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MERGE ENERGY BHD. (420099-X)No. 2 Jalan Apollo U5/190Bandar Pinggiran Subang, Seksyen U540150 Shah AlamSelangor Darul Ehsan

Tel : +603 - 7847 2900Fax : +603 - 7845 3900 / 7845 5800Website : www.merge-energy.com.myEmail : [email protected]

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MERGE ENERGY BHD.(420099-X)

AnnuAl RepoRt

2011

Cover Rationale

Merge Energy Bhd believes in the smooth flow, like water, and in this flow, we have the pulse to signify our heart-beat passion in handling all our commitments. The Company’s new logo signifies the merging of energy, unity and dynamic force to move forward.

Table of Contents

Corporate Profile 2

Corporate Information 3

Corporate Structure 4

Board of Directors 5

Profile of Directors 6

Chairman Says... 10

Financial Highlights 13

Corporate Responsibility 14

Statement on Corporate Governance 16

Audit Committee Report 24

Other Compliance Information 28

Statement on Internal Control 29

Financial Statements 30

List of Properties 86

Analysis of Shareholdings 87

Notice of Annual General Meeting 89

Proxy Form

MERGE ENERGY BHD. (420099-X)2 ANNUAL REPORT 2011

WHO WE ARE

Merge Energy Bhd. (“MEB”) is a strategic investment holding company listed on the Main Market (previously Main Board) of Bursa Malaysia Securities Berhad on 17 November 1998. Its subsidiaries are involved in construction, project management, trading and maintenance works.

MEB started 29 years ago with the establishment of Mewah Kota Sdn Bhd (“MKSB”). From then on, the Group gradually progressed to establish itself as a reliable contractor and project manager undertaking various engineering and infrastructure projects.

Over the years, MEB acquired several companies to develop new potential market and business for the Group.

OUR CORE ACTIVITIES AND EXPERTISE

MEB’s core activities and expertise are in the construction, project management, trading and maintenance works in the following areas:

• Watertreatmentplants• Sewageandsludgetreatmentplantsandfacilities• Pipelayingandreservoirsconstruction• Buildings• Refurbishmentandmaintenanceworks• Earthworks,roadsanddrainage

MEB is also involved in valve supply, installation, maintenance and exercise.

OUR LICENCES AND ACCREDITATION

With continuous hard work and perseverance, the Companyprogressively builds its competitive prowess and repute to strengthen its footing as a reputable contractor and supplier. MEB’s products and services bear testimony to the quality of our work and inherent capabilities.

As a testament to its efforts, MEB Group is accredited with the following licences, which include:• Construction Industry Development Board Malaysia (“CIDB”)

Grade G7• PusatKhidmatKontraktor(“PKK”)BumiputraContractorClassA• KementerianKewanganMalaysia(“KKM”)• SuruhanjayaPerkhidmatanAirNegara(“SPAN”)• ISO9001:2008qualitymanagementsystemcertification• FeldaHoldingsBhd• KementerianKemajuanLuarBandardanWilayah

OUR FUTURE PLANS

Leveragingonitsexpertiseandstrongtrackrecord,MEBaggressivelypursues new horizons, seeking new markets and business opportunities that are synergistic to our core competencies. MEB will continue to tap on strategic alliance with key partners to deliver high value products and services.

Corporate Profile

(420099-X)MERGE ENERGY BHD. 3ANNUAL REPORT 2011

YM Dato’ Raja Shah ZuRin bin Raja aMan ShahExecutive Chairman

Ybhg. Dato’ abDul jalil bin abDul KaRiMExecutive Director/Chief Executive Officer

haji SanuSi bin PaijanExecutive Director

Sheah KoK FahSenior Independent Director

haji Mat anuaR bin haSanIndependent Director

abD latiFF bin ahMaDIndependent Director

tahiRRuDDin bin ahMaDIndependent Director

AUDIT COMMITTEEChairmanSheah KoK Fah

MembersabD latiFF bin ahMaDtahiRRuDDin bin ahMaD

REMUNERATION COMMITTEEChairmanSheah KoK Fah

MembersYbhg. Dato’ abDul jalil bin abDul KaRiMabD latiFF bin ahMaD

NOMINATION COMMITTEEChairmanSheah KoK Fah

MembersabD latiFF bin ahMaDtahiRRuDDin bin ahMaD

RISK MANAGEMENT COMMITTEE ChairmanabD latiFF bin ahMaD

MemberstahiRRuDDin bin ahMaD Ybhg. Dato’ abDul jalil bin abDul KaRiM RaiZita binti ahMaD @ haRunliM KiM leng

EXECUTIVE COMMITTEE ChairmanYbhg. Dato’ abDul jalil bin abDul KaRiM

Membershaji SanuSi bin Paijan RaiZita binti ahMaD @ haRun

COMPANY SECRETARYWong Soon Kiong (LS 0009395)

REGISTERED OFFICE AND BUSINESS ADDRESSNo. 2 Jalan Apollo U5/190Bandar Pinggiran Subang, Seksyen U540150 Shah AlamSelangor Darul EhsanTel: 603-7847 2900Fax: 603-7845 3900 / 7845 5800E-mail: [email protected]: www.merge-energy.com.my

SHARE REGISTRARSYMPhonY ShaRe RegiStRaRS SDn bhD (378993-D)Level 6 Symphony HouseBlock D13, Pusat Dagangan Dana 1Jalan PJU 1A/4647301 Petaling JayaSelangor Darul EhsanTel: 603-7841 8000Fax: 603-7841 8008

AUDITORSbaKeR tillY MonteiRo heng (AF 0117)22-1 Monteiro & Heng ChambersJalan Tun Sambanthan 350470 Kuala Lumpur

STOCK EXCHANGE LISTINGbuRSa MalaYSia SecuRitieS beRhaD – Construction Sector, Main Market

Corporate Information

BOARD OF DIRECTORS


INNovasI HEBat sDN. BHD. (546017-D)

100%

100% PaRaMouNt vENtuREs sDN. BHD. (284451-V)

Corporate Structure


100% MEwaH Kota sDN. BHD. (76368-X)

100% MEB REaltY sDN. BHD. (231283-A)

100% MERGE PRoPERtIEs sDN. BHD. (29422-T)

100% MERGE HIGHwaY ENGINEERING sDN. BHD. (397911-X)

100% MEB DEvEloPMENt sDN. BHD. (419445-D)

100% MERGE ENvIRoNMENtal ENGINEERING sDN. BHD. (419436-T)

100% MEB MaNaGEMENt sDN. BHD. (419446-A)

100% MERGE PRoPERtIEs MaNaGEMENt sERvIcEs sDN. BHD. (96840-D)

100% MERGE REaDYMIx sDN. BHD. (397672-V)

100% MERGE coNcREtE tEcHNoloGIEs sDN. BHD. (403304-X)

100% MERGE tRaDING sDN. BHD. (403276-D)


Standing (left to right) :

YBhg. Dato’ aBDul Jalil Bin aBDul Karim

haJi SanuSi PaiJan

Sheah KoK Fah

aBD latiFF Bin ahmaD

haJi mat anuar Bin haSan

tahirruDDin Bin ahmaD

Sitting

Ym Dato’ raJa Shah Zurin Bin raJa aman Shah

Board of Directors


PROFILE OF DIRECTORS

YM Dato’ Raja Shah ZuRin bin Raja aMan ShahAged 50 MalaysianExecutive Chairman

A graduate of Regent School of Economics, Kuala Lumpur, YM Dato’ Raja Shah Zurin was appointed to the Board on 11 January 2010 to head the Corporate Affairs Division and subsequently was made the Executive Chairman on 1 September 2010. YM Dato’ Raja Shah Zurin joined the corporate world after a distinguished career in the entertainment industry since 1976. In 1985, he formed a modeling agency and produced shows for the local and international market.

In the 1990’s, YM Dato’ Raja Shah Zurin organized traditional jewellery exhibition and produced cultural performances. He was an advisor to Kelantan Cultural & Trade Fair Promotions in Singapore. He was appointed a member of Kelantan state cultural committee, a member of Badan Warisan Malaysia and advisor of Kelantan State Museum Corporation. He was also involved in the design and implementation of museum exhibits and Kota Sultan Ismail Petra landmark in Kota Baru.

In the new millennium, YM Dato’ Raja Shah Zurin has undertaken various entertainment events and charity functions. He founded the Islamic Fashion Festival (“IFF”) and launched it in 2006. The IFF aims to promote Islamic fashion and to establish Kuala Lumpur, Jakarta and Dubai as the Islamic fashion capitals of the world. YM Dato’ have taken the IFF to greater heights as evidenced by the over whelming fame in the city of Monte Carlo, Italy.


PROFILE OF DIRECTORS (Cont’d)

Ybhg. Dato’ abDul jalil bin abDul KaRiMAged 47, MalaysianExecutive Director/Chief Executive Officer

YBhg. Dato’ Abdul Jalil bin Abdul Karim was appointed to the Board on 14February2011.TogetherwithYMDato’RajaShahZurinbinRajaAmanShah,heisasubstantialshareholderoftheCompanyandholdssharesviaDesaBinapuriSdn Bhd.

YBhg. Dato’ Abdul Jalil graduated with a Bachelor of Science in MechanicalEngineeringfromUniversityofAlabama,UnitedStatesofAmerica.Hehas24yearsof experience in the water related industry at various levels including senior and boardlevelofreputablecompanieslocallyandabroad.Hisexpertiseisalsofoundin project consultancy and management and construction.

YBhg.Dato’AbdulJalilwasinvolvedinthemanagementoftheperformancebasedcontractoftheSelangorStateNonRevenueWaterReductionprojectsPhase2andPhase3worksandKementerianTenagaTeknolojiHijaudanAir,Malaysia’sfundedprojectfortheestablishmentof80DMAsinSelangor,LabuanHolisticNonRevenueWaterReductionprojectandestablishmentof110PMAsforSYABAS.

AsChiefExecutiveOfficerofMergeEnergyBhd(“MEB”)andExecutiveDirectorofall itssubsidiaries,YBhg.Dato’AbdulJalilplans,managesandoversees theoperationoftheGroup.TogetherwithhisstaffteamatMEB,heshallattempttobringtheCompanytohigherheightsandsustainablelevel.

YBhg.Dato’AbdulJalilisalsodirectorandshareholderoffewotherprivatelimitedcompanies.

YBhg.Dato’AbdulJalilistheChairmanoftheExecutiveCommitteeandmemberofRiskManagementCommitteeandRemunerationCommittee.

haji SanuSi PaijanAged 56 Malaysian Executive Director

HajiSanusiPaijanwasappointedtotheBoardon3August2010.HegraduatedwithaBachelorofScienceinCivilEngineeringfromUniversityTeknologiMarain1980andMaster of Science inWater Engineering from TheUniversity of Strathelyde,UnitedKingdomin1986.HeisamemberofTheInstitutionofEngineers,Malaysiaandregisteredwith theBoardofEngineers,Malaysia.Hewaselectedascouncilmember of the Malaysian Water Association (“MWA”) for session 2001/2003,2003/2005,2005/2007andcurrentlythecouncilmemberforsession2011/2013.

HajiSanusihasmorethan30yearsofworkingexperience,21yearswiththePublicWorksDepartmentandWaterSupplyDepartment from1980until 2001,holdingvarious positions covering planning, development, operation, maintenance and management of water supply system. In November 2001, he left GovernmentserviceandjoinedPrivateSector.HeservedastheManagingDirectorofSyarikatPremier Ayer Sdn Bhd, a wholly-owned Bumiputera company from November2001 to December 2008, involvedmainly in thewater supply development andprivatization projectswith specialization in the field of non-revenuewater controlandreductionworks.Subsequently, fromMarch2009toFebruary2010,hewasengagedastheTechnicalAdvisorofSyarikatSumurMutiaraSdnBhd,acompanyalso involved in water supply projects.

HajiSanusihasexpertiseandrelevantexperiencesinthewaterresourcesplanningand development, operation and maintenance of water treatment plant and distribution system, management and privatization of water supply projects.

