIES LIMITED ANNUAL REPORT 2004

Report of the Directors

9. SUBSEQUENT DEVELOPMENTS There are no significant developments subsequent to the release of the group’s and the company’s preliminary financial statements, as announced on 22 February 2005, which would materially affect the group’s and the company’s operating and financial performance as of the date of this report.

10. AUDITORS The auditors, Chio Lim & Associates, have expressed their willingness to accept re-appointment.

ON BEHALF OF THE DIRECTORS

Loo Leong Thye Chief Executive

28 February 2005

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Ong Sock Hwee Executive Director

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Statement Of Directors

In the opinion of the directors, the accompanying financial statements are drawn up so as to give a true and fair view of the state of affairs of the company and of the group as at 31 December 2004 and changes in equity of the company and of the group, and of the results and cash flows of the group for the financial year then ended and at the date of this statement there are reasonable grounds to believe that the company will be able to pay its debts as and when they fall due.

ON BEHALF OF THE DIRECTORS

Loo Leong Thye Chief Executive

28 February 2005

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Ong Sock Hwee Executive Director

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22 23

CHALLENGER TECHNOLOGIES LIMITED ANNUAL REPORT 2004

Auditors’ Report

AUDITORS’ REPORT TO THE MEMBERS OF CHALLENGER TECHNOLOGIES LIMITED We have audited the accompanying financial statements of Challenger Technologies Limited for the year ended 31 December 2004. These financial statements are the responsibility of the company’s directors. Our responsibility is to express an opinion on these financial statements based on our audit.

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

In our opinion, a) the consolidated financial statements of the group and the balance sheet and statement of changes in equity of the company are properly drawn up in accordance with the provisions of the Companies Act, Cap. 50 (the “Act”) and Singapore Financial Reporting Standards so as to give a true and fair view of the state of affairs of the group and of the company as at 31 December 2004 and the results, changes in equity and cash flows of the group and the changes in equity of the company for the year ended on that date; and b) the accounting and other records required by the Act to be kept by the company and by the subsidiaries incorporated in Singapore of which we are the auditors have been properly kept in accordance with the provisions of the Act.

Chio Lim & Associates Certified Public Accountants Singapore 28 February 2005 Partner in charge : Lim Lee Meng Effective from year ended 31 December 2003

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Balance Sheets As at 31 December 2004

Group Notes

Company

2004

2003

2004

2003

$'000

$'000

$'000

$'000

ASSETS Current assets Cash and cash equivalents

5

12,737

3,519

12,269

3,381

Trade receivables

6

2,011

1,764

1,697

2,341

Other receivables and prepayments

7

435

809

294

893

Inventories

8

Total current assets

5,976

6,063

5,270

5,097

21,159

12,155

19,530

11,712

Non-current assets Investment in associate

9

313

–

311

–

Investments in subsidiaries

10

–

–

865

832

Plant and equipment

11

1,208

1,139

794

902

Other assets

12

22

39

–

–

Goodwill

13

Total non-current assets Total assets

–

–

–

–

1,543

1,178

1,970

1,734

22,702

13,333

21,500

13,446

LIABILITIES AND EQUITY Current liabilities Short-term borrowings

14

852

–

–

–

Trade payables and accrued liabilities

15

5,713

5,651

4,910

5,597

Other payables

16

331

532

270

723

963

854

954

836

16

3

–

–

7,875

7,040

6,134

7,156

127

164

124

161

Income tax payable Current portion of finance leases

17

Total current liabilities Non-current liabilities Deferred tax

26

Finance leases

17

92

–

–

–

219

164

124

161

35

–

–

–

6,140

4,860

6,140

4,860

8,433

1,269

9,102

1,269

Total equity

14,573

6,129

15,242

6,129

Total liabilities and equity

22,702

13,333

21,500

13,446

Total non-current liabilities Minority interest Capital and reserves Issued capital Reserves

See accompanying notes to financial statements.

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CHALLENGER TECHNOLOGIES LIMITED ANNUAL REPORT 2004

Consolidated Income Statement Year ended 31 December 2004

Group Notes

Revenue

19

Other operating income

20

2004

2003

$'000

$'000

75,478

67,265

303

95

(421)

1,171

Cost of goods purchased

(60,326)

(55,226)

Other consumables used

(229)

(111)

(4,891)

(3,998)

Changes in inventories

Staff costs

21

Depreciation expense Other operating expenses Other (charges)/credits

23

Profit from operations Finance costs

24

Share of profit of associate Profit before income tax

25

Income tax expense

26

Profit after income tax

(526)

(470)

(5,231)

(4,774)

(407)

75

3,750

4,027

(39)

(3)

4

–

3,715

4,024

(917)

(855)

2,798

3,169

2,874

3,169

Attributable to: Equity holders of the company Minority interest

(76)

–

2,798

3,169

– Basic

1.88

2.61

– Diluted

1.88

2.61

Earnings per share for profit attributable to the equity holders of the company during the year

27

(expressed in cents per share of $0.04 each)

See accompanying notes to financial statements.

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Statements Of Changes In Equity Year ended 31 December 2004

Issued Capital $'000

Share Premium $'000

Translation Reserve $'000

Accumulated Profit $'000

Total $'000

Balance at 31 December 2002

3,750

–

Issue of share capital

1,110

–

–

909

4,659

–

(1,110)

–

Group

Dividends paid (Note 28)

–

–

–

(1,699)

(1,699)

Net profit for the year

–

–

–

3,169

3,169

Balance at 31 December 2003

4,860

–

–

1,269

6,129

Issue of share capital (Note 18)

1,280

6,080

–

–

7,360

Share issue expenses (b)

–

(925)

–

–

( 925)

Dividends paid (Note 28)

–

–

–

(860)

( 860)

Foreign currency translation differences (b)

–

–

(5)

–

(5)

Net profit for the year

–

–

–

2,874

2,874

6,140

5,155

(5)

3,283

14,573

(a)

(a)

4,659

Balance at 31 December 2004

Company Balance at 31 December 2002

3,750

–

–

909

Issue of share capital

1,110

–

–

(1,110)

Dividends paid (Note 28)

–

–

–

(1,699)

(1,699)

Net profit for the year

–

–

–

3,169

3,169

Balance at 31 December 2003

4,860

–

–

1,269

6,129

Issue of share capital (Note 18)

1,280

6,080

–

–

7,360

Share issue expenses (b)

–

(925)

–

–

(925)

Dividends paid (Note 28)

–

–

–

(860)

(860)

–

–

–

3,538

3,538

6,140

5,155

–

3,947

15,242

Net profit for the year Balance at 31 December 2004

(a) (a) Unrealised and not available for distribution as cash dividends. (b) Recognised directly in equity.

See accompanying notes to financial statements.

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CHALLENGER TECHNOLOGIES LIMITED ANNUAL REPORT 2004

Consolidated Cash Flow Statement Year ended 31 December 2004

2004 $'000

2003 $'000

3,715

4,024

526 15 17 388 33 – (4) (247) 39 4,482 639 398 400 (1,329) (201) 4,389 247 (39) (843) 3,754

470 – 11 – (10) (9) – (45) 3 4,444 479 (344) (1,111) (92) 119 3,495 45 (3) (493) 3,044

Cash flows from investing activities : Acquisition of subsidiary net of cash acquired (Note 29) Increase in investment in associate Payment of other assets Disposal of other investments Disposal of plant and equipment Purchase of plant and equipment (Note 5) Net cash used in investing activities

59 (311) – – 30 (427) ( 649)

– – (50) 409 38 (613) ( 216)

Cash flows from financing activities : Proceeds from issuing shares Share issue expenses Increase in short-term borrowings Repayment in finance leases (Note 5 and 29) Dividends paid Increase in minority interest Net cash from/(used in) financing activities

7,360 (925) 478 (46) (860) 112 6,119

– – – (2) (1,699) – (1,701)

(6)

–

9,218 3,519 12,737

1,127 2,392 3,519

Cash flows from operating activities : Profit before income tax Adjustments for : Depreciation expense Amortisation of goodwill on consolidation Amortisation of master franchise fee Impairment loss of goodwill on consolidation Loss/(gain) on disposal of plant and equipment Gain on disposal of other investments Share of profit of associate Interest income Interest expense Operating profit before working capital changes Trade receivables Other receivables and prepayments Inventories Trade payables and accrued liabilities Other payables Cash generated from operations Interest received Interest paid Income tax paid Net cash from operating activities

Net effect of exchange rate changes in consolidating foreign subsidiaries Net increase in cash Cash at beginning of year Cash at end of year (Note 2 and 5)

See accompanying notes to financial statements.

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Notes To Financial Statements 31 December 2004

1. GENERAL The company is incorporated in Singapore. The financial statements are presented in Singapore dollars. They are drawn up in accordance with the provisions of the Companies Act, Cap. 50 and the Singapore Financial Reporting Standards. The financial statements were approved and authorised for issue by the board of directors on 28 February 2005. The principal activities of the company are to provide IT products and services through the sale of IT and related products. It is listed on the Stock Exchange of Singapore Dealing and Automated Quotation System ("SESDAQ"). The principal activities of the subsidiaries are disclosed in Note 10 to the financial statements. The registered office address of the company is 109 North Bridge Road, #06-00 Funan The IT Mall, Singapore 179097. The company domiciled in Singapore.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ACCOUNTING CONVENTION – The financial statements are prepared in accordance with the historical cost convention. BASIS OF PRESENTATION – The consolidation accounting method is used for the consolidated financial statements which include the financial statements made up to 31 December each year of the company and of those companies in which it holds, directly or indirectly through subsidiaries, over 50 percent of the shares and voting rights. The consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances. All significant intercompany balances and transactions have been eliminated on consolidation. The equity accounting method is used for associates in the group financial statements. The results of the investees acquired or disposed of during the financial year are consolidated from the respective dates of acquisition or up to the dates of disposal. On disposal the attributable amount of unamortised goodwill is included in the determination of the gain or loss on disposal. REVENUE RECOGNITION – Revenue from sale of goods is recognised when significant risks and rewards of ownership are transferred to the buyer and the amount of revenue and the costs of the transaction (including future costs) can be measured reliably. Revenue from rendering of services that are of short duration is recognised when the services are completed. Franchise fee income is recognised on a straight-line basis over the period of the franchise agreement. Interest revenue is recognised on a time-proportion basis using the effective interest rate. Dividend revenue is recognised when the shareholder's right to receive the dividend is legally established. Revenue is measured at the fair value of the consideration received or receivable, taking into account the amount of any trade discounts and volume rebates allowed by the entity. INVENTORIES – Inventories are measured at the lower of cost (first-in first-out method) and net realisable value. GOODWILL – Goodwill or negative goodwill arising on acquisition is based on the purchase method. Goodwill arising on consolidation represents the excess of cost of acquisition over the acquirer's interest in the fair value of the identifiable assets and liabilities of the subsidiary or associate acquired as at the date of acquisition. Goodwill is carried at cost less any accumulated amortisation and any accumulated impairment losses. It is amortised on the straight-line method over its useful life to reflect the best estimate of the period during which future economic benefits are expected to flow to the acquirer. The group will adopt FRS 103 Business Combination with effect from 1 January 2005. FRS prohibits the amortisation of goodwill acquired in a business combination and instead requires the goodwill to be tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired, in accordance with FRS 36 Impairment of Assets. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. MINORITY INTERESTS – Minority interests are stated at the appropriate proportion of the post-acquisition values of the identifiable assets and liabilities of the subsidiaries. SUBSIDIARIES – In the company's own financial statements, the investments in subsidiaries are carried at cost less any provision for impairment in value. The book values of the subsidiaries are not necessarily indicative of the amounts that would be realised in a current market exchange.

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CHALLENGER TECHNOLOGIES LIMITED ANNUAL REPORT 2004

Notes To Financial Statements

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) ASSOCIATE – An associate is an entity in which the company has a substantial financial interest (usually not less than 20% of the voting power), significant influence and that is neither a subsidiary nor a joint venture of the company. Significant influence is the power to participate in the financial and operating policy decisions of the associate but is not control over those policies. The investment in associate is carried in the group balance sheet at cost plus post-acquisition changes in the group's share of net assets of the associate, less any impairment in value. The income statement reflects the group's share of the results of operations of the associate. The group's investment in its associate includes goodwill (net of accumulated amortisation) on acquisition, which is treated in accordance with the accounting policy for goodwill stated above. In the company's own financial statements, the investment in associate is stated at cost less any provision for impairment in value. Profits and losses resulting from transactions between the group and an associate are recognised in the financial statements only to the extent of unrelated investor's interests in the associate. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the group. The net book value of the associate is not necessarily indicative of the amount that would be realised in a current market exchange. PLANT AND EQUIPMENT – Plant and equipment are carried at cost less any accumulated depreciation and any accumulated impairment losses. Depreciation is provided on gross carrying amounts in equal annual instalments over the estimated useful lives of the assets. The annual rates of depreciation are as follows: Renovation Plant and equipment

– 12.5% to 33% – 10% to 33%

Fully depreciated assets still in use are retained in the financial statements. The useful life of an item of plant and equipment is reviewed at least at each financial year end and, if expectations are significantly different from previous estimates, the depreciation charge for the current and future periods are adjusted. IMPAIRMENT OF ASSETS – At each reporting date an assessment is made as to whether there is any indication that a depreciable or amortisable asset may be impaired. If any such indication exists, an estimate is made of the recoverable amount of the asset. A provision is made for the excess of the carrying amount over the recoverable amount. The recoverable amount of an asset or a cash-generating unit is the higher of its fair value less costs to sell and its value in use. BORROWING COSTS – All borrowing costs are recognised as an expense in the period in which they are incurred. FOREIGN CURRENCY TRANSACTIONS – The functional currency is the Singapore dollar as it reflects the primary economic environment in which the entity operates. Transactions in foreign currencies are recorded in Singapore dollars at the rates ruling at the dates of the transactions. At each balance sheet date, recorded monetary balances and balances measured at fair value that are denominated in foreign currencies are reported at the rates ruling at the balance sheet and fair value dates respectively. All realised and unrealised exchange adjustment gains and losses are dealt with in the income statement. FOREIGN CURRENCY FINANCIAL STATEMENTS – The foreign entities determine the appropriate functional currency as it reflects the primary economic environment in which the entities operate. In translating the financial statements of a foreign entity for incorporation in the consolidated financial statements of the parent company the assets and liabilities denominated in currencies other than the functional currency of the parent company are translated at year end rates of exchange and the income and expense items are translated at average rates of exchange for the year. The resulting translation adjustments (if any) are accumulated in a separate component of shareholders' equity until the disposal of the foreign entity. INCOME TAX – The income taxes are accounted using the asset and liability method that requires the recognition of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequence of events that have been recognised in the financial statements or tax returns. The measurements of current and deferred tax liabilities and assets are based on provisions of the enacted tax laws; the effects of future changes in tax laws or rates are not anticipated. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realised. A deferred tax liability is recognised for all taxable temporary differences, unless the deferred tax liability arises from (a) goodwill for which amortisation is not deductible for tax purposes; or (b) the initial recognition of an asset or liability in a transaction which (i) is not a business combination; and (ii) at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss).

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Notes To Financial Statements

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) RETIREMENT BENEFITS COSTS – Contributions to defined contribution retirement benefit plans are recorded as an expense as they fall due. Contributions made to government managed retirement benefit plan such as the Central Provident Fund in Singapore which specifies the employer's obligations are dealt with as defined contribution retirement benefit plans. FRANCHISE FEE – Acquired franchise is carried at acquisition cost less accumulated amortisation and any accumulated impairment losses. The depreciable amount is allocated on a systematic basis over 3 years. LEASES – A finance lease is recognised as an asset and a liability in the balance sheet at amounts equal at the inception of the lease to the fair value of the leased asset or, if lower, at the present value of the lease payments based on the interest rate implicit in the lease. The excess of the lease payments over the recorded lease obligations are treated as finance charges which are allocated to each lease term so as to produce a constant rate of charge on the remaining balance of the obligations. The assets are depreciated as owned depreciable assets. Leases where the lessor effectively retains substantially all the risk and benefits of ownership of the leased assets are classified as operating leases. For operating leases, lease payments are recognised as an expense in the income statement on a straight line basis unless another systematic basis is representative of the time pattern of the user's benefit, even if the payments are not on that basis. ACCOUNTING ESTIMATES – The preparation of financial statements in conformity with generally accepted accounting principles requires the directors to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Apart from those involving estimations, management has made judgements in the process of applying the entity's accounting policies that have the most significant effect on the amounts recognised in the financial statements. LIABILITIES AND PROVISIONS – A liability and provision is recognised when there is a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. It is measured at the amount payable. CASH – Cash for the cash flow statement includes cash and cash equivalents. FAIR VALUE OF FINANCIAL INSTRUMENTS – The carrying values of cash, accounts receivable, other current financial assets, short-term borrowings, accounts payable and other current financial liabilities approximate their fair market values due to the short-term maturity of these instruments. Those financial assets that have a fixed maturity are measured at amortised cost using the effective interest rate method. Those that do not have a fixed maturity are measured at cost. All financial assets are subject to review for impairment. RISK MANAGEMENT POLICIES FOR FINANCIAL INSTRUMENTS CREDIT RISK ON FINANCIAL ASSETS – Financial assets that are potentially subject to concentrations of credit risks consist principally of cash, cash equivalents and trade and other accounts receivable. The directors believe that the financial risks associated with these financial instruments are minimal. The group places its cash with high credit quality institutions. The group performs ongoing credit evaluation of its customers’ financial condition and maintains a provision for doubtful accounts receivables based upon the expected collectibility of all account receivable. There is no significant concentration of credit risk, as the exposure is spread over a large number of counterparties and customers unless otherwise disclosed in the note to the financial statements. OTHER RISKS ON FINANCIAL INSTRUMENTS – The group monitors its interest, foreign exchange risks, and changes in fair values from time to time and any gains and losses are included in the income statement. The group is exposed to interest rate price risk for financial instruments with a fixed interest rate and to interest rate or cash flow risk for financial instruments with a floating interest rate that is reset as market rates change. The group is also exposed to changes in foreign exchange rates and liquidity of businesses. The group does not utilise forward contracts or other arrangements to minimise these risks nor for trading or speculative purposes. At 31 December 2004, there were no such arrangements, interest rate swap contracts or other derivative instruments outstanding. OTHER BUSINESS RISKS AND UNCERTAINTIES – The group is subject to a number of risks including the development and marketing of unproven products, the need to maintain adequate financing, better capitalised competitors and dependence on essential personnel. The industry is characterised by rapid technological developments, frequent products introductions, evolving industry standards, changes in customer requirements and short product life cycles. Significant technological changes or the emergence of competitive products with new capabilities could adversely affect the business plan and operating results of the group.