HajiSanusiisamemberofExecutiveCommitteeandRiskManagementCommittee.


Sheah KoK FahAged 47 MalaysianSenior Independent Director

MrSheahwasappointedtotheBoardon16November2001.HeholdsadegreeinLLB(Hons)fromtheUniversityofMalayaandwasadmittedtotheBarin1989.

Mr Sheah has an outstanding career, both as an advocate and solicitor and corporate practitioner.Hehasvastexperienceof22yearsinlegalpracticesince1988.HehasbeenthepartnerofMessrsSheah,TanandRahmansince1996.

BeingaSeniorIndependentDirector,MrSheahplaysanimportantroleinensuringcorporate accountability as he is instrumental in providing independent judgment taking into account the interests of Merge Energy Bhd Group and all its stakeholders in which the Group conducts its business.

MrSheah is theChairmanof theAuditCommittee,RemunerationCommitteeandNominationCommittee.


haji Mat anuaR bin haSanAged 58 MalaysianIndependent Director

HajiMatAnuarjoinedMergeEnergyBhdon1February2007asExecutiveDirector,OperationsDivision.InMarch2009,heheadedtheBusinessDevelopmentDivisionwhenthisdivisionwasformed.Followinghisretirementon23October2009,hewas re-designated from Executive Director to Non-Independent Non-ExecutiveDirectorwitheffectfrom24October2009.

HajiMatAnuargraduatedwithaBachelorofScienceinCivilEngineeringfromthePolytechnicofCentralLondonandaDiploma inCivilEngineering fromUniversitiTeknologiMalaysia.

With29yearsofexperienceinpublicworks,HajiMatAnuarisequippedwithvastknowledge as he had held senior positions in government agencies which include JabatanKerjaRaya,MinistryofTransportandJabatanBekalanAir,Selangor.Hewas involved in the planning and implementation of Government projects such as buildings,roads,airports,portsandwatersupplysystems.HehasalsomanagedthemaintenanceofGovernmentbuildings,roadsandwatersupplysystems.HajiMatAnuarhasalsosupervisedtheimplementationofnon-revenuewaterprojectsinJabatanBekalanAirWilayahKualaLumpurandWilayahPetaling.


tahiRRuDDin bin ahMaDAged 58 Malaysian Independent Director

EncikTahirruddinwasappointedtotheBoardon14October2005.Heisamemberof theMalaysian Institute of Accountants and Fellow of Chartered and CertifiedAccountants of United Kingdom.

With an accounting background, Encik Tahirruddin has 20 years of experienceinfinancialandaccountingmatters in thecivilservice,ofwhichhestartedasanaccountantwithJabatanAkauntanNegara in1976and thenasDeputyDirectorof Audit and Accounts in the Cooperative Department ofMalaysia. From 1979-1982,hewastheStateTreasurerwiththeSelangorStateTreasurybeforehewassecondedtoRMNDockyardinLumut,PerakasitsfirstFinanceManager.In1983,hejoinedPerakStateEconomicDevelopmentCorporationinIpohastheHeadofFinanceandAdministration.Subsequently,from1989-1996,hejoinedPermodalanPerakBerhadasitsManagingDirector,whichwaslaterrestructuredforlistingontheMain Board of Bursa Malaysia Securities Berhad as KUB Malaysia.

EncikTahirruddinisamemberoftheAuditCommittee,NominationCommitteeandRiskManagementCommittee.


abD latiFF bin ahMaDAged 54 Malaysian

Independent Director

EncikAbdLatiffwasappointedtotheBoardon16January2003.HeholdsadegreeinLLB(Hons)fromtheUniversityofMalaya.

Anadvocateandsolicitorbyprofession,EnAbdLatiffalsohasvastexperienceof29yearswherehestartedhiscareerin1981withtheRubberIndustrySmallholdersDevelopmentAuthority(“RISDA”)andthereafterwithDewanBahasadanPustaka(“DBP”).In1988,heheldthepositionofseniorlegalofficerinEmployeesProvidentFund (“EPF”) before venturing into theprivatepractice.He is alsowell versed incorporate and conveyance laws.

EncikAbdLatiffisamemberoftheAuditCommittee,RemunerationCommitteeandNominationCommittee.HeistheChairmanoftheRiskManagementCommittee.

NoneoftheDirectorshas:

(a) anyfamilyrelationshipwithanyDirectorsand/orsubstantialshareholdersoftheCompany;

(b) anyconflictofinterestwiththeCompany;and

(c) anyconvictionforoffences(otherthantrafficoffences)withinthepast10years.


Chairman Says...

On behalf of the Board of Directors, I am pleased to present to you the Annual Report and the Audited Financial Statements of Merge Energy Group for the financial year ended 31 January 2011.

To all Valued Shareholders of MEB,

YM Dato’ Raja Shah ZuRin bin Raja aMan ShahExecutive Chairman


FINANCIAL PERFORMANCE

Withmuchuncertaintyintheglobaleconomicclimateaffectingcountriesworldwide,thecountryofMalaysiaisnotsparedeither.Indeed,theYear2010wasavolatileyearforallsectorsintheMalaysianeconomy.

Fortheyearunderreview,MEBGrouprecordedaprofitbeforetaxationandzakatofRM1.20milliononthebackofrevenueofRM42.08millionvis-à-visalossofRM3.60milliononthebackofrevenueofRM40.40millionforthepreviousfinancialyearended31January2010.

Theearningspershareis1.55senforthecurrentyearvis-à-vislastyear’searningpershareof(5.56)sen.Netassets(“NA”)oftheGroupstoodatRM45.50millionor68senpershare(Year2010:RM44.46millionor66senpershare).

CORPORATE RESPONSIBILITY (“CR”)

Our Company endeavours to conduct our operations in a responsible manner and promote greater awareness on theconservationandenhancementofournaturalenvironment.Wealsocontinueourinitiativetosupportthecommunityaroundusespeciallytheunder-privilegedgroup.MoreinformationonourCRisprovidedintheCRstatementofthisAnnualReport.

INDUSTRY REVIEW

Theconstructionindustry,underthe10thMalaysiaPlan(“Plan”)ispoisedforamajornationalstructuraltransformation,towardthatofaHigh-IncomeEconomy.TheHigh-IncomeEconomywillhingeonhigherproductivityandtheengagementoftheprivatesectorparticipation,whichwillbetheprimarydriverofgrowthandinnovation.ThePlanwhichcoverstheperiodfromYear2011toYear2015willpotentiallyhavehighimpactontheMalaysianConstructionSectionwhereitisexpectedtheconstructionsectorwillgrowat3.7%perannumGDPgrowthforthecountry.

The construction sectorwill need to gear itself in preparing for the abundant opportunities laid out under thePlan. Theseopportunities will drive, strengthen and generate a multiplier effect in stimulating and enhancing demand and domestic growth for the entire economy and in particular, the construction sector.

Allocations ofRM230billion for development andRM20million in facilitation funds havebeen allowed for under thePlan.Both theseallocationswillcreate the impetus indrivingdemand for theconstructionsectorasoutof theRM230billion fordevelopment,60%orRM138millionwillbeexpendedinphysicaldevelopmenttobeundertakenbytheconstructionsector.TheRM20billionfacilitationfundisexpectedtoattractprivatesectorinvestmentsworthatleastRM200billion,ofwhich,amajorportion would be investments involving the construction sector.

MEB is also puttingmore effort to realize sustainable development goals such asGreen Building Technology and EnergyEfficiencysoastocreateenvironmentallyresponsibleandresourceefficientpracticesthroughoutthebuildinglifecycle,fromdesign, construction, operation, maintenance, renovation and disposal.

MOVING FORWARD

TheBoard,managementandourworkforcewillendeavour tomeetnewchallenges, raiseourbenchmarkand improveourserviceas reflected in thenew logowhere it signifies themergingofenergy,unityanddynamic force.Asproven,withourexpertise and strong track record, we will pursue new horizons and seek new markets and business opportunities that are synergistic to our core competencies.

Chairman Says... (Cont’d)


APPRECIATION

TheGroup’sachievementshavebeenmadepossiblewith theefforts andcontributionsof our shareholders,management,employees and business associates. Our Management team and employees have risen well to meet the challenges and on behalf of the Board, I record our appreciation to them for their commitment and drive in contributing to the growth and achievement of the Group.

Our sincere appreciation also goes to our valued shareholders and business associates, whose continuous support has enabledustogrowandcreatevalueforourbusiness.Welookforwardtotheircontinuedsupportasweprogresstowardsnewundertakings.

OnbehalfoftheBoard,IwouldliketowelcomeYBhgDato’AbdulJalilbinAbdulKarimasExecutiveDirector/ChiefExecutiveOfficeroftheGrouptogetherwithTuanHajiSanusibinPaijan,ExecutiveDirectorofOperation&BusinessDevelopmentDivisionof the Group.

IwouldalsoliketorecordourappreciationtoYBhgDato’MuhammadAzahambinAbdulWahab,ourNon-IndependentNon-ExecutiveChairman,whoretiredon1September2010.DuringDato’MuhammadAzaham’stenurewithMEBGroupforthepastseven years, he gave his invaluable services and contribution towards the success of MEB Group.

TomyesteemedcolleaguesontheBoard,mythanksandgratitudeforyourcommitment,guidanceandsupportduringtheyear.

YM Dato’ Raja Shah Zurin bin Raja Aman Shahexecutive Chairman

30 may 2011

Chairman Says... (Cont’d)


Financial Highlights

PROFIT/ (LOSS ) BEFORE TAXATION(RM’000)

REVENUE(RM’000)

NET ASSETS/SHAREHOLDERS FUND(RM’000)

CASH AND BANK BALANCE(RM’000)

50,000

45,000

40,000

35,000

30,000

25,000

20,000

15,000

10,000

5,000

0

30,000

25,000

20,000

15,000

10,000

5,000

011 1110 1009 0908 0807 07

250,000

200,000

150,000

100,000

50,000

01110090807

20,000

15,000

10,000

5,000

01110090807

auDiteD

2011 2010 2009 2008 2007RM’000 RM’000 RM’000 RM’000 RM’000

Revenue 42,077 40,401 96,162 159,290 200,487

Operating Profit/(Loss) 1,228 3,863 7,173 10,419 20,569

Profit/(Loss) before taxation & zakat 1,203 (3,596) 7,121 10,104 19,819

Accumulated Losses (29,215) (30,255) (26,529) (33,396) (43,678)

Net Assets/Shareholders Fund 45,498 44,458 48,184 41,317 31,035

Cash and Bank Balances 10,428 12,467 11,807 28,830 3,419


HEALTH, SAFETY AND ENVIRONMENT

TheGroupbelievethatcompetentandhealthyworkerswillcontributemore to the Company.We strive to ensure and place high priorityon the health and safety of our employees. Among the activities conductedaretalksonH1N1,performhealthchecksandfirefightingdemonstration by BOMBA.

Stafftrainingprogrammesarealsoprovidedin-houseandexternally.

The Merge Energy Group of Companies (“Group’’) understandsthe importance, implementing and practising good CorporateResponsibilities (“CR”). We believe that it will bring value to theCompany’s business operations and stake holders, increase theCompany’sbrandawarenessandalsodeliverservicetothecommunityat large.

In line with the Group framework, we continued our long-termcommitment to sustainable development.

BUILDING DYNAMIC WORKFORCE

TheGroupthroughitsKelabSukandanKebajikanMergeEnergyBhdhad organised the various social activities to foster closer ties amongst employees and their family.

• HealthCheck

• AerobicClasses

• BowlingandFutsalMatches

• StaffBirthdayCelebrations

• FruitFestival

• ChineseNewYearGatheringandHariRayaOpenHouse

Corporate Responsibility

Aerobic Class

Demonstration of fire fighting

ISO training

GST training

H1N1 Talk

Health Check

Chinese New Year Gathering

Hari Raya Open House


Corporate Responsibility (Cont’d)

CONTRIBUTING TO THE COMMUNITY WELL-BEING

Community is always the focus point for our operations. We will continue to identify activities where our support will make a difference and enhance the lives of the community through our various contributions.

Remembering and giving back to the community during the Ramadhan fasting month has been a tradition for MEB in the last few years. Last year was no difference, as a “gotong-royong” to cook “bubur lambuk” for distribution to the community of Kampong Melayu Subang was organized.

In addition, we also collaborated with Lembaga Zakat Selangor on the following:

• MajlisSerahanBangunanSurauRumahKasihHarmonion22April2010

• SinarAmbangRamadhanatKg.SgSelisekandKgSerigalaon4August2010

• DonationtounfortunatefamilyatKg.Selayang,Selangoron1September2010

Blood Donation

“Gotong-Royong Bubur Lambuk” Ceramah Agama

We also organized a Blood Donation Campaign with Pusat Bekalan Darah at our premise on 23 October 2010.

Majlis Serahan Bangunan Surau Rumah Kasih Harmoni

Donation to unfortunate family

Sinar Ambang Ramadhan


Statement OnCorporate Governance

The Board of Directors recognises the importance of good corporate governance and is committed to ensure that the highest standards of corporate governance are practised throughout the Group, as set out in the Malaysian Code on Corporate Governance (“the Code”) in enhancing stakeholders’ value, increasing investors’ confidence, establishing customers’ trust and building a competitive organisation. The Board continues to encourage professionalism, integrity and good governance as the corporate culture and way forward for the Group to provide an environment for good performance by its people and to increase shareholders’ value.

The Board is therefore pleased to report on how the Group has applied the principles and best practices for corporate governance set out in Part 1 of the Code. The Group has also complied with all the best practices of corporate governance set out in Part 2 of the Code.

DIRECTORS

1. The Board

The Board plays a key role in the governance process through its review and approval of the Group’s direction and strategy, monitoring of business performance and review of the adequacy and integrity of the Group’s internal control system. The Board believes that commitment to its fiduciary duties and responsibilities is critical to its goal of driving long term shareholders’ value.

While the Board is responsible for creating the framework and policies within which the Group operates, the Management is accountable for the execution of the framework and policies and attainment of the Group’s corporate objectives.

The Directors who are professionals from diverse backgrounds with a wide range of experience, are essence for the successful direction of the Group. With the diversity of skills, the Board is able to provide a clear and effective collective leadership to the Group to ensure that the highest standards of conduct and integrity are always the core of the Group.

2. Board Balance

The Board consists of seven members, comprising two Executive Directors and five Non-Executive Directors. Among the Non-Executive Directors, three are Independent Directors which complies with the Listing Requirements of Bursa Malaysia Securities Berhad.

The roles of Chairman and Executive Directors are separately held with each having distinct authority and responsibilities. This division of roles and responsibilities ensures that there is a balance of power and authority, such that there is no excessive concentration of power in the Chairman or the Executive Directors.

The Chairman is responsible for leading the Board and ensuring that a clear business and financial strategy for the Group is formulated for recommendation to the Board while the Executive Directors are responsible for business operations of the Group. The Chairman also maintains regular dialogues with the Executive Directors on all operational matters and acts as the facilitator at Board meetings.

Shareholders

Board of Directors

Audit Committee

Remuneration Committee

Risk Management Committee

Executive Committee

Nomination Committee

Management Committee


DIRECTORS (COnT’D)

2. Board Balance (cont’d)

The presence of the Independent Directors fulfils an important role in ensuring corporate accountability as they provide independent judgment taking into account the interests of the Group, shareholders, employees, customers, suppliers and community in which the Group conducts its business.

The composition and number of Directors reflect the fair representation of all stakeholders’ interests and investment.

3. Supply of Information

Board meetings for the ensuing financial year are scheduled in advance before the end of each financial year to enable the Directors to plan ahead and fit the year’s Board meetings into their respective schedules.

To enable the Board to effectively discharge its duties and responsibilities, the Directors are given full, complete and unrestricted access to timely and accurate information. Prior to the meetings of the Board and Board Committees, the Directors are provided with the agenda together with the relevant reports and papers. The reports include changes to the Group’s corporate strategies, business plans and budgets, operational and financial performance reports, updates on statutory regulations and requirements affecting the Group, material acquisitions and disposals of assets, corporate exercises and control structure of the Group.

The Board also notes the decisions and salient issues deliberated by Board Committees through minutes of these Committees. The Board receives and reviews recommendations made by the Board Committees and grants approval, when required.

In the event the Directors have interest in any proposals, the interested Directors shall abstain from deliberation. They shall also abstain from voting in respect of their shareholdings and shall further undertake to ensure that persons connected to them abstain from voting on the said proposals.

Where necessary, the Directors may obtain independent professional advice whether as a full Board or in their individual capacity, in furtherance of their duties, at the Company’s expense.

All Directors have access to the advice and services of the Company Secretary, who regularly updates them on the latest developments in the legislations and regulatory framework affecting the Group as well as the implementation of good corporate governance and compliance practices in the Group.

4. Appointments to the Board The identification and appointment of new Directors undergo a process led by the Nomination Committee which reviews

the required mix of skills, experience and other qualities of the Directors to ensure that the Board is functioning effectively and efficiently. The Board makes the final decision on the appointment of new Directors prior to release of announcements of the appointment to Bursa Malaysia Securities Berhad.

5. Re-election and Re-appointment

Article 105 of the Company’s Articles of Association provides that one-third of the Directors shall retire from office at each Annual General Meeting and all Directors shall retire from office at least once in every three years but may offer themselves for re-election.

Article 112 of the Company’s Articles of Association provides that any person appointed as an additional Director shall hold office only until the next following Annual General Meeting and shall then be eligible for re-election.

The Directors who retire every year shall be those who have been longest in office since their last election or appointment.

Section 129(6) of the Companies Act, 1965 provides that a person of or over the age of seventy (70) years may be appointed or re-appointed as a director by the shareholders of the Company to hold office until the next Annual General Meeting. During the financial year, there were no directors who will be attaining 70 years.

Statement OnCorporate Governance (Cont’d)




6. Directors’ Training

The Directors have attended various seminars, conferences and training sessions on corporate governance, construction, financial reporting and management. The Directors will continue to attend other seminars, conferences and training sessions to further enhance their skills and knowledge and to keep abreast with the latest developments on laws and regulations.

A description of the seminars, conferences and training sessions attended by the Directors for the financial year ended 31 January 2011 are:

Corporate Governance• BursaMalaysiaEveningTalksonCorporateGovernance:CorporateResponsibilityPracticesintheContextofthe

Market Place• MandatoryAccreditationProgramme

7. Board Meetings

The Board holds at least five regularly scheduled meetings annually, with additional meetings convened when important matters demand immediate attention. Senior Management staff as well as professional advisers have been invited to attend the Board Meetings to provide the Board with their views and clarifications on issues raised by the Directors.

The Directors are fully committed and dedicated in their roles as reflected by their full attendance at Board Meetings held during the financial year ended 31 January 2011. Four Board Meetings were held in that financial year. Details of attendance of each Director are as follows:

name of Director Percentage of Meetings Attended

YM Dato’ Raja Shah Zurin bin Raja Aman Shah 75Dato’ Abdul Jalil bin Abdul Karim* -Haji Sanusi bin Paijan# 100Haji Mat Anuar bin Hasan 100Sheah Kok Fah 75Abd Latiff bin Ahmad 75Tahirruddin bin Ahmad 75Dato’ Muhammad Azaham bin Abdul Wahab+ 100Yusof Badawi^ 100

* Appointed on 14 February 2011 # Appointed on 3 August 2010 + Resigned on 1 September 2010 ^ Resigned on 14 February 2011

In between Board Meetings, approvals on matters requiring the sanction of the Board are sought by way of circular resolutions enclosing all relevant information to enable the Board to make informed decisions. All circular resolutions approved by the Board will be tabled for notation at Board Meetings.

8. Committees

The Board has delegated certain responsibilities and duties to the following Committees to assist the Board in the efficient and effective discharge of its duties. Meetings of the Board Committees provide an avenue for members of the respective Committees to focus on specific issues to enable full and in-depth discussion of business operations of the Group.

The Board Committees exercise transparency and full disclosure in their proceedings. Where applicable, issues are reported to the Board with the appropriate recommendations by the Board Committees.



8. Committees (cont’d)

(a) Audit Committee The Audit Committee comprises three Independent Directors.

The Audit Committee provides independent oversight of the Group’s financial reporting and internal control system and ensures that checks and balances are in place within the Group.

(b) Remuneration Committee The responsibilities of the Remuneration Committee are:

• torecommendtotheBoard,theremunerationofeachDirectorinall itsform,withtherespectiveDirectorsabstain from deliberating their own remuneration; and

• toestablishandreviewtheremunerationpackagesofeachindividualExecutiveDirectorsuchthatthelevelsof remuneration are sufficient to attract and retain the Directors needed to run the Group successfully.

(c) nomination Committee The Nomination Committee is entrusted with the following responsibilities:

• recommendtotheBoard,candidates foralldirectorshipstobefilledbytheshareholdersor theBoard. Inmaking its recommendations, the Nomination Committee shall consider the candidates’ skills, knowledge, expertise and experience, professionalism and integrity. In the case of candidates for the position of Independent Directors, the Nomination Committee shall evaluate the candidates’ ability to discharge such responsibilities/functions as expected from Independent Directors;

• consider, inmaking recommendations,candidates fordirectorshipsproposedby theChairmanorbyanyother senior executive or any Director or shareholder;

• recommendtotheBoard,DirectorstofilltheseatsonBoardCommittees;

• assesstheeffectivenessandbalanceoftheBoardasawhole,theCommitteesoftheBoardandthecontributionof each individual Director;

• proposethere-electionofDirectorsretiringinaccordancewiththeCompany’sArticlesofAssociationateachAnnual General Meeting of the Company;

• reviewtheNon-ExecutiveDirectors’participationanddetermineifadditionalBoardmembersarerequiredtoensure that at least 1/3 of the Board consists of Independent Directors; and

• recommendtotheBoardontheappropriatenumberofDirectorstocomprisetheBoardwhichshouldfairlyreflect the investment of the minority shareholders in the Company.

During the financial year ended 31 January 2011, the Nomination Committee convened three meetings to:

• proposethere-electionofDirectorsretiringinaccordancewiththeCompany’sArticlesofAssociationatthe13th Annual General Meeting which was held on 13 July 2010;

• proposetheretirementofYBhgDato’MuhammadAzahambinAbdulWahabasNon-ExecutiveChairmanofthe Group;

• proposetheappointmentofHajiSanusibinPaijanasExecutiveDirectoroftheGroup;

• proposechangestothecompositionoftheNominationCommitteeandRemunerationCommittee;

• reviewtheBoard’scomposition;

• proposetheappointmentofYMDato’RajaShahZurinbinRajaAmanShahasExecutiveChairmanofMergeEnergy Bhd to lead the Group.





8. Committees (cont’d)

(d) Risk Management Committee The Risk Management Committee is formed by the Company for the following objectives:

• identifyandevaluateriskexposures;• developandimplementriskmanagementplanandstrategies;• developtheGroup’sriskmanagementpolicyandproceduresthataffirmtheGroup’scommitmenttosafeguard

its shareholders’ investments and its assets;• reviewandrevisetheriskmanagementplanandstrategiesandpolicyandprocedureswhenneeded;• reviewtheGroup’soverallobjectivesbyassessingthecurrentriskportfoliocompositionanddeterminingthe

desired exposures of each major area of risks; • formulatecontingencyplansandad-hocteamsforworstcasescenarios;• communicateriskmanagementplanandstrategy,policyandproceduresandresponsibilitiestoshareholders,

Board and all employees;• provideguidancetoalldepartmentsontheGroup’sanddepartment’sriskappetiteandcapacityandother

criteria, which when exceeded trigger an obligation to report upward to the Board;• keepabreastwithcurrentriskmanagementtechniquesandtheoriesandanypossibleoractualchangesin

regulatory environment that affects the Group;• identify and allocate resources required (including budget, human resources and professional advice, if

required) to support the above.