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30 31

CHALLENGER TECHNOLOGIES LIMITED ANNUAL REPORT 2004

Notes To Financial Statements

3. RELATED COMPANY TRANSACTIONS Related companies in these financial statements refer to members of the group. Some of the group’s transactions and arrangements and terms thereof are arranged by or between members of the group. The intercompany balances are without fixed repayment terms and interest unless stated otherwise. 4. RELATED PARTY TRANSACTIONS Related parties are entities with common direct or indirect shareholders and or directors or management. Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial and operating decision. They include the associates. Some of the group’s transactions and arrangements and terms thereof are with related parties. The balances are without fixed repayment terms and interest unless stated otherwise. It is impracticable to reliably estimate the fair values of the balances when there are no maturity dates and interest. Significant related party transactions: In addition to the transactions and balances disclosed elsewhere in the notes to the financial statements, this item includes the following: Group

Columbia Computer Products, Inc Purchases of goods Purchases of plant and equipment

2004 $’000

2003 $’000

803 2

665 –

On 17 November 2003, the shareholders approved an interested party transaction mandate for the company to purchase IT and related products from Columbia Computer Products, Inc. The mandate took effect from 14 January 2004. 5. CASH AND CASH EQUIVALENTS Group

Bank balances and cash Fixed bank deposits Restricted fixed bank deposits (a)

Analysis of above amount by currency: Singapore dollars Malaysian ringgit Thailand baht Australian dollars

Company

2004 $’000

2003 $’000

2004 $’000

2003 $’000

1,145 10,992 600 12,737

852 2,667 – 3,519

677 10,992 600 12,269

714 2,667 – 3,381

6,645 30 90 5,972 12,737

2,868 – – 651 3,519

6,297 – – 5,972 12,269

2,730 – – 651 3,381

(a) This is fixed bank deposits held by bankers for bank facilities granted to a subsidiary (see Note 14). The rate of interest for the cash on interest earning accounts is between 0.7% and 5.1% (2003: 5%) per year receivable weekly, monthly, quarterly and yearly. NON-CASH TRANSACTIONS - Additions to plant and equipment during the year amounting to $120,000 were financed by new finance leases.

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Notes To Financial Statements

6.

TRADE RECEIVABLES Group

Subsidiaries (Note 3 and 10) Outside parties Less provision for doubtful debts Movements in above provision: Balance at beginning and end of year Analysis of above amount by currency: Singapore dollars Malaysian ringgit

Company

2004 $’000

2003 $’000

2004 $’000

2003 $’000

– 2,012 (1) 2,011

– 1,765 (1) 1,764

436 1,261 – 1,697

841 1,500 – 2,341

1

1

–

–

1,977 34 2,011

1,764 – 1,764

1,697 – 1,697

2,341 – 2,341

The average credit period generally taken by customers is about 10 days (2003: 10 days). A provision for impairment of trade receivables is established when there is objective evidence that management will not be able to collect all amounts due according to the original terms of receivables. The carrying amount of trade receivables approximates to their fair value. Short-duration receivables with no stated interest rate are normally measured at original invoice amount unless the effect of imputing interest would be significant. Concentration of customers: Group

Top 1 customer Top 2 customers Top 3 customers

7.

Company

2004 $’000

2003 $’000

2004 $’000

2003 $’000

578 719 829

421 659 823

569 993 1,099

841 1,244 1,481

2004 $’000

2003 $’000

2004 $’000

2003 $’000

– 326 49 – 60 435

– 318 34 445 12 809

36 216 22 – 20 294

200 211 25 445 12 893

374 60 1 435

809 – – 809

294 – – 294

893 – – 893

OTHER RECEIVABLES AND PREPAYMENTS Group

Subsidiaries (Note 3 and 10) Deposits Prepayments Deferred expenditure Others

Analysis of above amount by currency: Singapore dollars Malaysian ringgit Thailand baht

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Company

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32 33

CHALLENGER TECHNOLOGIES LIMITED ANNUAL REPORT 2004

Notes To Financial Statements

7. OTHER RECEIVABLES AND PREPAYMENTS (cont’d) Deferred expenditure represents expenditure, stated at cost, incurred in connection with the listing of the company’s shares. This amount has been set off against the share premium account upon receipts of the proceeds from the invitation of shares in January 2004. Included in this amount is an amount of $138,000 being professional fees paid to the auditors of the company for the purpose of acting as Reporting Accountants in the listing exercise.

8. INVENTORIES Group

Company

2004 $’000

2003 $’000

2004 $’000

2003 $’000

5,912

6,035

5,206

5,069

64 5,976

28 6,063

64 5,270

28 5,097

60 27 (60) 27

60 60

60 27 (60) 27

60 60

2004 $’000

2003 $’000

2004 $’000

2003 $’000

Unlisted equity shares at cost Share of post-acquisition profits

311 2 313

-

311 311

-

Share of net book value of associate

300

-

300

-

Goods for resale at cost Inventories carried at net realisable value after the provision shown below Movements in above provision: Balance at beginning of year Charge to income statement Amount written off Balance at end of year

9. INVESTMENT IN ASSOCIATE Group

Name of company, country of incorporation, place of operations and principal activities and auditors

Challenger Infortech (Beijing) Co., Ltd (a) (b) People's Republic of China Provision of software and installation services

Company

Percentage of equity held by group 2004 2003 % % 40%

-

(a) Other auditors. Audited by firms of accountants other than member firms of Howarth International of which Chio Lim & Associates, Singapore is a member. (b) The investment is in China renminbi. The fair value of the associate as available-for-sale financial assets is deemed to be not reliably measurable as the probabilities of the various estimates within the range cannot be reasonably assessed as used in estimating fair values. Consequently the investment is carried at cost less provision for impairment.

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Notes To Financial Statements

10. INVESTMENTS IN SUBSIDIARIES Company

Unlisted equity shares at cost Less provision for impairment

Movements in above provision: Balance at beginning of year Charge to income statement Amount written off Balance at end of year Net book value of subsidiaries Analysis of above amount by currency: Singapore dollars Malaysian ringgit

2004 $’000

2003 $’000

2,086 (1,221) 865

1,985 (1,153) 832

1,153 68 1,221

1,158 289 (294) 1,153

196

832

2,050 36 2,086

1,985 1,985

The fair value of the subsidiaries as available-for-sale financial assets is deemed to be not reliably measurable as the probabilities of the various estimates within the range cannot be reasonably assessed as used in estimating fair values. Consequently the investment is carried at cost less provision for impairment. The details of the subsidiaries at the financial year end are as follows: Name of subsidiary, country of incorporation, place of operations and principal activities

Effective percentage of equity held by the company

2004 $'000

2003 $'000

2004 %

2003 %

1,500

1,500

100

100

Matrix Integration Pte. Ltd. (a) Singapore Small format IT retailing

385

385

100

100

Itechcare (S) Pte Ltd (a) Singapore Provision of IT services and franchising of IT services

100

100

100

100

65

-

55

-

CBD eVision Pte Ltd (a) Singapore Electronic signage business

OA Supplies Pte Ltd (acquired in April 2004) (a) Singapore Provision of office supplies

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Cost in books of company

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34 35

CHALLENGER TECHNOLOGIES LIMITED ANNUAL REPORT 2004

Notes To Financial Statements

10. INVESTMENTS IN SUBSIDIARIES (cont’d) Name of subsidiary, country of incorporation, place of operations and principal activities

Cost in books of company

Effective percentage of equity held by the company

2004 $'000

2003 $'000

2004 %

2003 %

36

-

80

-

CBD eVision (M) Sdn Bhd (b) Malaysia Electronic signage business

-

-

60

-

CBD eVision (Thailand) Company Limited (c) Thailand Electronic signage business

-

-

52

-

2,086

1,985

Challenger Technologies (M) Sdn Bhd (incorporated on 1 September 2004) (c) Malaysia Provision of IT products and services Held by CBD eVision Pte Ltd

(a) Audited by Chio Lim & Associates, a member of Horwath International. (b) Other auditors. Audited by firms of accountants other than member firms of Howarth International of which Chio Lim & Associates, Singapore is a member. (c) Not audited as it is immaterial. 11. PLANT AND EQUIPMENT Group

Renovation $'000

Plant and equipment $'000

Total $'000

Cost: At beginning of year Additions Arising from acquisition of subsidiary Disposals At end of year

521 37 25 (37) 546

3,242 510 133 (155) 3,730

3,763 547 158 (192) 4,276

Accumulated depreciation: At beginning of year Depreciation for the year Arising from acquisition of subsidiary Disposals At end of year

318 68 3 (5) 384

2,306 458 44 (124) 2,684

2,624 526 47 (129) 3,068

59

411

470

203 162

936 1,046

1,139 1,208

Depreciation for last year Net book value: At beginning of year At end of year

Certain items of plant and equipment are under finance lease agreements (see Note 17).

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Notes To Financial Statements

11. PLANT AND EQUIPMENT (cont’d)

Company

Renovation $'000

Plant and equipment $'000

Total $'000

Cost: At beginning of year Additions Disposals At end of year

416 14 430

2,978 336 (71) 3,243

3,394 350 (71) 3,673

Accumulated depreciation: At beginning of year Depreciation for the year Disposals At end of year

289 48 337

2,203 385 (46) 2,542

2,492 433 (46) 2,879

48

395

443

127 93

775 701

902 794

Depreciation for last year Net book value: At beginning of year At end of year

12. OTHER ASSETS Group

Company

2004 $’000

2003 $’000

2004 $’000

2003 $’000

-

2 (2) -

-

-

Master franchise fee (a) Cost: At beginning and end of year

50

50

-

-

Accumulated amortisation: At beginning of year Amortisation for the year At end of year

11 17 28

11 11

-

-

Net book value

22

39

-

-

Total

22

39

-

-

Preliminary expenses Arose in previous years Written off Net book value

(a) This relates to a prepayment for master franchise fee by a subsidiary to carry out certain IT product servicing activities for a period of 3 years commencing on 18 April 2003, with an option to extend it for a further 7 years upon payment of a renewal fee of $50,000. It is amortised over 3 years.