(e) Executive Committee The Executive Committee met 11 times during the financial year ended 31 January 2011. Minutes of meetings and

resolutions passed by the Executive Committee were tabled at the Board Meeting for notation.

The objectives of the Executive Committee are:

• toattendandexpeditealloperationalmattersoftheGrouptoensurespeedyprocessingofanyissuewhichrequire immediate decisions;

• toimprovebusinessperformanceanddecisionmaking;

• toprovideassistancetotheBoardinfulfillingitsfiduciaryresponsibilitiesintheareasrelatingtotheGroup’saccounting and management controls, financial reporting, operational issues, human resources policies and company secretarial matters and in safeguarding shareholders’ investment and the Group’s assets;

• to review and formulate policies and guidelines for the approval of theBoard in order to ensure smoothmanagement and administration of the Group and thereafter to implement the policies and guidelines accordingly; and

• toevaluateandrecommendinvestmentopportunitiesfortheapprovaloftheBoard.

DIRECTORS’ REMUnERATIOn

1. Level and Make-up of Remuneration

The Group’s policy on Directors’ remuneration is to ensure that the Directors are adequately remunerated for the services they render. The performance of Directors is measured by their contribution and commitment to the Board and the Group.

The remuneration package of the Executive Director is structured to commensurate with corporate and individual performance, experience and scope of responsibility. The Executive Director’s remuneration package comprises basic salary, benefits-in-kind such as motor vehicle, medical benefits and club membership and emoluments such as bonus and statutory contribution.

The remuneration package of the Non-Executive Directors reflect their experience and they are paid fees which will be approved by the shareholders and attendance allowances to Board and Board Committee meetings.


DIRECTORS’ REMUnERATIOn (COnT’D)

2. Procedures

The Remuneration Committee will deliberate and submit its recommendation to the Board for endorsement. The Directors play no part in deciding their own remuneration and shall abstain from discussing or voting on their own remuneration. Directors’ fees are approved by the shareholders at Annual General Meetings.

3. Disclosure

The details of remuneration of the Directors during the financial year ended 31 January 2011 are as follows:

Types of Remuneration Executive Director non-Executive DirectorsRM RM

Fees - 172,000Emoluments 634,496 -Defined contribution plan and SOCSO contribution 75,048 -Total 709,544 172,000

Bands of Remuneration Executive Director non-Executive Directors

RM100,000 and below 1 5 RM100,001-RM250,000 2 -RM350,001-RM400,000 1 -

SHAREHOLDERS

1. Dialogue between the Company and Investors In line with the Group’s commitment to observe the highest level of accountability and transparency to shareholders, the

Group continuously ensures that it maintains a high level of disclosure and communication with its shareholders through various practicable channels. In addition to various announcements made during the year, the timely release of financial results on a quarterly basis provides shareholders with an overview of the Group’s performance and operations.

The Annual Reports, announcements, circulars to shareholders and financial results are pivotal means of communication with shareholders. The Annual General Meetings and Extraordinary General Meetings provide the opportunities for interaction among Directors and shareholders. Issues pertaining to the Annual Reports, circulars to shareholders and performance and progress of the Group could be raised and explained in these meetings.

The Group has also established its official website, www.merge-energy.com.my in 2008 which shareholders and the

public can access for information. The website had been enhanced and will be continuously improved to include current information and to facilitate its navigation. All enquiries by shareholders will be attended to within 24 hours. While the Company endeavours to provide as much information as possible to the public, the Company is mindful of the legal and regulatory framework governing the release of material and price-sensitive information. Any information that may be regarded as undisclosed material information will not be disclosed to the public.

The Group’s primary contacts with shareholders are the Chairman and the Executive Director while the Head of Finance and Administration and the Company Secretary are the secondary contacts.

2. Annual General Meeting

At least 21 days prior to the Annual General Meeting, the Annual Report will be sent to the shareholders to inform them of the financial performance and other corporate information relating to the Group. Each item of special business included in the notice of the Annual General Meeting will be accompanied by a full explanation of the effects of a proposed resolution to facilitate full understanding and evaluation of the issues involved.




SHAREHOLDERS (COnT’D)

2. Annual General Meeting (cont’d)

During the Annual General Meeting, the Board presents the financial performance of the Group. Shareholders are given the opportunity to seek and clarify any pertinent and relevant issues raised in the meeting in relation to the operations and performance of the Group and to exchange views with the Board. The external auditors are also present at the Annual General Meeting to provide their professional and independent clarification on issues and concerns raised by the shareholders.

ACCOUnTABILITY AnD AUDIT

1. Financial Reporting

The Group’s performance and prospects in the Annual Report and financial results on a quarterly basis, prepared based on appropriate Financial Reporting Standards and accounting policies, will be reviewed and deliberated by the Audit Committee prior to recommendation for adoption by the Board. The Audit Committee ensures that information to be disclosed is accurate, adequate and in compliance with the various disclosure requirements imposed by the regulatory authorities.

The Board takes responsibility in ensuring that the financial statements reflect a true and fair view of the state of affairs of

the Group and the Company in accordance with the Companies Act 1965, the applicable approved Financial Reporting Standards in Malaysia and the Listing Requirements of Bursa Malaysia Securities Berhad. This also applies to other price-sensitive public announcements and reports to the regulatory authorities.

Timely release of financial statements reflects the Board’s commitment to provide transparent and up-to-date disclosures of the Group’s performance.

2. Directors’ Responsibility Statement in Preparing Audited Financial Statements

The financial statements of the Group and the Company have been drawn up in accordance with the applicable approved Financial Reporting Standards in Malaysia and the provisions of the Companies Act, 1965 so as to give a true and fair presentation of the state of affairs of the Group and the Company as at the end of the financial year and of the results and cash flows for the year then ended.

In preparing these financial statements, the Directors have:

• adoptedappropriateaccountingpoliciesandconsistentlyappliedandsupportedthepoliciesbyreasonableandprudent judgments and estimates;

• ensuredthatapplicableFinancialReportingStandardshavebeencompliedwith;and• preparedthefinancialstatementsonthegoingconcernbasisastheDirectorshaveareasonableexpectationthat

the Group has adequate resources to continue in operational existence for the foreseeable future.

The Directors are responsible for ensuring that the Group and the Company keep proper accounting records for accurate disclosure of the financial position.

The Directors also have the overall responsibilities to take all steps as are reasonably open to them to safeguard the assets of the Group to prevent and detect fraud and other irregularities.

3. Internal Control The Board acknowledges its responsibility for establishing a sound system of internal control that covers financial,

operations, compliance with laws and regulations as well as risk management to safeguard shareholders’ investment and the Group’s assets. While the internal control system is devised to cater for particular needs of the Group and the risks to which it is exposed, such controls by their nature can only provide reasonable assurance and not absolute assurance against material misstatement, loss or fraud.


ACCOUnTABILITY AnD AUDIT (COnT’D)

3. Internal Control (cont’d)

The Board recognizes that risks cannot be fully eliminated. As such, the systems, processes and procedures being put in place are aimed at minimizing and managing them. Ongoing reviews are continuously carried out to ensure the effectiveness, adequacy and integrity of the system of internal control.

This function is supported and reinforced through the various Committees established at the Board and management’s level. The Committees provide a strong check and balance and reasonable assurance on the adequacy of the Group’s internal control.

4. Relationship with the Auditors

Through the Audit Committee, the Group has established a transparent and appropriate relationship with its external auditors in seeking their professional advice towards ensuring compliance with the Financial Reporting Standards. The external auditors are invited to attend the Audit Committee Meetings to brief the Audit Committee on specific issues. During the Audit Committee Meetings, they table the audit planning and highlight observations made during the course of audit to the Audit Committee members.



AUDIT COMMITTEE REPORT

COMPOSITIOn

ChairmanSheah Kok Fah - Senior Independent Director

MembersAbd Latiff bin Ahmad - Independent DirectorTahirruddin bin Ahmad - Independent Director

MEETInGS

All Audit Committee members are provided with an agenda together with relevant reports and papers which are issued prior to the Audit Committee Meeting to enable the members to review the reports and papers as well as to obtain further information or explanation.

Minutes of Audit Committee Meetings were tabled during Board Meetings for the Board’s notation and endorsement. At each Board Meeting, the Chairman of the Audit Committee reports and highlights to the Board, all findings discussed by the Audit Committee.

During the financial year ended 31 January 2011, four Audit Committee Meetings were held. Details of attendance of each Audit Committee member are as follows:

name of Audit Committee Member Percentage of Meetings AttendedSheah Kok Fah 75Abd Latiff bin Ahmad 75Tahirruddin bin Ahmad 75

TERMS OF REFEREnCE

Composition

The Audit Committee shall be appointed by the Board from among their number and shall consist of not less than three members.

The majority of the Audit Committee members must be Independent Directors and all members must be Non-Executive Directors. At least one of the members must be a qualified accountant or fulfils such other requirements as prescribed or approved by Bursa Malaysia Securities Berhad. The Chairman of the Committee shall be appointed by the Board and shall be an Independent Director.

In the event of any vacancy in the Audit Committee resulting in the non-compliance of the above requirements, the vacancy shall be filled within three months.

All members of the Audit Committee, including the Chairman, shall hold office only so long as they serve as Directors of the Company. Should any member of the Audit Committee cease to be a Director of the Company, his membership in the Audit Committee would cease forthwith.


TERMS OF REFEREnCE (COnT’D)

Meetings

The Audit Committee shall meet at least four times a year and such additional meetings as the Chairman shall decide in order to fulfill its duties. The quorum for a meeting shall be two members and the majority of members present must be Independent Directors.

Other Board members and the Head of Finance and Administration may attend meetings upon the invitation of the Audit Committee. At least twice a year, the Audit Committee shall meet with the external auditors, the Head of Internal Audit or both without the presence of Executive Directors and other employees of the Company.

The Company Secretary shall be the Secretary of the Audit Committee.

Minutes of meetings shall be distributed to the Board. The Chairman shall report on each meeting to the Board.

Authority

The Audit Committee is authorised by the Board to investigate any activity within its terms of reference. It is authorised to seek any information it requires from any employee and all employees are directed to co-operate with any request made by the Audit Committee. In addition, it shall have unrestricted access to both the internal and external auditors and to the Senior Management of the Group. The Audit Committee is also authorised by the Board to obtain legal or other professional advice where they consider it necessary to carry out their duties.

Duties and Responsibilities

1. To review the quarterly results and year end financial statements, prior to the approval by the Board, focusing particularly on:

(i) changes in or implementation of major accounting policy changes;(ii) significant and unusual events; (iii) the going concern assumption;(iv) significant adjustments arising from the audit; and(v) compliance with Financial Reporting Standards and other legal requirements.

2. To review with the external auditors, the following:

(i) the audit plan;(ii) the audit report; (iii) their evaluation of the system of internal controls;(iv) problems and reservations arising from their interim and final audits, and any matter the external auditors may wish

to discuss (in the absence of Management where necessary); (v) the assistance given by the Company’s officers to the external auditors; and(vi) the external auditors’ management letter and Management’s response.

3. To do the following in respect of internal audit functions:

(i) review the adequacy of the scope, functions, competency and resources of the Internal Audit Department and that it has the necessary authority to carry out its work;

(ii) review the internal audit programme, processes, the results of the internal audit programme, processes or investigation undertaken and whether or not appropriate actions are taken on the recommendations of the Internal Audit Department;

(iii) consider the findings of internal investigations and Management’s response;(iv) review any appraisal or assessment of the performance of members of the Internal Audit Department;(v) approve any appointment or termination of senior staff member(s) of the Internal Audit Department; and(vi) take cognizance of resignations of internal audit staff member(s) and provide the resigning staff member an

opportunity to submit his reasons for resigning.

AUDIT COMMITTEE REPORT (Cont’d)



TERMS OF REFEREnCE (COnT’D)

Duties and Responsibilities (cont’d)

4. To consider any related party transaction and conflict of interest situation that may arise within the Company or the Group including any transaction, procedure or course of conduct that raises questions of management integrity.

5. To review:

(i) any letter of resignation from the external auditors of the Company;(ii) whether there is a reason (supported by grounds) to believe that the Company’s external auditors are not suitable

for re-appointment;(iii) any recommendation on the nomination of a person or persons as external auditors.

6. To carry out other functions as may be agreed by the Audit Committee and the Board.

ACTIVITIES

During the financial year ended 31 January 2011, the Audit Committee carried out the following activities:

1. Reviewed the audit plan of the external auditors on the scope of their audit including audit procedures, significant accounting and auditing issues, impact of new or proposed changes in Financial Reporting Standards and regulatory requirements on the financial statements;

2. Reviewed the unaudited quarterly financial reports before tabling to the Board for approval and release to Bursa Malaysia Securities Berhad and the Securities Commission;

3. Reviewed the year end unaudited financial reports before tabling to the Board for approval and release to Bursa Malaysia Securities Berhad;

4. Reviewed the audited financial statements of the Group together with the external auditors prior to submission to the Board for their consideration and approval;

5. Reviewed the audit findings by the external auditors;

6. Assessed the external auditors’ performance and audit fees prior to submission to the Board for their approval;

7. Reviewed and approved the annual audit plan presented by the internal auditor;

8. Reviewed the internal audit reports which highlighted the audit issues, recommendation and the Management’s responses and directed actions to be taken by the Management to improve the system of internal control;

9. Followed up on corrective actions taken by the Management on audit issues raised by the external auditors and the internal auditor;

10. Assessed the performance of the internal auditor;

11. Reviewed the Statement on Internal Control and the Audit Committee Report before tabling to the Board for approval to be published in the Annual Report;

12. Reviewed related party transactions entered into by the Group;

13. Reported all pertinent issues to the Board.


InTERnAL AUDIT FUnCTIOn

The Group has established the Internal Audit Department to support the Audit Committee and the Board in reviewing the Group’s system of internal control and governance process so as to provide assurance that such systems continue to operate satisfactorily and effectively.

The Internal Audit Department provides an independent assurance on risk management and internal control. It focuses on regular and systematic review of the internal control and management information systems, including compliance with applicable laws, regulations, rules, directives and guidelines.

The Internal Audit Department provides quarterly reports of the audit undertaken to the Audit Committee, reporting on the outcome of its audits. The Audit Committee reviews and evaluates the key issues raised by the Internal Audit Department and ensures that appropriate and prompt remedial actions are taken by the Management.

During the financial year ended 31 January 2011, the activities of the Internal Audit Department included:

1. Prepared the annual audit plan based on risk approach method for deliberation by the Audit Committee;

2. Carried out audit work in liaison with the Management for optimisation of resources;

3. Carried out audit visits and follow up at the Group’s construction sites;

4. Made recommendations to improve the operations in the Group;

5. Ascertained the extent of compliance with the Group’s plans, policies, procedures and statutory requirements;

6. Ascertained the adequacy of controls for safeguarding the Group’s assets from losses of all kinds;

7. Reviewed and appraised the soundness, adequacy and application of financial and other controls to promote effective control in the Group.

TRAInInG

The Audit Committee members have attended various seminars, conferences and training sessions on corporate governance, construction, financial reporting and management to further enhance their skills and knowledge and to keep abreast with the latest developments on laws and regulations.

A description of the seminars, conferences and training sessions attended by the Audit Committee members for the financial year ended 31 January 2011 is listed in the Statement on Corporate Governance.

EMPLOYEE SHARE OPTIOn SCHEME

The Company did not have any Employee Share Option Scheme during the financial year.



Other Compliance Information

1. UTILISATIOn OF PROCEEDS

The Company did not implement any fund raising exercise during the financial year.

2. SHARE BUY-BACkS

The Company did not undertake any share buy-back exercise during the financial year.

3. OPTIOnS OR COnVERTIBLE SECURITIES

The Company has not issued any options, warrants or convertible securities in the financial year.

4. DEPOSITORY RECEIPT PROGRAMME

The Company did not sponsor any depository receipt programme during the financial year.

5. SAnCTIOnS AnD/OR PEnALTIES

There were no sanctions and/or penalties imposed on the Company and its subsidiaries, Directors or Management by the relevant regulatory bodies.

6. nOn-AUDIT FEES

For the financial year, the following non-audit fees will be payable to Messrs Baker Tilly Monteiro Heng, the external auditors and their affiliated companies:(i) Reviewing the Statement on Internal Control – RM5,000.(ii) Tax advisory services – RM13,200.(iii) Review of Realised and Unrealised Profit or Lossess – RM4,000.

7. VARIATIOn In RESULTS

The Group’s audited results for the financial year ended 31 January 2011 did not vary by 10% or more from the unaudited results which were announced to Bursa Malaysia Securities Berhad on 23 March 2011.

8. PROFIT GUARAnTEE

The Company did not make any arrangement which required profit guarantee during the financial year.

9. MATERIAL COnTRACTS OR LOAnS

There were no material contracts or loans entered into by the Group during the financial year that involve Directors’ or major shareholders’ interests.

10. REVALUATIOn POLICY On LAnDED PROPERTIES

The Group has not adopted a policy of regular revaluation on landed properties.

11. RECURREnT RELATED PARTY TRAnSACTIOnS The Group did not enter into any significant recurrent related party transactions which require shareholders’ mandate

during the financial year.

12. InTERnAL AUDIT FUnCTIOn

The Company’s internal audit function is performed in-house at RM104,397.25 for the financial year.


RESPOnSIBILITYThe Board affirms its responsibilities and is committed to maintain a sound system of internal control and ensure its adequacy and integrity so as to safeguard shareholders’ investments and the Group’s assets. The Board and Management have implemented an internal control system designed to identify and manage the risks facing the Group in pursuit of its business objectives. This internal control system provides reasonable assurance against material misstatement, loss or fraud.

InTERnAL COnTROL SYSTEMAttributes of the Group’s internal control system and assurance processes are described below.

Independent Audit Committee

The Audit Committee comprises of all non-executive directors, who are also independent of the Management. It has an overall responsibility to assist the Board in fulfilling its responsibilities for the financial reporting process, the system of internal control, the audit process and the Group’s process for monitoring compliance with laws and regulations.

Internal Audit Department

The Internal Audit Department serves as a corporate resource in support of the Audit Committee to fulfil its responsibilities. It independently reviews the control processes implemented by the Management and reports the findings and recommendations directly to the Audit Committee.

Risk Management

The Board is pleased to disclose that there is an ongoing process for identifying, evaluating and managing significant risks areas by the Risk Management Working Committee (RMWC) for communication to the Risk Management Committee (RMC) and reporting to the Board. During the year, the RMWC meetings were held quarterly and the RMC meetings twice. Chaired by an independent director, the RMC functioned to ensure the effective implementation and development of the risk management system in the Group as identified by the RMWC.

Approval of Major Decisions

All major decisions require the final approval of the Board and are only made after appropriate in-depth studies have been conducted. Matters that require the Board’s approval include acceptance and award of major contracts, major investments and financial decisions.

OTHER kEY ELEMEnTS OF THE GROUP’S InTERnAL COnTROL SYSTEMThe other key elements of the Group’s internal control system include:

• Amanagementstructurewithcleardefinedlinesofresponsibilityandappropriatelevelsofdelegation.• Documentedstandardinternalpoliciesandoperatingprocedurestoregulatefinancialandoperatingactivities.• RegularandcomprehensiveinformationarecommunicatedtotheBoard;coveringtheGroup’sfinancialperformance,key

business indicators, business development and progress of projects.• QuarterlymanagementaccountsandreportsaretabledtotheBoardfortheirdeliberationandapproval.• Thereportingofoperational,financialandcompliancemattersforallthebusinessesoftheGrouparediscussedregularly

at the Executive Committee (EXCO) meetings which are attended by the EXCO members. In addition, the EXCO also convenes, at the request of its members to discuss and approve matters that required immediate decisions.

• TheholdingofmonthlyManagementCommitteemeetingsareattendedbyExecutiveDirectors,SeniorManagementandHeads of Department to discuss and review operational performance and significant matters.

COnCLUSIOnThis Statement on Internal Control has been prepared in accordance with the Guidance for Directors of Public Listed Companies and the Listing Requirements of Bursa Malaysia Securities Berhad.

The Board is of the view that the current system of internal control of the Group that has been put in place is adequate and satisfactory. Going forward; the Board will continue to monitor all risks faced by the Group including taking appropriate mitigating actions in its efforts to enhance the system of internal control.

This statement is made in accordance with the resolution of the Board of Directors dated 30 May 2011.

Statement On Internal Control

Financial Statements

Directors’ Report 31

Statements Of Financial Position 35

Statements Of Comprehensive Income 37

Statements Of Changes In Equity 38

Statements Of Cash Flows 39

Notes To The Financial Statements 42

Statement By Directors 83

Statutory Declaration 83

Independent Auditors’ Report 84

(420099-X)MERGE ENERGY BHD.ANNUAL REPORT 2011 31

Directors’ Report

The directors hereby submit their report together with the audited fi nancial statements of the Group and of the Company for the fi nancial year ended 31 January 2011.

PRInCIPAL ACTIVITIES

The principal activity of the Company is that of investment holding. The principal activities of the subsidiaries are set out in Note 7 to the fi nancial statements.

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

RESULTS

Group CompanyRM RM

Net profi t/(loss) for the fi nancial year 1,040,257 (595,158)Other comprehensive income - -

Total comprehensive income/(loss) for the fi nancial year 1,040,257 (595,158)

Attributable to:Equity holders of the Company 1,040,257 (595,158)Minority interests - -

1,040,257 (595,158)

DIVIDEnDS

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

The directors do not recommend the payment of any dividends in respect of the fi nancial year ended 31 January 2011.

RESERVES AnD PROVISIOnS

All material transfers to and from reserves and provisions during the fi nancial year have been disclosed in the fi nancial statements.

BAD AnD DOUBTFUL DEBTS

Before the statements of comprehensive income and statements of fi nancial position of the Group and of the Company were made out, the directors took reasonable steps to ascertain that action had been taken in relation to the writing off of bad debts and the making of allowance for doubtful debts, and had satisfi ed themselves that all known bad debts had been written off and adequate allowance had been made for doubtful debts.

At the date of this report, the directors are not aware of any circumstances that would render the amount written off for bad debts, or the amount of the allowance for doubtful debts, in the fi nancial statements of the Group and of the Company inadequate to any substantial extent.

(420099-X)MERGE ENERGY BHD. ANNUAL REPORT 201132

Directors’ Report (Cont’d)

CURREnT ASSETS

Before the statements of comprehensive income and statements of financial position of the Group and of the Company were made out, the directors took reasonable steps to ensure that any current assets, other than debts, which were unlikely to be realised in the ordinary course of business, their values as shown in the accounting records of the Group and of the Company had been written down to an amount that they might be expected to be realised.

At the date of this report, the directors are not aware of any circumstances that would render the values attributed to the current assets in the financial statements of the Group and of the Company misleading.

VALUATIOn METHODS

At the date of this report, the directors are not aware of any circumstances which have arisen which render adherence to the existing methods of valuation of assets or liabilities of the Group and of the Company misleading or inappropriate.

COnTInGEnT AnD OTHER LIABILITIES

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

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

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

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

CHAnGE OF CIRCUMSTAnCES

At the date of this report, the directors are not aware of any circumstances, not otherwise dealt with in this report or the financial statements of the Group and of the Company that would render any amount stated in the financial statements misleading.

ITEMS OF An UnUSUAL nATURE

The results of the operations of the Group and of the Company for the financial year were not, in the opinion of the directors, substantially affected by any item, transaction or event of a material and unusual nature.

There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the directors, to affect substantially the results of the operations of the Group and of the Company for the financial year in which this report is made.

ISSUE OF SHARES AnD DEBEnTURES

The Company has not issued any shares or debentures during the financial year.