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36 37

CHALLENGER TECHNOLOGIES LIMITED ANNUAL REPORT 2004

Notes To Financial Statements

13. GOODWILL Group

Cost: Arising from acquisition of subsidiary At end of year Accumulated amortisation: At beginning of year Amortisation for the year Impairment loss At end of year Net book value: At end of year

Company

2004 $’000

2003 $’000

2004 $’000

2003 $’000

403 403

-

-

-

(15) (388) (403)

-

-

-

-

-

-

-

2004 $’000

2003 $’000

2004 $’000

2003 $’000

317 89 446 852

-

-

-

14. SHORT-TERM BORROWINGS Group

Bank loan (secured) Trust receipts Factoring creditors

Company

The bank loan is covered by a pledge on the fixed deposits of the group and personal guarantee from a director of a subsidiary. The group's other short-term borrowings are secured by joint and several guarantees from certain directors of a subsidiary and a floating charge over the subsidiary's receivables. The interest rates for the bank loans ranged from 1.5453% to 2.1465% per year.Trust receipts and factoring facilities are at interest rate of 5% (2003: 5%) per year. 15. TRADE PAYABLES AND ACCRUED LIABILITIES Group

Subsidiaries (Note 3 and 10) Related party (Note 4) Outside parties Accrued liabilities

Analysis of above amount by currency: United States dollars Singapore dollars Malaysian ringgit

Company

2004 $’000

2003 $’000

2004 $’000

2003 $’000

65 5,156 492 5,713

126 5,189 336 5,651

40 65 4,421 384 4,910

191 126 5,033 247 5,597

65 5,629 19 5,713

126 5,525 5,651

65 4,845 4,910

126 5,471 5,597

The average credit period taken to settle payables by the group is about 35 days (2003 : 37 days).

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Notes To Financial Statements

16. OTHER PAYABLES Group

Directors (Note 4) Subsidiaries (Note 3 and 10) Deposits received Deferred franchise fee income Others Analysis of above amount by currency: Singapore dollars Malaysian ringgit

Company

2004 $’000

2003 $’000

2004 $’000

2003 $’000

25 235 13 58 331

440 14 78 532

2 229 39 270

288 378 57 723

304 27 331

532 532

270 270

723 723

17. OBLIGATION UNDER FINANCE LEASES Group 2004

Minimum payments $'000

Finance charges $'000

Present value $'000

21 109 130

(5) (17) (22)

16 92 108

Minimum lease payments payable: Due within one year Due within 2 to 5 years Total Net book value of plant and equipment under finance leases Group 2003

112

Minimum payments $'000

Finance charges $'000

4 4

(1) (1)

Minimum lease payments payable: Due within one year Total Net book value of plant and equipment under finance leases

Present value $'000

3 3 -

It is the group's policy to lease certain of its plant and equipment under finance leases. The average lease term is 5 years. The rates of interest for the finance lease during the year ranged from 3.3% to 6.3% (2003 : 6.3%) per year. The interest rates are fixed at the contract date. All leases are on a fixed repayment basis and no arrangement has been entered into for contingent rental payments. The lease obligations are denominated in Singapore dollars and Malaysian ringgit. The fair value of the lease obligations does not differ significantly from their carrying amount. The obligations under the finance leases are secured by the lessor's charge over the leased assets.

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38 39

CHALLENGER TECHNOLOGIES LIMITED ANNUAL REPORT 2004

Notes To Financial Statements

18. ISSUED CAPITAL Company

Authorised: 2,500,000,000 ordinary shares of $0.04 each Issued and fully paid: 153,500,000 ordinary shares of $0.04 each (2003 : 121,500,000 ordinary shares of $0.04 each)

2004 $’000

2003 $’000

100,000

100,000

6,140

4,860

The changes in the company's issued capital during the year are as follows: $'000 121,500,000 ordinary shares of $0.04 each as at 31 December 2003 Issue of 32,000,000 new shares of $0.04 each at premium of $0.19 per share 153,500,000 ordinary shares of $0.04 each as at 31 December 2004

4,860 1,280 6,140

On 14 January 2004, the company issued 32,000,000 new shares at a premium of $0.19 per share pursuant to the company's listing on SGXSESDAQ. The new ordinary shares rank pari passu in all material respects with the existing shares of the company.

19. REVENUE Group

IT products and services Electronic signage services Office supplies

2004 $’000

2003 $’000

70,852 987 3,639 75,478

66,298 967 67,265

20. OTHER OPERATING INCOME Group

Interest income from financial institutions Sundry income

Composite

2004 $’000

2003 $’000

247 56 303

45 50 95

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Notes To Financial Statements

21. STAFF COSTS Group

Staff costs including directors Contributions to defined contribution plans Total staff costs

2004 $’000

2003 $’000

4,433 458 4,891

3,602 396 3,998

22. NUMBER OF EMPLOYEES Group

Number of staff (including directors) at end of year

2004

2003

244

213

23. OTHER (CHARGES)/CREDITS Group

Amortisation of goodwill on consolidation Amortisation of master franchise fee Bad debts written off on trade receivables Bad debts recovered on trade receivables Foreign exchange adjustment gain Gain on disposal of other investments (Loss)/ gain on disposal of plant and equipment Loss on deregistration of a subsidiary Preliminary expenses written off Provision for inventories Inventories written off Impairment loss of goodwill on consolidation

2004 $’000

2003 $’000

(15) (17) (23) 5 103 (33) (27) (12) (388) ( 407)

(11) 5 132 9 10 (8) (2) (60) 75

24. FINANCE COSTS Group

Interest expense to financial institutions

Composite

2004 $’000

2003 $’000

39

3

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CHALLENGER TECHNOLOGIES LIMITED ANNUAL REPORT 2004

Notes To Financial Statements

25. PROFIT BEFORE INCOME TAX In addition to the charges and credits disclosed elsewhere in the notes, this item includes the following charges: Group

Auditors' remuneration - auditors of the company - overprovision in prior year - other auditors Other fees to auditors - auditors of the company Directors' fee - current year - underprovision in prior year Directors' remuneration - directors of the company - other directors

2004 $’000

2003 $’000

59 (2) 1

50 -

7

8

32 16

-

456 325

515 168

26. INCOME TAX Group

Current Deferred Income tax attributable to the company and subsidiaries Share of income tax of associate Total income tax expense

2004 $’000

2003 $’000

(952) 37 ( 915) (2) (917)

(855) ( 855) (855)

The income tax expense for the year varied from the amount of income tax expense determined by applying the Singapore income tax rate of 20% (2003 : 22%) to profit before tax as a result of the following differences: Group

Income tax expense at the statutory rate Non (taxable)/allowable items Prior years' tax loss carried forward now utilised Underprovision in prior years Tax exemptions Reductions in tax rates Share of income tax of associate Losses of certain subsidiaries being unavailable for set-off against the profit of other companies in the group Deferred tax assets valuation allowance Total income tax expense

2004 $’000

2003 $’000

(743) (44) (55) 11 11 (2)

(886) 8 2 23 -

(39) (56) (917)

(2) (855)

At balance sheet date, the company had a balance of about $1,547,000 (2003 : $1,762,000) under section 44 of the Income Tax Act available for declaration of dividends to shareholders in the next five years beginning from 1 January 2003. This amount is subject to agreement by the Inland Revenue Authority of Singapore. Profits earned from 1 January 2003 are not subject to the section 44 charge.

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Notes To Financial Statements

26. INCOME TAX (cont’d) The net deferred tax amount in the balance sheet is as follows: Group

Deferred tax liabilities: Excess of net book value of plant and equipment Interest receivable Total deferred tax liabilities Deferred tax assets: Excess of tax written down value of plant and equipment Tax losses carryforwards Tax losses carryforwards used in group relief Deferred tax assets valuation allowance Total deferred tax assets Net total deferred tax liabilities

Company

2004 $’000

2003 $’000

2004 $’000

2003 $’000

136 5 141

154 10 164

119 5 124

151 10 161

11 116 (10) (103) 14

47 (47) -

-

-

127

164

124

161

An allowance is made to the extent that it is not probable that taxable profit will be available against which the unused tax loss carryforwards can be utilised. The realisation of the future income tax benefits from tax loss carryforwards and temporary differences from capital allowances is available for an unlimited future period subject to the conditions imposed by law including the retention of majority shareholders as defined. Where provision for deferred tax arising from temporary differences has been offset against the above tax loss carryforwards, such provision for deferred tax will be required to be set up when the tax losses are utilised in the future. There is no income tax consequence of dividends to shareholders of the company. Temporary differences arising in connection with interests in subsidiaries and associate are insignificant. 27. EARNINGS PER SHARE The basic earnings per share is calculated based on the group's profit attributable to shareholders of $2,874,000 (2003 : $3,169,000) and the weighted average number of ordinary share of 152,447,945 (2003: 121,500,000) of $0.04 each. There is no dilution because no option was granted to take up unissued shares of the company during the year.

28. DIVIDENDS In financial year 2003, the company declared and paid a first interim dividend of 1.60 cents net of tax per ordinary share on the 75,000,000 issued ordinary shares of the company totalling $1,199,000 in June 2003 and a second interim dividend of 0.67 cents net of tax per ordinary share on the 75,000,000 issued ordinary shares of the company totalling $500,000 in September 2003 in respect of financial year ended 31 December 2003. In financial year 2004, the company declared and paid a first interim dividend of 0.56 cents net of tax per ordinary share on the 153,500,000 issued ordinary shares of the company totalling $860,000 in September 2004 in respect of financial year ended 31 December 2004. In respect of the current year, the directors propose that a final dividend of 2.4 cents net of tax per ordinary shares be paid to shareholders after the annual general meeting. This dividend is subject to approval by shareholders at the next annual general meeting and has not been included as a liability in these financial statements.