DIRECTORS

The directors in office since the date of the last report are:-

Haji Mat Anuar Bin Hasan Sheah Kok Fah Abd Latiff Bin Ahmad Tahirruddin Bin Ahmad YM Dato’ Raja Shah Zurin Bin Raja Aman Shah Haji Sanusi Bin Paijan - appointed on 3 August 2010Dato’ Abdul Jalil Bin Abdul Karim - appointed on 14 February 2011Dato’ Muhammad Azaham Bin Abdul Wahab - resigned on 1 September 2010Yusof Badawi - resigned on 14 February 2011

In accordance with Article 105 of the Company’s Articles of Association, Abd Latiff Bin Ahmad and Tahirruddin Bin Ahmad retire from the Board by rotation at the forthcoming Annual General Meeting and, being eligible, offer themselves for re-election.

In accordance with Article 112 of the Company’s Articles of Association, Haji Sanusi Bin Paijan and Dato’ Abdul Jalil Bin Abdul Karim retire from the Board by rotation at the forthcoming Annual General Meeting and, being eligible, offers themselves for re-election.

DIRECTORS’ InTERESTS

According to the Register of Directors’ Shareholdings kept by the Company under Section 134 of the Companies Act, 1965, the interests of those directors who held office at the end of the financial year in shares in the Company and its related corporations during the financial year ended 31 January 2011 are as follows:-

number of ordinary shares of RM1 each At At

1.2.2010 Bought Sold 31.1.2011

The CompanyMerge Energy Bhd.

Yusof BadawiIndirect interests 13,000,000 - - 13,000,000

By virtue of Section 6A of the Companies Act, 1965, Yusof Badawi is deemed to be interested in the shares of all the subsidiaries to the extent that the Company has a substantial interest.

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

DIRECTORS’ BEnEFITS

Since the end of the previous financial year, no director of the Company has received or become entitled to receive a benefit (other than benefits included in the aggregate amount of emoluments received or due and receivable by the directors shown in the financial statements) by reason of a contract made by the Company or a related corporation with the director or with a firm of which the director is a member, or with a company in which the director has a substantial financial interest.

Neither during nor at the end of the financial year was the Company or any of its related corporations a party to any arrangement, whose object was to enable the directors to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate.



AUDITORS

The auditors, Messrs Baker Tilly Monteiro Heng, have expressed their willingness to continue in office.

On behalf of the Board,

........................................................…….…................................ DATO’ RAJA SHAH ZURIn BIn RAJA AMAn SHAHDirector

...............................................…...................................................DATO’ ABDUL JALIL BIn ABDUL kARIMDirector

Shah Alam

Date: 30 May 2011



Group Company31.01.2011 31.01.2010 01.02.2009 31.01.2011 31.01.2010

RM RM RM RM RMnote (Restated) (Restated)

ASSETS

non-current assetsProperty, plant and equipment 4 3,538,483 3,165,779 2,744,718 985,928 1,098,152Goodwill on consolidation 5 154,416 154,416 - - -Investment properties 6 6,635,713 6,635,713 6,635,713 - -Investment in subsidiaries 7 - - - 24,198,645 24,198,645Investment in jointly controlled

entity 8 2,421,182 2,426,843 2,506,878 - -

12,749,794 12,382,751 11,887,309 25,184,573 25,296,797

Current assetsAmounts due from customers for

contract works 9 20,160,590 9,180,345 8,501,985 - -Inventories 10 25,824 25,824 - - -Trade receivables 11 30,100,127 28,221,320 39,063,898 - -Other receivables, deposits and

prepayments 12 876,459 365,692 1,789,008 31,941 36,301Amounts due from subsidiaries 13 - - - 2,922,745 2,903,188Amount due from jointly controlled

entity 14 141,430 141,430 141,430 - -Deposits placed with licensed

banks 15 8,147,747 11,859,278 10,650,356 - -Cash and bank balances 2,280,030 607,309 1,157,066 29,472 40,052

61,732,207 50,401,198 61,303,743 2,984,158 2,979,541

TOTAL ASSETS 74,482,001 62,783,949 73,191,052 28,168,731 28,276,338

EQUITY AnD LIABILITIES

Share capital 16 67,000,000 67,000,000 67,000,000 67,000,000 67,000,000Share premium 7,712,508 7,712,508 7,712,508 7,712,508 7,712,508Accumulated losses (29,214,608) (30,254,865) (26,528,989) (56,981,979) (56,386,821)

TOTAL EQUITY 45,497,900 44,457,643 48,183,519 17,730,529 18,325,687

Statements ofFinancial Position

As At 31 JANUARY 2011


Statements ofFinancial Position (Cont’d)As At 31 JANUARY 2011

Group Company31.01.2011 31.01.2010 01.02.2009 31.01.2011 31.01.2010

RM RM RM RM RMnote (Restated) (Restated)

non-current liabilitiesHire purchase liabilities 17 480,750 84,729 - - -

Current liabilitiesAmounts due to customers for

contract works 9 10,328 - 16,434 - -Trade payables 18 12,401,950 11,807,411 14,428,636 - -Other payables, accruals

and deposits 19 15,865,754 6,368,176 10,551,136 107,667 115,202Amounts due to subsidiaries 13 - - - 10,330,535 9,835,449Amounts due to directors 20 - 20,000 - - -Hire purchase liabilities 17 163,992 34,663 - - -Provision for taxation 61,327 11,327 11,327 - -

28,503,351 18,241,577 25,007,533 10,438,202 9,950,651

TOTAL LIABILITIES 28,984,101 18,326,306 25,007,533 10,438,202 9,950,651

TOTAL EQUITY AnD LIABILITIES 74,482,001 62,783,949 73,191,052 28,168,731 28,276,338

The accompanying notes form an integral part of these financial statements.


Group Company2011 2010 2011 2010

note RM RM RM RM

Revenue 21 42,076,843 40,400,732 - -

Cost of sales 22 (36,582,159) (32,333,772) - -

GROSS PROFIT 5,494,684 8,066,960 - -

Other operating income 550,008 580,764 69,999 -Administrative expenses (4,817,072) (4,783,832) (665,157) (1,710,517)Other operating expenses- Allowance for doubtful debts - (7,376,627) - -

OPERATInG PROFIT/(LOSS) 23 1,227,620 (3,512,735) (595,158) (1,710,517)

Finance costs- Hire purchase interest (18,773) (3,058) - -Share of result in jointly controlled entity (5,661) (80,035) - -

PROFIT/(LOSS) BEFORE TAXATIOn AnD ZAkAT 1,203,186 (3,595,828) (595,158) (1,710,517)

Income tax expense 24 (162,929) (70,048) - -Zakat - (60,000) - -

nET PROFIT/(LOSS) FOR THE FInAnCIAL YEAR 1,040,257 (3,725,876) (595,158) (1,710,517)

Other comprehensive income - - - -

TOTAL COMPREHEnSIVE InCOME/(LOSS) FOR THE FInAnCIAL YEAR 1,040,257 (3,725,876) (595,158) (1,710,517)

Attributable to:Equity holders of the Company 1,040,257 (3,725,876) (595,158) (1,710,517)Minority interests - - - -

1,040,257 (3,725,876) (595,158) (1,710,517)

Basic earnings/(losses) per share attributable to equity holders of the Company (sen) 25 1.55 (5.56)

- Diluted - -

Statements ofComprehensive Income

FOR THE FINANCIAL YEAR ENDED 31 JANUARY 2011



Statements ofChanges in EquityFOR THE FINANCIAL YEAR ENDED 31 JANUARY 2011

Attributable to Equity Holders of the Company Share

CapitalShare

Premium Accumulated

LossesTotal

EquityGroup RM RM RM RM

At 1 February 2009 67,000,000 7,712,508 (26,528,989) 48,183,519 Total comprehensive loss for the financial year - - (3,725,876) (3,725,876)

At 31 January 2010 67,000,000 7,712,508 (30,254,865) 44,457,643 Total comprehensive income for the financial year - - 1,040,257 1,040,257

At 31 January 2011 67,000,000 7,712,508 (29,214,608) 45,497,900

ShareCapital

SharePremium

Accumulated Losses

Total Equity

Company RM RM RM RM

At 1 February 2009 67,000,000 7,712,508 (54,676,304) 20,036,204 Total comprehensive loss for the financial year - - (1,710,517) (1,710,517)

At 31 January 2010 67,000,000 7,712,508 (56,386,821) 18,325,687 Total comprehensive loss for the financial year - - (595,158) (595,158)

At 31 January 2011 67,000,000 7,712,508 (56,981,979) 17,730,529



Group Company2011 2010 2011 2010

RM RM RM RM

CASH FLOWS FROM OPERATInG ACTIVITIES:

Profit/(Loss) before taxation 1,203,186 (3,595,828) (595,158) (1,710,517)

Adjustments for: Allowance for doubtful debts - 7,376,627 - - Creditors written back - (275,629) - - Depreciation of property, plant and equipment 485,999 303,554 112,223 160,142 Gain on disposal of property, plant and equipment (69,999) (22,599) (69,999) - Interest expense 18,773 3,058 - - Interest income (254,610) (260,588) - - Loss on disposal of property, plant and equipment 7,803 - - - Share of loss in jointly controlled entity 5,661 80,035 - -

1,396,813 3,608,630 (552,934) (1,550,375)

Changes in working capital: Receivables (13,369,819) 4,602,529 4,360 828,688 Payables 10,112,495 (7,065,554) (7,535) (368)

(1,860,511) 1,145,605 (556,109) (722,055)

Tax paid (112,929) (70,048) - - Zakat paid - (60,000) - -

Net Operating Cash Flows (1,973,440) 1,015,557 (556,109) (722,055)

CASH FLOWS FROM InVESTInG ACTIVITIES:

Interest received 254,610 260,588 - - Acquisition of a subsidiary, net of cash acquired (Note A) - (265,762) - - Payment of legal fees and stamp duty as part of

acquisition of subsidiary - (29,960) - - Advances to subsidiaries - - (19,557) (64,208) Amount due to directors (20,000) (102,002) - - Proceeds from disposal of property, plant

and equipment 72,663 22,600 70,000 - Purchase of property, plant and equipment (Note B) (234,820) (164,266) - -

Net Investing Cash Flows 72,453 (278,802) 50,443 (64,208)

Statements ofCash Flows



Statements ofCash Flows (Cont’d)FOR THE FINANCIAL YEAR ENDED 31 JANUARY 2011

Group Company2011 2010 2011 2010

RM RM RM RM

CASH FLOWS FROM FInAnCInG ACTIVITIES:

Interest paid (18,773) (3,058) - - Advances from subsidiaries - - 495,086 803,608 Repayment of hire-purchase creditors (119,050) (74,532) - -

Net Financing Cash Flows (137,823) (77,590) 495,086 803,608

nET CHAnGES In CASH AnD CASH EQUIVALEnTS (2,038,810) 659,165 (10,580) 17,345

CASH AnD CASH EQUIVALEnTS AT THE BEGInnInG OF THE FInAnCIAL YEAR 12,466,587 11,807,422 40,052 22,707

CASH AnD CASH EQUIVALEnTS AT THE EnD OF THE FInAnCIAL YEAR 10,427,777 12,466,587 29,472 40,052

CASH AnD CASH EQUIVALEnTS

Cash and bank balances 2,280,030 607,309 29,472 40,052 Deposits placed with licensed banks 8,147,747 11,859,278 - -

10,427,777 12,466,587 29,472 40,052

A. AnALYSIS OF THE ACQUISITIOn OF A SUBSIDIARY

On 11 November 2009, Mewah Kota Sdn. Bhd. (“MKSB”), a wholly owned subsidiary of the Company, acquired 500,000 ordinary shares of RM1/- each in Innovasi Hebat Sdn. Bhd.(“IHSB”), representing the entire issued and paid-up share capital of IHSB for a cash consideration of RM300,000/-.

IHSB have been involved in the supply of valves, spare parts and provisions of related maintenance and replacement services. IHSB was awarded a 5 year contract by Syarikat Bekalan Air Selangor Sdn. Bhd. (“SYABAS”) to supply, deliver, maintenance and service of valves for a contract sum of RM13,214,493/-.

During the three-months period to 31 January 2010, IHSB has contributed RM295,463/- and RM60,079/- to the Group’s revenue and profit for the financial year respectively.

If the acquisition had been completed on 1 February 2009, the Group’s revenue and loss for the financial year would have been RM41,659,637/- and RM3,699,353/- respectively.

The goodwill arising from the acquisition of IHSB is attributable to the anticipated profitability of the acquired business and synergy expected to arise from the acquisition to the Group’s business in accordance with the Group’s business strategy.


Statements ofCash Flows (Cont’d)


A. AnALYSIS OF THE ACQUISITIOn OF A SUBSIDIARY (COnT’D)

The net assets acquired in the transaction, and the goodwill arising therefrom, are as follows:-

Group2010

RM

Property, plant and equipment 560,350Inventories 25,824Trade receivables 352,112Other receivables, deposits and prepayments 18,033Cash and bank balances 34,238Hire purchase liabilities (193,924)Trade payables (396,954)Other payables and accruals (102,133)Amount due to shareholder (122,002)Goodwill on consolidation 154,416

Total purchase consideration 329,960Less: Legal fees and stamp duty capitalised as part of purchase (29,960)

Purchase consideration satisfied by cash 300,000Less: Cash and cash equivalents acquired (34,238)

Acquisition of a subsidiary, net of cash acquired 265,762

Post acquisition results of the subsidiary acquired are as follows:-

Group2010

RM

Revenue 295,463Cost of sales (41,153)

GROSS PROFIT 254,310Administrative expenses (194,231)

OPERATInG PROFIT 60,079Finance costs (net) -

PROFIT BEFORE TAXATIOn 60,079Tax expense -

nET PROFIT FOR THE FInAnCIAL PERIOD 60,079

B. AnALYSIS OF PURCHASE OF PROPERTY, PLAnT AnD EQUIPMEnT

During the financial year, the Group acquired property, plant and equipment with an aggregate costs of RM879,220/- (2010: RM Nil), of which RM793,243/- (2010: RM Nil) was acquired under hire purchase arrangements by the Group. Cash payments made by the Group for the acquisition of property, plant and equipment amounted to RM234,820/- (2009: RM164,266/-).



Notes to theFinancial Statements

1. GEnERAL InFORMATIOn

The principal activity of the Company is that of investment holding. The principal activities of the subsidiaries are set out in Note 7 to the financial statements.

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

The Company is a public limited liability company, incorporated and domiciled in Malaysia, and listed on the Main Market of Bursa Malaysia Securities Berhad.

The registered office and the principal place of business of the Company is located at No. 2, Jalan Apollo U5/190, Bandar Pinggiran Subang, Seksyen U5, 40150 Shah Alam, Selangor Darul Ehsan.

The financial statements are expressed in Ringgit Malaysia.

The financial statements were authorised for issue by the Board of Directors in accordance with a resolution of the directors on 30 May 2011.

2. SUMMARY OF SIGnIFICAnT ACCOUnTInG POLICIES

2.1 Basis of Preparation

The financial statements of the Group and of the Company have been prepared in accordance with the Financial Reporting Standards (“FRS”) and the Companies Act, 1965 in Malaysia.

The financial statements of the Group and of the Company have been prepared under the historical cost convention as modified by the revaluation of certain freehold land and buildings and, unless otherwise indicated in the significant accounting policies in Note 2.3 to the financial statements.

The preparation of financial statements in conformity with FRS requires the use of certain critical accounting 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 reported period. It also requires the directors’ best knowledge of current events and actions, and therefore actual results may differ.

The financial statements of the Group and of the Company are prepared on the going concerns basis.

The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 3 to the financial statements.

2.2 new and Revised FRSs, Amendments/Improvements to FRSs, IC Interpretations (“IC Int”) and Amendments to IC Int

(a) Adoption of new FRSs, Amendments/Improvements to FRSs, and IC Int and Amendments to IC Int

The Group and the Company had adopted the following new FRSs, amendments/improvements to FRS, IC Int and amendments to IC Interpretations (“IC Int”) that are relevant to their operations and are mandatory for the current financial year:

new FRSsFRS 4 Insurance ContractsFRS 7 Financial Instruments : DisclosuresFRS 101 Presentation of Financial StatementsFRS 123 Borrowing CostsFRS 139 Financial Instruments : Recognition and Measurement


Notes to theFinancial Statements (Cont’d)

2. SUMMARY OF SIGnIFICAnT ACCOUnTInG POLICIES (COnT’D)

2.2 new and Revised FRSs, Amendments/Improvements to FRSs, IC Interpretations (“IC Int”) and Amendments to IC Int (cont’d)

(a) Adoption of new FRSs, Amendments/Improvements to FRSs, and IC Int and Amendments to IC Int (cont’d)

Amendments/Improvements to FRSsFRS 1 First-time Adoption of Financial Reporting StandardsFRS 2 Share – based paymentFRS 5 Non-current Assets Held for Sale and Discontinued OperationsFRS 7 Financial Instruments : DisclosuresFRS 8 Operating SegmentsFRS 107 Statement of Cash FlowsFRS 108 Accounting Policies, Changes in Accounting Estimates and ErrorsFRS 110 Events After the Reporting PeriodFRS 116 Property, Plant and EquipmentFRS 117 LeasesFRS 118 RevenueFRS 119 Employee BenefitsFRS 120 Accounting for Government Grants and Disclosure of Government AssistanceFRS 123 Borrowing CostsFRS 127 Consolidated and Separate Financial Statements: Cost of an Investment in a Subsidiary,

Jointly Controlled Entity or AssociateFRS 128 Investments in AssociatesFRS 129 Financial Reporting in Hyperinflationary EconomiesFRS 131 Interests in Joint VenturesFRS 132 Financial Instruments : PresentationFRS 134 Interim Financial ReportingFRS 138 Intangible AssetsFRS 140 Investment Property

IC IntIC Int 9 Reassessment of Embedded DerivativesIC Int 10 Interim Financial Reporting and ImpairmentIC Int 11 FRS 2 – Group and Treasury Share TransactionsIC Int 13 Customer Loyalty ProgrammesIC Int 14 FRS 119 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and

their Interaction

Amendments to IC IntIC Int 9 Reassessment of Embedded Derivatives

Adoption of the new FRSs, amendments/improvements to FRSs, IC Int and amendments to IC Int did not have any effect on the financial performance or position of the Group and the Company except for those discussed below.

FRS 7 Financial Instruments: Disclosure

Prior to 1 February 2011, information about financial instruments was disclosed in accordance with the requirements of FRS 132 Financial Instruments: Disclosure and Presentation. FRS 7 introduces new disclosure to improve the information about financial instruments. It requires the disclosure of qualitative and quantitative information about exposure to risks arising from financial instruments, including specified minimum disclosures about credit risk, liquidity risk and market risk, including sensitivity analysis to market risk.

MERGE ENERGY BHD.44 (420099-X) ANNUAL REPORT 2011




(a) Adoption of new FRSs, Amendments/Improvements to FRSs, and IC Int and Amendments to IC Int (cont’d)

FRS 7 Financial Instruments: Disclosure (cont’d)

The Group and the Company have applied FRS 7 prospectively in accordance with the transitional provisions. Hence, the new disclosures have not been applied to the comparatives. The new disclosures are included throughout the Company’s financial statements for the financial year ended 31 January 2011.

FRS 8 Operating Segments

FRS 8, which replaces FRS 114 Segment Reporting, specifies how an entity should report information about its operating segments, based on information about the components of the entity that is available to the chief operating decision maker for the purposes of allocating resources to the segments and assessing their performance. The Standard also requires the disclosure of information about the products and services provided by the segments, the geographical areas in which the Group and the Company operates, and revenue from the Group’s and the Company’s major customers. The Group and the Company have adopted FRS 8 retrospectively. These revised disclosures, including the related revised comparative information, are shown in Note 27 to the financial statements.

FRS 101 Presentation of Financial Statements (revised)

The revised FRS 101 introduces changes in the presentation and disclosures of financial statements. The revised Standard separates owner and non-owner changes in equity. The statement of changes in equity includes only details of transactions with owners, with all non-owner changes in equity presented as a single line. The Standard also introduces the statement of comprehensive income, with all items of income and expenses recognised in profit and loss, together with all other items of recognised income and expense recognised directly in equity, either in one single statement, or in two linked statements. The Group and the Company have elected to present this statement as one single statement.

In addition, a statement of financial position is required at the beginning of the earliest comparative period following a change in accounting policy, the correction of an error of the classification of items in the financial statements.

The revised FRS 101 also requires the Group and the Company to make new disclosures to enable users of the financial statements to evaluate the Company’s objectives, policies and processes of managing capital.

The revised FRS 101 was adopted retrospectively by the Group and the Company.

FRS 139 Financial Instruments: Recognition and Measurement

FRS 139 establishes principles for recognising and measuring financial assets and financial liabilities. The Group and the Company have adopted FRS 139 prospectively on 1 February 2011 in accordance with the transitional provisions. The effects arising from the adoption of this Standard has been accounted for by adjusting the opening balance of retained earnings as at 1 February 2011. Comparatives are not restated. The details of the changes in accounting policies and the effects arising from the adoption of FRS 139 are discussed below:

(a) Impairment of trade and other receivables

Prior to 1 February 2011, an allowance for doubtful debts was recognised when it was considered uncollectible. Upon the adoption of FRS 139, an impairment loss is recognised when there is objective evidence that an impairment loss has been incurred. The amount of the loss is measured as the difference between the receivable’s carrying amount and the present value of the estimated future cash flows discounted at the receivable’s original effective interest rate. As at 1 February 2010, the Group and the Company have remeasured the allowance for impairment loss to be recognized as at 1 February 2010 is equal to the allowance for doubtful debts recognized prior to 1 February 2010. Thus, no adjustment to the opening balance of retained earnings as at that date.





(b) Revised FRSs, Amendments/Improvements to FRSs, IC Int and Amendments to IC Int that are issued, not yet effective and have not been adopted early

The Group and the Company have not adopted the following revised FRSs, amendments/improvements to FRSs, IC Int and amendments to IC Int that have been issued as at the date of authorisation of these financial statements but are not yet effective for the Company:

Effective for financial periods beginning on or

after

Revised FRSsFRS 1 First-time Adoption of Financial Reporting Standards 1 July 2010FRS 3 Business Combinations 1 July 2010FRS 124 Related Party Disclosures 1 Jan 2012FRS 127 Consolidated and Separate Financial Statements 1 July 2010

Amendments/Improvements to FRSsFRS 1 First-time Adoption of Financial Reporting Standards 1 Jan 2011FRS 2 Share-based Payment 1 July 2010

& 1 Jan 2011FRS 3 Business Combinations 1 Jan 2011FRS 5 Non-current Assets Held for Sale and Discontinued Operations 1 July 2010FRS 7 Financial Instruments : Disclosures 1 Jan 2011FRS 101 Presentation of Financial Statements 1 Jan 2011FRS 121 The Effects of Changes in Foreign Exchange Rates 1 Jan 2011FRS 128 Investments in Associates 1 Jan 2011FRS 131 Interests in Joint Ventures 1 Jan 2011FRS 132 Financial Instruments : Presentation 1 Mar 2010

& 1 Jan 2011FRS 134 Interim Financial Reporting 1 Jan 2011FRS 138 Intangible Assets 1 July 2010FRS 139 Financial Instruments : Recognition and Measurement 1 Jan 2011

IC IntIC Int 4 Determining Whether an Arrangement contains a Lease 1 Jan 2011IC Int 12 Service Concession Arrangements 1 July 2010IC Int 15 Agreements for the Construction of Real Estate 1 Jan 2012IC Int 16 Hedges of a Net Investment in a Foreign Operation 1 July 2010IC Int 17 Distributions of Non-cash Assets to Owners 1 July 2010IC Int 18 Transfers of Assets from Customers 1 Jan 2011IC Int 19 Extinguishing Financial Liabilities with Equity Instruments 1 July 2011

Amendments to IC IntIC Int 9 Reassessment of Embedded Derivatives 1 July 2010IC Int 13 Customer Loyalty Programmes 1 Jan 2011IC Int 14 Prepayments of a Minimum Funding Requirements 1 July 2011IC Int 15 Agreements for the Construction of Real Estate 30 Aug 2010





(b) Revised FRSs, Amendments/Improvements to FRSs, IC Int and Amendments to IC Int that are issued, not yet effective and have not been adopted early (cont’d)

Except for the changes in accounting policies arising from the new disclosure required under the Amendments to FRS 7, the directors expect that the adoption of the other standards and interpretations above will have no material impact on the financial statements in the period of initial application.