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CHALLENGER TECHNOLOGIES LIMITED ANNUAL REPORT 2004

Notes To Financial Statements

29. ACQUISITION OF SUBSIDIARY The group acquired 55% of OA Supplies Pte Ltd in April 2004. The transaction was accounted for by the purchase method of accounting. The fair value of net assets acquired are as follows: Group 2004 $’000 Cash and bank balances Trade receivables Other receivables and prepayments Inventories Plant and equipment (net book value) Goodwill Trade payables and accrued liabilities Short-term borrowings Finance leases Consideration Less cash taken over Net cash inflow from acquisition

124 886 24 313 111 403 (1,391) (374) (31) 65 (124) (59)

The contributions from the subsidiary for the period between the date of acquisition and the balance sheet date were as follows: Revenue Loss before income tax

3,709 (218)

30. CAPITAL COMMITMENTS Group

Estimated amounts committed for future capital expenditure but not provided for in the financial statements

Company

2004 $’000

2003 $’000

2004 $’000

2003 $’000

84

-

84

-

31. OPERATING LEASE COMMITMENTS At the balance sheet date the commitments in respect of operating leases with a term of more than one year were as follows: Group

Company

2004 $’000

2003 $’000

2004 $’000

2003 $’000

Within one year Within 2 to 5 years

2,452 384

3,117 2,634

2,094 163

2,759 2,257

Rental expense for the year

3,185

2,845

2,759

2,675

Operating lease payments represent rentals payable by the group for its retail outlets and office space. The lease rental terms are negotiated for an average of 3 years and rentals are subject to an escalation clause but the amount of the rent increase is not to exceed a certain percentage. Such increase are not included in the above amounts.

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Notes To Financial Statements

32. CONTINGENT LIABILITIES Group

Bankers' guarantee (secured) Corporate guarantee for a subsidiary

Company

2004 $’000

2003 $’000

2004 $’000

2003 $’000

643 643

544 544

643 350 993

544 350 894

33. FINANCIAL INFORMATION BY SEGMENT For management purposes, the group is currently organised into three operating divisions - IT products and services, electronic signage services and office supplies. These divisions are the basis on which the group reports its primary segment information. Segment information about these business is presented below: Year ended 31 December 2004

REVENUE External sales and services Inter-segment sales and services Total revenue RESULTS Segment results Other operating income Other (charges)/credits Finance costs Share of profit of associate Profit before income tax Income tax expense Profit after income tax Minority interests Net profit for the year OTHER INFORMATION Capital expenditure Depreciation expense Amortisation of master franchise fee Amortisation of goodwill on consolidation

IT products and services $'000

Electronic signage services $'000

Office supplies $'000

Elimination $'000

Total $'000

70,852 70,852

987 4 991

3,639 69 3,708

(73) (73)

75,478 75,478

4,199

(157)

(225)

-

3,817 303 (407) (2) 4 3,715 (917) 2,798 76 2,874

383 466 17 15

118 28 -

46 32 -

-

547 526 17 15

9,130

633

1,080

(46)

10,797 313 11,592 22,702

5,250

164

1,636

(46)

7,004 1,090 8,094

BALANCE SHEET As at 31 December 2004 ASSETS Segment assets Investment in associate Unallocated assets Consolidated total assets LIABILITIES Segment liabilities Unallocated liabilities Consolidated total liabilities

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44 45

CHALLENGER TECHNOLOGIES LIMITED ANNUAL REPORT 2004

Notes To Financial Statements

33. FINANCIAL INFORMATION BY SEGMENT (cont’d) Year ended 31 December 2003

REVENUE External sales and services Inter-segment sales and services Total revenue RESULTS Segment results Other operating income Other credits/(charges) Finance costs Profit before income tax Income tax expense Net profit for the year OTHER INFORMATION Capital expenditure Depreciation expense Amortisation of master franchise fee

IT products and services $'000

Electronic signage services $'000

Elimination $'000

Total $'000

66,298 66,298

967 9 976

(9) (9)

67,265 67,265

3,755

102

-

3,857 95 75 (3) 4,024 (855) 3,169

613 454 11

16 -

-

613 470 11

12,949

640

(256)

13,333 13,333

6,090

96

-

6,186 1,018 7,204

BALANCE SHEET As at 31 December 2003 ASSETS Segment assets Unallocated assets Consolidated total assets LIABILITIES Segment liabilities Unallocated liabilities Consolidated total liabilities

Geographical Segments The group's operations are located in Singapore, Malaysia and Thailand. The group's IT products and services and office supplies divisions are located in Singapore. Electronic signage service divisions are located in Singapore, Malaysia and Thailand. The following table provides an analysis of the group's revenue by geographical market irrespective of the origin of goods/service: Sales revenue by geographical market 2004 2003 $’000 $’000 Singapore Malaysia Thailand

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75,367 111 75,478

67,265 67,265

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Notes To Financial Statements

33. FINANCIAL INFORMATION BY SEGMENT (cont’d) The following is an analysis of the carrying amount of segment assets, and additions to plant and equipment, analysed by the geographical area in which the assets are located: Carrying amount of segment assets

Singapore Malaysia Thailand Associate

2004 $’000

2003 $’000

22,061 225 103 22,389 313 22,702

13,333 13,333 13,333

Additions to plant and equipment Year ended Year ended 2004 2003 $’000 $’000 470 69 8 547

613 613

34. CHANGES AND ADOPTIONS OF ACCOUNTING STANDARDS For the year ended 31 December 2004 the following new accounting standards were adopted for the first time: FRS 2 (revised 2004) Inventories FRS 8 (revised 2004) Accounting Policies, Changes in Accounting Estimates and Errors FRS 10 (revised 2004) Events after the Balance Sheet Date FRS 16 (revised 2004) Property, Plant and Equipment FRS 17 (revised 2004) Leases FRS 21 (revised 2004) The Effects of Changes in Foreign Exchange Rates FRS 27 (revised 2004) Consolidated and Separate Financial Statements FRS 28 (revised 2004) Investments in Associates FRS 32 (revised 2004) Financial Instruments: Disclosure and Presentation FRS 33 (revised 2004) Earnings per Share FRS 36 (revised 2004) Impairment of Assets FRS 38 (revised 2004) Intangible Assets The new standards did not require any material modifications of the measurement method or the presentation in the financial statements.

35. FUTURE CHANGES IN ACCOUNTING STANDARDS The following Singapore Financial Reporting Standards will be effective from 1 January 2005. A few of the new standards may result in material adjustments to the financial position, results of operations, or cash flows for the following year. FRS 1 (revised 2004) Presentation of Financial Statements FRS 24 (revised 2004) Related Party Disclosures FRS 39 (revised 2004) Financial Instruments: Recognition and Measurement FRS 102 (issued 2004) Share-based Payments FRS 103 (issued 2004) Business Combinations

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46 47

CHALLENGER TECHNOLOGIES LIMITED ANNUAL REPORT 2004

Statistics Of Shareholdings As at 4 March 2005

Authorised share capital Issued and fully paid up capital Class of shares Voting rights

: : : :

$100,000,000 $6,140,000 Ordinary shares of $0.04 each One vote per share

DISTRIBUTION OF SHAREHOLDINGS Size of Shareholdings 1 - 999 1,000 - 10,000 10,001 - 1,000,000 1,000,001 and above Total

No. of Shareholders

%

No. of Shares

%

0 458 548 6

0.00 45.26 54.15 0.59

0 2,363,000 30,110,000 121,027,000

0.00 1.54 19.62 78.84

1,012

100.00

153,500,000

100.00

SUBSTANTIAL SHAREHOLDERS (As recorded in the Register of Substantial Shareholders as at 4 March 2005) Direct Interest

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Name of Shareholders

No. of Shares

Loo Leong Thye Ong Sock Hwee Ng Leong Hai

65,693,000 14,019,000 37,830,000

Direct Interest % 42.80 9.13 24.64

No. of Shares

%

-

-

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Statistics Of Shareholdings

TWENTY LARGEST SHAREHOLDERS No.

Name

1

Loo Leong Thye

64,355,000

41.93

2

Ng Leong Hai

37,830,000

24.64

3

Ong Sock Hwee

14,019,000

9.13

4

DBS Vickers Securities (S) Pte Ltd

1,918,000

1.25

5

United Overseas Bank Nominees Pte Ltd

1,793,000

1.17

6

OCBC Securities Private Ltd

1,112,000

0.72

7

DBS Nominees Pte Ltd

933,000

0.61

8

Phillip Securities Pte Ltd

645,000

0.42

9

Lim Peng Boon

536,000

0.35

10

Tan Teck Kiang

534,000

0.35

11

Hong Leong Finance Nominees Pte Ltd

505,000

0.33

12

Yeo Keng Huat

421,000

0.27

13

Lim Teck Guan

411,000

0.27

14

OCBC Nominees Singapore Pte Ltd

354,000

0.23

15

Choong Kien Siong

349,000

0.23

16

Kwan Sow Chee

300,000

0.20

17

Lim Kim Huay

280,000

0.18

18

Tan Wee Pheng

271,000

0.18

19

Ang Hao Yao

258,000

0.17

20

Chua Leh Suan

250,000

0.16

127,074,000

82.79

Total

No. of Shares

%

PERCENTAGE OF SHAREHOLDINGS IN PUBLIC HANDS 23.01% of the company's shares are held in the hands of public. Accordingly, the company has compiled with Rule 723 of the Listing Manual of the SGX-ST.

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48 49

CHALLENGER TECHNOLOGIES LIMITED ANNUAL REPORT 2004

Challenger Technologies Limited (Incorporated in the Republic of Singapore)

NOTICE IS HEREBY GIVEN that the Annual General Meeting of CHALLENGER TECHNOLOGIES LIMITED will be held at Raffles City Convention Centre, Level 4, Moor Room, 2 Stamford Road, Singapore 178882 on Tuesday, 12 April 2005 at 10.00 a.m. for the following purposes: AS ORDINARY BUSINESS: 1.

To receive and adopt the Directors' Report and the Audited Accounts for the year ended 31 December 2004 together with the Auditors' Report thereon. (Resolution 1)

2.

To declare a final dividend of 3 cents per ordinary share less income tax at 20% for the year ended 31 December 2004.

3.

To re-elect the following Directors retiring pursuant to Article 107 of the Company's Articles of Association: Mdm Ong Sock Hwee Mr Ng Leong Hai

(Resolution 2)

(Resolution 3) (Resolution 4)

Mr Ng Leong Hai will, upon re-election as a Director of the Company, remain a member of the Audit Committee and will be considered non independent for the purpose of Rule 704(8) of the Listing Manual of the Singapore Exchange Securities Trading Limited. 4.

To approve the payment of Directors' fees of S$32,000 for the year ended 31 December 2004.

(Resolution 5)

5.

To re-appoint Chio Lim & Associates as Auditors of the Company and to authorise the Directors to fix their remuneration.

(Resolution 6)

6.

To transact any other ordinary business that may be properly transacted at an Annual General Meeting.

AS SPECIAL BUSINESS: To consider and, if thought fit, to pass the following resolutions as Ordinary Resolutions:

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7.

That pursuant to Section 161 of the Companies Act, Cap. 50 and the Listing Manual of the Singapore Exchange Securities Trading Limited, authority be and is hereby given to the Directors of the Company to allot and issue Shares or convertible securities from time to time (whether by way of rights, bonus or otherwise) and upon such terms and conditions and for such purposes and to such person as the Directors may in their absolute discretion deem fit, provided that the aggregate number of Shares and convertible securities which may be issued pursuant to such authority shall not exceed 50% of the issued share capital of the Company, of which the aggregate number of Shares and convertible securities which may be issued other than on a pro-rata basis to the existing Shareholders of the Company shall not exceed 20% of the issued share capital of the Company (the percentage of issued share capital being based on the issued share capital at the time such authority is given after adjusting for new shares arising from the conversion or exercise of any convertible securities or employee share options on issue at the time such authority is given and any subsequent consolidation or subdivision of shares) and, unless revoked or varied by the Company in general meeting, such authority shall continue in force until the conclusion of the Company's next Annual General Meeting. [see Explanatory Note (i)] (Resolution 7)

8.(a)

That approval be and is hereby given for the purposes of Chapter 9 of the Listing Manual of the SGX-ST, for the Company and its subsidiaries, to enter into any of the transactions falling within the categories of interested person transactions set out in the Appendix to this Annual Report of the Company dated 28 March 2005 (the "Appendix") with any party who is of the class of interested persons described in the Appendix provided that such transactions are made on an arm's length basis and on normal commercial terms, not prejudicial to the interests of the Company and its minority Shareholders and in accordance with the review procedures for such interested person transactions as set out in the Appendix (the "Shareholders' Mandate");

(b)

That the Shareholders' Mandate shall, unless revoked or varied by the Company in general meeting, continue in force until the next Annual General Meeting of the Company; and

(c)

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 in the interests of the Company to give effect to the Shareholders' Mandate and/or this Resolution." [see Explanatory Note (ii)] (Resolution 8)

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Challenger Technologies Limited

BY ORDER OF THE BOARD

WEE WOON HONG Company Secretary Singapore 28 March 2005

EXPLANATORY NOTES: (i)

The Ordinary Resolution proposed in item 7 above, if passed, will empower the Directors of the Company from the date of the above Meeting until the next Annual General Meeting to allot and issue shares and convertible securities in the Company up to an amount not exceeding in total fifty per cent (50%) of the issued share capital of the Company for such purposes as they consider would be in the interest of the Company, provided that the aggregate number of shares to be issued other than on a pro-rata basis to existing shareholders pursuant to this Resolution shall not exceed twenty per cent (20%) of the issued capital of the Company. The percentage of issued capital is based on the Company's issued capital at the time the proposed Ordinary Resolution is passed after adjusting for (a) new shares arising from the conversion of convertible securities or employee share options on issue at the time the proposed Ordinary Resolution is passed and (b) any subsequent consolidation or subdivision of shares. This authority will, unless previously revoked or varied at a General Meeting, expire at the next Annual General Meeting of the Company.

(ii) The Ordinary Resolution 8 proposed in item 8 above, if passed, will authorise the interested person transactions as described in the Appendix and recurring in the year and will empower the Directors to do all acts necessary to give effect to the Shareholders' Mandate. This authority will, unless previously revoked or varied by the Company at a general meeting, expire at the conclusion of the next Annual General Meeting of the Company.

NOTES: (i)

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

(ii) Where a member appoints two proxies, he shall specify the proportion of his shareholding to be represented by each proxy in the instrument appointing the proxies. A proxy need not be a member of the Company. (iii) If the member is a corporation, the instrument appointing the proxy must be under its common seal or the hand of its attorney or a duly authorised officer. (iv) The instrument appointing a proxy must be deposited at the Registered Office of the Company at 109 North Bridge Road #06-00 Funan The IT Mall Singapore 179097 not less than 48 hours before the time appointed for holding the above Meeting.

NOTICE OF BOOKS CLOSURE

NOTICE IS HEREBY GIVEN that the Share Transfer Books and Register of Members of Challenger Technologies Limited (the "Company") will be closed on 20 April 2005 for the preparation of dividend warrants. Duly completed registrable transfers received by the Company's Share Registrar, Lim Associates (Pte) Ltd at 10 Collyer Quay #19-08 Ocean Building, Singapore 049315 up to 5.00 p.m. on 19 April 2005 will be registered to determine shareholders' entitlements to such dividend. Members whose Securities Accounts with The Central Depository (Pte) Limited are credited with shares as at 5.00 p.m. on 19 April 2005 will be entitled to the proposed dividend. Payment of the dividend, if approved by shareholders at the Annual General Meeting to be held on 12 April 2005, will be made on 28 April 2005.

BY ORDER OF THE BOARD

WEE WOON HONG Company Secretary 28 March 2005

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50 51

CHALLENGER TECHNOLOGIES LIMITED ANNUAL REPORT 2004

Appendix

28 March 2005 This Appendix is circulated to Shareholders of Challenger Technologies Limited ("the Company") together with the Company's annual report. Its purpose is to explain to Shareholders the rationale and provide information to the Shareholders for proposed renewal of the Interested Person Transactions Mandate to be tabled at the Annual General meeting to be held on 12 April 2005 at 10.00 am at Raffles City Convention Centre, Level 4, Moor Room, 2 Stamford Road, Singapore 178882. The Notice of Annual General Meeting and a Proxy Form are enclosed with the Annual Report. The Singapore Exchange Securities Trading Limited takes no responsibility for the correctness of any of the statements made, reports contained/referred to, or opinions expressed, in this Appendix.

CHALLENGER TECHNOLOGIES LIMITED (Incorporated in the Republic of Singapore)

APPENDIX

IN RELATION

TO DETAILS OF THE PROPOSED RENEWAL OF THE SHAREHOLDERS' MANDATE FOR INTERESTED PERSON TRANSACTIONS

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Appendix

DEFINITIONS In this appendix ("Appendix"), the following definitions apply throughout unless otherwise stated: "AGM"

: The annual general meeting of the Company to be convened on 12 April 2005, notice of which is set out in the Annual Report 2004 dispatched together with this Appendix

"CDP"

: The Central Depository (Pte) Limited

"Columbia"

: Columbia Computer Products, Inc

"Company"

: Challenger Technologies Limited

"Companies Act"

: Companies Act, Chapter 50 of Singapore

"Directors"

: The directors of the Company as at the date of this Appendix

"Group"

: The Company and its subsidiaries

"Interested Person"

: A director, chief executive officer or controlling shareholder of the listed company or an associate of such director, chief executive officer or controlling shareholder

"Interested Person Transaction"

: Transactions proposed to be entered into between the Group and any interested person

"Latest Practicable Date"

: The latest practicable date prior to the printing of the Appendix, being 21 March 2005

"Listing Manual"

: The listing manual of the SGX-ST

"NTA"

: Net tangible assets

"Securities Account"

: A securities account maintained by a Depositor with CDP but does not include a securities sub-account

"SGX-ST"

: Singapore Exchange Securities Trading Limited

"Shareholders"

: Registered holders of Shares, except that where the registered holder is CDP, the term "Shareholders" shall, where the context admits, mean the Depositors whose Securities Accounts are credited with Shares

"small format outlet"

: Retail outlets of areas between 300 square feet to 2,000 square feet which carry a limited variety of products and operate with low overheads.

"Superstore"

: Retail outlets of areas more than 10,000 square feet which carry a wide variety of products in order to provide one-stop solutions and services to the customers.

"Shares"

: Ordinary shares of $0.04 each in the capital of the Company

"USA"

: United States of America

"S$" and "cents"

: Singapore dollars and cents, respectively

"%" or "per cent"

: Per centum or percentage

The terms "Depositor" and "Depository Register" shall have the meanings ascribed to them respectively in Section 130A of the Companies Act. Words importing the singular shall, where applicable, include the plural and vice versa. Words importing the masculine gender shall, where applicable, include the feminine and neuter genders. References to persons shall include corporations. Any reference in this Appendix to any enactment is a reference to that enactment as for the time being amended or re-enacted. Any word defined under the Companies Act, the Listing Manual or any modification thereof and not otherwise defined in this Appendix shall have the same meaning assigned to it under the Companies Act, the Listing Manual or any modification thereof, as the case may be. Any reference to a time of day in this Appendix is made by reference to Singapore time unless otherwise stated.

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CHALLENGER TECHNOLOGIES LIMITED ANNUAL REPORT 2004

Appendix CHALLENGER TECHNOLOGIES LIMITED (Incorporated in the Republic of Singapore) 1. INTRODUCTION The purpose of this Appendix is to provide Shareholders with the relevant information relating to, and to seek Shareholders' approval at the AGM to renew the general mandate ("Shareholders' Mandate") that will enable the Group to enter into transactions with the Interested Person in compliance with Chapter 9 of the Listing Manual. Chapter 9 of the SGX-ST Listing Manual applies to transactions which a listed company or any of its unlisted subsidiaries or unlisted associated companies proposes to enter into with an interested person of the listed company. An "interested person" is defined as a director, chief executive officer or controlling shareholder of the listed company or an associate of such director, chief executive officer or controlling shareholder. Chapter 9 of the Listing Manual allows a listed company to seek a general mandate from its shareholders for recurrent transactions of revenue or trading nature or those necessary for its day-to-day operations, which may be carried out with the listed company's "interested persons". Pursuant to Chapter 9 of SGX-ST Listing Manual, the general mandate, which was approved by the Shareholders on 17 November 2003, and renewed on 21 April 2004, will continue in force until the forthcoming AGM. Accordingly, the Directors propose that the general mandate be renewed at the AGM to be held on 12 April 2005, to take effect until the next AGM of the Company. General information relating to Chapter 9 of the Listing Manual, including the meanings of term such as "interested person", "associate", "associate company" and "controlling shareholder", are set out in the annexure of this Appendix. 2. SHAREHOLDERS' MANDATE FOR INTERESTED PERSON TRANSACTIONS 2.1

Classes of Interested Persons 2.1.1 The renewed Shareholders' Mandate will apply to the Interested Person Transactions (IPTs) (as described in paragraph 2.2 below) which are carried out with Columbia. Mr Ng Leong Hai, a non-executive director and controlling shareholder of the Company, is a director and shareholder of Columbia. 2.2.2 Transactions with Interested Persons which do not fall within the ambit of the Shareholders' Mandate shall be subject to the relevant provisions of Chapter 9 and/or other applicable provisions of the Listing Manual.

2.2

Scope of Interested Person Transactions The Recurrent IPTs which will be covered by the Shareholders' Mandate are purchases of IT and related products from Columbia.

2.3

Rationale for and Benefits of the Shareholders' Mandate Columbia sources and procures IT and related products in the USA and the Group purchases these IT and related products from Columbia for sale at our Challenger Superstore and small format outlets. As the Group does not have a procurement office or presence in the USA, the purchases from Columbia allow the Group to leverage on Columbia's connections and network and procure the latest IT and related products from the USA. The Recurrent IPTs set out above are transactions entered into or to be entered into by the Group in its ordinary course of business. They are recurring transactions which are likely to occur with some degree of frequency and arise at any time and from time to time. The Directors are of the view that it will be beneficial to the Group to transact or continue to transact with the Interested Person, especially since the Recurrent IPTs are to be entered into at an arm's length basis and on normal commercial terms, and will not be prejudicial to the interests of the Company and its minority Shareholders.

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Appendix

By renewing the Shareholders' Mandate at the forthcoming AGM and subsequently at every AGM, the Group would eliminate the need to convene separate general meetings from time to time to seek Shareholders' approval as and when potential IPTs arise, provided that the transactions are made on an arm's length basis and on normal commercial terms and are not prejudicial to the interests of the Company and its minority Shareholders. This would reduce the administrative time and expenses in convening such meetings substantially. In addition, it would not be feasible to obtain Shareholders' approval each and every time the Group enters into an IPT as the transactions would be recurrent in nature. 2.4

Review Procedures for Interested Person Transactions The Group has implemented the following procedures to ensure that the IPTs including those which fall within the scope of the Shareholders' Mandate are undertaken on an arm's length basis and on normal commercial terms. In general, the Audit Committee will ensure that the terms (including, inter alia, credit terms granted) of the IPTs are consistent with the Group's usual business practices and procedures as follows: (a) When purchasing any IT and related products from Columbia, two other quotations for each product will be obtained from unrelated third parties for comparison to ensure that the interests of our Company and its minority Shareholders are not disadvantaged. The purchase price offered by Colombia shall not be higher than the most competitive price of the two other quotations from unrelated third parties. In determining the most competitive price, all pertinent factors, including but not limited to quality, delivery time and track record will be taken into consideration; and (b) In cases where it is not possible to obtain comparables from other unrelated third parties (for example, if there are no unrelated third party vendors selling a similar type of product), the head of the respective category of product of the merchandising department and corporate sales department will consider whether the pricing of the transaction is in accordance with usual business practices and pricing policies of the Group to determine whether the relevant transactions is undertaken on an arm's length basis and on normal commercial terms.

In addition, the Directors will monitor the IPTs entered into by the Group by categorising the transactions as follows: (i) Transactions in value equal to or exceeding S$100,000 will be reviewed and approved by the Audit Committee; and (ii) Where the aggregate value of all such transactions in the current financial year is equal to or exceeds 5% of our Group's latest audited NTA, the latest and all future transactions will be reviewed and approved by the Audit Committee. A register will be maintained by the Group to record all IPTs (and the basis on which they are entered into) which are entered into pursuant to the Shareholders' Mandate. The Company shall, on a half-yearly basis, report to the Audit Committee on all IPTs, and the basis of such transactions, entered into with Columbia during the preceding half-year. The Audit Committee shall review such IPTs at its half-yearly meetings except where such IPTs are required under the review procedures to be approved by the Audit Committee prior to the entry thereof. The Company's annual audit plan shall incorporate a review of all IPTs, including the established review procedures for the monitoring of such IPTs, entered into during the current financial year pursuant to the Shareholders' Mandate. The Audit Committee shall review from time to time the guidelines and procedures to determine if they continue to be adequate and/or commercially practicable in ensuring that transactions between Columbia and the Group are conducted on an arms' length basis and on normal commercial terms. In the event that a member of the Audit Committee or the Board, as the case may be, is deemed to have an interest in the Interested Person, he or she will abstain from reviewing and voting on that IPT.

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CHALLENGER TECHNOLOGIES LIMITED ANNUAL REPORT 2004

Appendix

The Audit Committee will also carry out periodic reviews (not less than twice in a financial year) to ensure that the established guidelines and procedures for IPTs have been complied with and the relevant approvals obtained. Further, if during these periodic reviews, the Audit Committee is of the view that the above guidelines and procedures are not sufficient to ensure that these IPTs will be on an arm's length basis and on normal commercial terms and will not be prejudicial to the interests of the Company and its minority Shareholders, the Company will seek our Shareholders' approval for a fresh mandate based on new guidelines and procedures for transactions with Columbia. During the period prior to obtaining a fresh mandate from the Shareholders, all transactions with Columbia will be subject to prior review and approval by the Audit Committee. 2.5 Audit Committee's Statements 2.5.1 The Audit Committee (currently comprising Mr Ho Boon Chuan Wilson, Mr Choo Swee Cher and Mr Ng Leong Hai) has reviewed the terms of the Shareholders Mandate and is satisfied that the review procedures for IPTs, as well as the reviews to be made periodically by the Audit Committee in relation thereto, are sufficient to ensure that IPTs will be made with the relevant class of Interested Persons on normal commercial terms and will not be prejudicial to the interests of the Company and its minority Shareholders. 2.5.2 If, during the periodic reviews by the Audit Committee, the Audit Committee is of the view that the established guidelines and procedures are not sufficient to ensure that the IPTs will be on normal commercial terms and will not be prejudicial to the interests of the Company and its minority Shareholders, the Company will seek our Shareholders for a fresh mandate based on new guidelines and procedures for transactions with Interested Persons. 2.5.3 The Audit Committee will also ensure that all disclosure and approval requirements for IPTs, including those required by the prevailing legislation, the Listing Manual and the applicable accounting standards, as the case may be, are complied with.

3. DIRECTORS' AND SUBSTANTIAL SHAREHOLDERS' INTERESTS The interests of the Directors and the substantial Shareholders in Shares as the Latest Practicable Date are set out below:

Directors

Direct Interest

Number of Shares % Deemed Interest

%

Loo Leong Thye

65,693,000

42.80

-

-

Ong Sock Hwee

14,019,000

9.13

-

-

Ng Leong Hai

37,830,000

24.64

-

-

Ng Kian Teck

200,000

0.13

-

-

Ho Boon Chuan Wilson

100,000

0.07

-

-

Choo Swee Cher

100,000

0.07

-

-

There are no substantial Shareholders (other than the Directors) as disclosed above s at the Latest Practicable date. 4. DIRECTORS RECOMMENDATIONS The Directors who are considered independent for the purposes of the proposed renewal of the Shareholders’ Mandate are Mr Ho Boon Chuan Wilson and Mr Choo Swee Cher (the “Independent Directors”). The Independent Directors are of the opinion that the entry into the IPTs by the Group in the ordinary course of its business will enhance the efficiency of the Group and is in the best interests of the Company. For the reasons set out in paragraph 2.3 of this Appendix, the Independent Directors recommend that Shareholders vote in favour of Resolution 8, being the Ordinary Resolution relating to the proposed renewal of the Shareholders’ Mandate at the forthcoming AGM.

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Appendix

5. ANNUAL GENERAL MEETING The AGM, notice of which is set out in the Annual Report 2004 of the Company, will be held on 12 April 2005 at 10.00 a.m. at Raffles City Convention Centre, Level 4, Moor Room, 2 Stamford Road, Singapore 178882 for the purpose of considering and, if thought fit, passing with or without any modifications, the Ordinary Resolution relating to the renewal of the Shareholders' Mandate at the AGM as set out in the Notice of AGM. 6. ACTION TO BE TAKEN BY SHAREHOLDERS If a Shareholder is unable to attend the AGM and wishes to appoint a proxy to attend and vote on his or her behalf, he or she should complete, sign and return the Proxy Form attached to the Notice of AGM in accordance with the instructions printed thereon as soon as possible and, in any event, so as to reach the Company at 109 North Bridge Road, #06-00 Funan The IT Mall, Singapore 179097 not later than 48 hours before the time fixed for the AGM. Completion and return of the Proxy Form by a Shareholder will not prevent him or her from attending and voting at the AGM if he or she so wishes. 7. INSPECTION OF DOCUMENTS Copies of the audited financial statements of the Company for the last two financial years ended 31 December 2003 and 2004 are available for inspection at the registered office of the Company at 109 North Bridge Road, #06-00 Funan The IT Mall, Singapore 179097 during normal business hours from the date of the Appendix up to the date of AGM. 8. DIRECTORS' RESPONSIBILITY STATEMENT The Directors collectively and individually accept full responsibility for the accuracy of the information given in this Appendix and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, the facts stated and the opinions expressed in this Appendix are fair and accurate and that there are no material facts the omission of which would make any statement in this Appendix misleading.

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56 57

CHALLENGER TECHNOLOGIES LIMITED ANNUAL REPORT 2004

Annexure

GENERAL INFORMATION RELATING TO CHAPTER 9 OF THE LISTING MANUAL Scope Chapter 9 of the Listing Manual applies to transactions which a listed company or any of its subsidiaries (other than a subsidiary that is listed on an approved stock exchange) or associated companies (other than an associated company that is listed on an approved stock exchange or over which the listed group and/or its interested person(s) has no control) proposes to enter into with a counter-party who is an interested person of the listed company. Definitions An "interested person" means a director, chief executive officer or controlling shareholder of the listed company or an associate of such director, chief executive officer or controlling shareholder. An "associate" includes an immediate family member (that is, the spouse, child, adopted child, step-child, sibling or parent) of such director, chief executive officer, substantial shareholder or controlling shareholder, and any company in which the director/his immediate family, the chief executive officer/his immediate family or substantial shareholder controlling shareholder/his immediate family has an aggregate interest (directly or indirectly) of 30% or more, and, where a controlling shareholder is a corporation, its subsidiary or holding company or fellow subsidiary or a company in which it and/or they have (directly or indirectly) an interest of 30% or more. An "associated company" means a company in which at least 20% but not more than 50% of its shares are held by the listed company or the group. A "controlling shareholder" means a person who holds (directly or indirectly) 15% or more of the nominal amount of all voting shares in the listed company or one who in fact exercises control over the listed company. General Requirements Except for certain transactions which, by reason of the nature of such transactions, are not considered to put the listed company at risk to its interested person and are hence excluded from the ambit of Chapter 9 of the Listing Manual, immediate announcement, or, immediate announcement and shareholders' approval would be required in respect of transactions with interested persons if certain financial thresholds (which are based on the value of the transaction as compared with the listed company's latest audited consolidated NTA), are reached or exceeded. In particular, shareholders' approval is required where: (a) the value of such transaction is equal to or exceeds 5% of the latest audited consolidated NTA of the group; or (b) the value of such transaction when aggregated with the value of all other transactions previously entered into with the same interested person in the same financial year of the group is equal to or exceeds 5% of the latest audited consolidated NTA of the group.

Immediate announcement of a transaction is required where: (a) the value of such transaction when aggregated with the value of all other transactions previously entered into with the same interested person in the same financial year of the group is equal to or exceeds 3% of the latest audited consolidated NTA of the group; or (b) the value of such transaction is equal to or exceeds 3% of the latest audited consolidated NTA of the group. General Mandate A listed company may seek a general mandate from its shareholders for recurrent transactions with interested persons of a revenue or trading nature or those necessary for its day-to-day operations such as the purchase and sale of supplies and materials but not in respect of the purchase or sale of assets, undertakings or businesses. A general mandate is subject to annual review.

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PROXY FORM ANNUAL GENERAL MEETING

CHALLENGER TECHNOLOGIES LIMITED (Incorporated in the Republic of Singapore)

I/We,

(Name)

of

(Address)

being a member/members of CHALLENGER TECHNOLOGIES LIMITED (the "Company") hereby appoint:

Name

Address

NRIC/Passport No.

Proportion of Shareholdings (%)

Address

NRIC/Passport No.

Proportion of Shareholdings (%)

and/or (delete as appropriate) Name

as my/our proxy/proxies to vote for me/us on my/our behalf, at the Annual General Meeting ("AGM") of the Company, to be held on Tuesday, 12 April 2005 at 10.00 a.m., and at any adjournment thereof. I/We direct my/our proxy/proxies to vote for or against the Resolutions to be proposed at the AGM as indicated hereunder. If no specific directions as to voting is given or in the event of any other matter arising at the AGM and at any adjournment thereof, the proxy/proxies will vote or abstain from voting at his/their discretion.

No.

Resolutions relating to:

For*

1

Directors' Report and Audited Accounts for the year ended 31 December 2004

2

Payment of proposed final dividend

3

Re-election of Mdm Ong Sock Hwee as a Director

4

Re-election of Mr Ng Leong Hai as a Director

5

Approval of Directors' fees amounting to S$32,000

6

Re-appointment of Chio Lim & Associates as Auditors

7

Authority to allot and issue new shares

8

Approval for renewal of Shareholders' Mandate for Interested Person Transactions

Against*

* Please indicate your vote "For" or "Against" with a tick ( ) within the box provided.

Dated this

day of

, 2005.

Total number of shares in: (a) CDP Register (b) Register of Members

Signature(s) of Member(s) or Common Seal

IMPORTANT: PLEASE READ NOTES OVERLEAF

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No. of shares

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Notes 1. A member entitled to attend and vote at the Meeting is entitled to appoint one or two proxies to attend and vote in his stead. 2. Where a member appoints more than one proxy, the proportion of the shareholding to be represented by each proxy shall be specified in this proxy form. If no proportion is specified, the Company shall be entitled to treat the first named proxy as representing the entire shareholding and any second named proxy as an alternate to the first named or at the Company's option to treat this proxy form as invalid. 3. A proxy need not be a member of the Company. 4. Please insert the total number of shares held by you. If you have shares entered against your name in the Depository Register (as defined in section 130A of the Companies Act, Cap. 50 of Singapore), you should insert that number of shares. If you have shares registered in your name in the Register of Members of the Company, you should insert that number of shares. If you have shares entered against your name in the Depository Register and registered in your name in the Register of Members, you should insert the aggregate number of shares. If no number is inserted, this proxy form will be deemed to relate to all the shares held by you. 5. This proxy form must be deposited at the Company's registered office at 109 North Bridge Road #06-00 Funan The IT Mall Singapore 179097 not less than 48 hours before the time set for the Meeting. 6. This proxy form must be under the hand of the appointor or of his attorney duly authorised in writing. Where this proxy form is executed by a corporation, it must be executed either under its common seal or under the hand of its attorney or a duly authorised officer. 7. Where this proxy form is signed on behalf of the appointor by an attorney, the letter or power of attorney or a duly certified copy thereof must (failing previous registration with the Company) be lodged with this proxy form, failing which this proxy form shall be treated as invalid. Fold 2

Affix Postage Stamp

The Company Secretary Challenger Technologies Limited 109 North Bridge Road #06-00 Funan The IT Mall Singapore 179097

Fold 1

General The Company shall be entitled to reject a Proxy Form which is incomplete, improperly completed, illegible or where the true intentions of the appointor are not ascertainable from the instructions of the appointor specified on the Proxy Form. In addition, in the case of shares entered in the Depository Register, the Company may reject a Proxy Form if the member, being the appointor, is not shown to have shares entered against his name in the Depository Register as at 48 hours before the time appointed for holding the Meeting, as certified by The Central Depository (Pte) Limited to the Company.

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RETAIL OUTLETS Challenger Superstore

Challenger Superstore

Matrix IT Gallery

109 North Bridge Road

12 Tampines Central

109 North Bridge Road

#06-00

#02-02/03

#03-39 / #04-19

Funan The IT Mall

DBS Tampines Centre

Funan The IT Mall

Singapore 179097

Singapore 529537

Singapore 179097

Tel: (65) 6339 9008

Tel: (65) 6426 9123

Tel: (65) 6334 1741 / 6334 1802

Fax: (65) 6337 2588

Fax: (65) 6426 9128

Fax: (65) 6334 1917

Email: [email protected]

Email: [email protected]

Email: [email protected]

Tel: (65) 6339 9008

Tel: (65) 6426 9123

Tel: (65) 6334 1741

CBD eVISION GROUP CBD eVision Pte Ltd

CBD eVision (M) Sdn Bhd

CBD eVision (Thailand) Company Limited

69 Ubi Crescent Road

No 9-1 Jalan USJ 21/7

No.1 Panjapat Building,

#02-02

47600 UEP Subang Jaya

8th Floor, Room 14,

CES Building

Selangor Darul Ehsan

Patpong Road, Suriyawong,

Singapore 408561

Malaysia

Bangrak District,

Tel: (65) 6288 8223

Tel: (603) 5885 0313

Bangkok 10500,

Fax: (65) 6283 2828

Fax: (603) 8023 0177

Thailand

Email: [email protected]

Email: [email protected]

Tel: (66) 02 2331714-16

Tel: (65) 6288 822

Tel: (603) 5885 0313

Fax: (66) 02 632 9538 Email: [email protected]

Designed & Produced by C2 Design Studio Pte Ltd

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Challenger Technologies Limited

109 North Bridge Road #06-00 Funan The IT Mall Singapore 179097