2.3 Significant Accounting Policies

The following accounting policies have been used consistently in dealing with items which are considered material in relation to the financial statements:-

(a) Basis of Consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries made up to the end of the financial year. The financial statements of the parent and its subsidiaries are all drawn up to the same reporting date.

Subsidiaries are consolidated using the purchase method of accounting. Under the purchase method of accounting, subsidiaries are fully consolidated from the date on which control is transferred to the Group and are de-consolidated from the date that control ceases.

The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the date of acquisition, irrespective of the extent of any minority interest.

The excess of the cost of the acquisition over the net fair value of the Group’s share of the identifiable net assets, liabilities and contingent liabilities represents goodwill. Any excess of the net fair value of the Group’s share of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition is recognised immediately in the profit or loss.

Intra-group transactions and balances, and resulting unrealised gains are eliminated on consolidation. Unrealised losses resulting from intra-group transactions are also eliminated on consolidation to the extent of the cost of the asset that can be recovered. The extent of the costs that cannot be recovered is treated as write downs or impairment losses as appropriate. Where necessary, adjustments are made to the financial statements of the subsidiaries to ensure consistency with the accounting policies adopted by the Group.

(b) Property, Plant and Equipment

All property, plant and equipment are initially stated at cost. After initial recognition, property, plant and equipment are stated at cost less accumulated depreciation and impairment losses, if any. The policy for the recognition and measurement of impairment losses is in accordance with Note 2.3(o).

Cost includes expenditure that is directly attributable to the acquisition of the asset. When significant parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment.

The cost of replacing part of an item of property, plant and equipment is included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that the future economic benefits associated with the part will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the profit or loss as incurred.




2.3 Significant Accounting Policies (cont’d)

(b) Property, Plant and Equipment (cont’d)

Property, plant and equipment are depreciated on a straight line basis to write off the cost of each asset to its residual value over the estimated useful lives of the assets concerned. The annual rates used for this purpose are as follows:-

Long term leasehold properties 2%Plant and machinery 10% - 20%Motor vehicles 10% - 20%Furniture, fittings and office equipment 5% - 33%Office renovation 5%

Long term leasehold properties are depreciated over the lease term as the Group has not been able to segregate the cost of the building from the cost of the related long term leasehold land. The directors are of the opinion that the depreciation of the long term leasehold properties has no material effect on the financial statements of the Group.

The residual values, useful lives and depreciation methods are reviewed and adjusted if appropriate, at each reporting date. The effects of any revisions of the residual values and useful lives are included in the profit or loss for the financial year in which the changes arise.

Fully depreciated assets are retained in the accounts until the assets are no longer in use.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset is included in the profit or loss in the year the asset is derecognised.

(c) Goodwill on Consolidation

Goodwill arising on acquisition represents the excess of cost of business combination over the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities. Following the initial recognition, goodwill is measured at cost less impairment losses, if any. The policy for the recognition and measurement of impairment losses is in accordance with Note 2.3(o).

Goodwill is not amortised but is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.

Negative goodwill represents the excess of fair value of the Group’s share of net assets acquired over the cost of acquisition. Negative goodwill is recognised directly in the profit or loss.

(d) Inventories

Inventories are stated at the lower of cost and net realisable value. Inventories cost is determined on a first-in-first-out method.

Cost includes the actual cost of purchase and other costs incurred in bringing the inventories to their present location and condition.

Net realisable value is the estimated selling price in the ordinary course of business less the costs of completion and applicable variable selling expenses.





(e) Lease

(i) Finance leases

Leases of property, plant and equipment where the Group assumes substantially all the benefits and risks of ownership are classified as finance leases.

Assets acquired by way of finance lease are stated at an amount equal to the lower of their fair values and the present value of minimum lease payments at the inception of the leases, less accumulated depreciation and impairment losses, if any. The corresponding liability is included in the balance sheet as borrowings. In calculating the present value of minimum lease payments, the discount factor used is the interest rate implicit in the lease, when it is practicable to determine; otherwise, the Group’s incremental borrowing rate is used. Property, plant and equipment acquired under finance leases are depreciated over the shorter of the estimated useful life of the asset and the lease term.

Lease payments are apportioned between the finance costs and the reduction of the outstanding liability. Finance cost, which represent the difference between the total leasing commitments and the fair value of the assets acquired, are recognised as an expense in the income statement over the term of the relevant lease so as to produce a constant periodic rate of charge on the remaining balance of the obligations for each accounting period.

(ii) Operating leases

Leases of assets were a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases.

Operating lease payments are recognised as an expense on a straight line basis over the term of the relevant lease. The aggregate benefit of incentives provided by the lessor is recognised as a reduction of rental expense over the lease term on a straight line basis.

(f) Investment Properties

Investment properties are investment in land and buildings that are held for long term rental yields or for capital appreciation or both, and are not occupied by the Group.

Investment properties are initially measured at cost, which includes transaction costs. Subsequently, investment properties are stated at fair value, representing open-market value as at the reporting date. Fair value is based on active market prices, adjusted, if necessary, for any difference in the nature, location or condition of the specific asset. If this information is not available, the Group uses alternative valuation methods such as recent prices on less active market or discounted cash flow projections.

On disposal of an investment property, or when it is permanently withdrawn from use and no future economic benefits are expected from its disposal, it shall be derecognised. The difference between the net disposal proceeds and the carrying amount is recognised in the profit or loss in the period of the retirement or disposal.

(g) Investment

(i) Subsidiaries

Subsidiaries are those enterprises in which the Group and the Company has power to exercise control over the financial and operating policies so as to obtain benefits from their activities, generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group has such power over another entity.





(g) Investment (cont’d)

(i) Subsidiaries (cont’d)

In the Company’s separate financial statements, an investment in subsidiary is stated at cost less impairment losses, if any. The policy for the recognition and measurement of impairment losses is in accordance with Note 2.3(o). On disposal of such investment, the difference between net disposal proceeds and its carrying amount is charged or credited to the profit or loss.

In the Group’s consolidated financial statements, the difference between the net disposal proceeds and the Group’s share of the subsidiary’s net assets together with any unamortised goodwill is reflected as a gain or loss on disposal in the consolidated profit or loss.

(ii) Jointly controlled entities

Jointly controlled entities are corporations, partnerships or other entities in which the Group has contractually agreed to share its control with one or more parties, where strategic financial and operating decisions relating to the jointly controlled entity required unanimous consent of the parties.

In the Company’s separate financial statements, an investment in a jointly controlled entity is stated at cost less impairment losses, if any. The policy for the recognition and measurement of impairment losses is in accordance with Note 2.3(o). On disposal of such investment, the difference between net disposal proceeds and its carrying amount is charged or credited to the profit or loss.

The Group’s interest in a jointly controlled entity is accounted for in the consolidated financial statements using the equity method of accounting based on the management financial statements of the jointly controlled entity.

Upon disposal of such investment, the difference between the net disposal proceeds and its carrying amount is included in profit and loss.

(h) Construction Contracts

Construction works are stated at cost plus attributable profit less progress billings. Cost comprises direct labour, material costs, sub-contract sum and an allocated proportion of directly related overheads. Administrative and general expenses are charged to the profit or loss as and when incurred.

When the outcome of a construction contract can be reliably estimated, contract revenue is recognised by using the stage of completion method. The stage of completion is measured by reference to the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs. Costs incurred in connection with future activity on a contract are excluded from contract costs in determining the stage of completion. They are presented as inventories, prepayments or other assets, depending on their nature.

When the outcome of a construction contract cannot be reliably estimated, contract revenue is recognised only to the extent of contract costs incurred that is probable will be recoverable.

Irrespective of whether the outcome of a construction contract can be estimated reliably, when it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. Provision is made for all anticipated losses on construction work. Provision for warranties is made for expected/estimated repair costs for making good certain defects and damages during the warranty periods.





(h) Construction Contracts (cont’d)

When costs incurred on construction contracts plus recognised profits (less recognised losses) exceed progress billings, the balance is shown as amount due from customers for contract works. When progress billings exceed costs incurred plus recognised profits (less recognised losses), the balance is shown as amount due to customers for contract works.

(i) Receivables

Receivables are carried at anticipated realisable values. Bad debts are written off when identified. An estimate is made for doubtful debts based on a review of all outstanding amounts as at the reporting date.

(j) Payables

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

(k) Borrowings

(i) Classification

Borrowings are initially recognised based on the proceeds received, net of transaction cost incurred. In the subsequent periods, borrowings are stated at amortised cost using the effective interest method; any difference between proceeds (net of transaction costs) and the redemption value is recognised in the profit or loss over the period of the borrowings.

Interest, dividends, losses and gains relating to a financial instrument, or a component part, classified as a liability is reported within finance cost in the profit or loss.

Borrowings are classified as current liabilities unless the Group has unconditional rights to defer settlement of the liability for at least 12 months after the reporting date.

(ii) Capitalisation of borrowing costs

Borrowing costs incurred to finance the construction of property, plant and equipment are capitalised as part of the cost of the asset during the period of time that is required to complete and prepare the asset for its intended use. Borrowing costs incurred to finance property development activities and construction contracts are accounted for in a similar manner. All other borrowing costs are expensed to the profit or loss.

(l) Provisions

Provisions are recognised when there is a present obligation, legal or constructive, as a result of a past event, when it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and when a reliable estimate can be made of the amount of the obligation.

(m) Revenue Recognition

(i) Revenue from construction contracts

Revenue from construction contracts is accounted for by the stage of completion method as described in Note 2.3(h).





(m) Revenue Recognition (cont’d)

(ii) Sales of goods

Revenue from the sales of goods is recognised in the financial statements when the significant risks and rewards of ownership have been transferred to the customers.

(iii) Services rendered

Revenue from services rendered is recognised as and when the services are performed.

(iv) Dividend income

Dividend income is recognised when the right to receive payment is established.

(v) Rental income

Rental income is accounted for on a straight line basis over the lease term of an ongoing lease. The aggregate cost of incentives provided to the lessee is recognised as a reduction of rental income over the lease term on a straight line basis.

(vi) Interest income

Interest income is recognised on an accrual basis based on the effective interest method.

(n) Income Tax

The tax expense in the profit or loss represents the aggregate amount of current tax and deferred tax. Current tax is the expected amount of income taxes payable in respect of the taxable profit for the year and is measured using the tax rates that have been enacted at the reporting date.

Deferred tax is provided for, using the liability method, on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts in the financial statements. In principal, deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised for all deductible temporary differences, unused tax losses and unused tax credits to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, unused tax losses and unused tax credits can be utilised. Deferred tax is not recognised if the temporary difference arises from goodwill or the amount of any excess of the acquirer’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities over the cost of the combination or from the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction, affects neither accounting profit nor taxable profit.

Deferred tax is measured at the tax rates that are expected to apply in the period when the asset is realised or the liability is settled, based on tax rates that have been enacted or substantively enacted at the reporting date. Deferred tax is recognised as income or an expense and include in the profit or loss for the period, except when it arises from a transaction which is recognised directly in equity, in which case the deferred tax is also charged or credited directly in equity, or when it arises from a business combination that is an acquisition, in which case the deferred tax is include in the resulting goodwill or the amount of any excess of the acquirer’s interest in the net fair value of the acquirer’s identifiable assets, liabilities and contingent liabilities over the cost of the combination.





(o) Impairment of Assets

(i) Impairment of financial assets

All financial assets (except for financial assets categorised as fair value through profit or loss, investment in subsidiaries and associates) are assessed at each reporting date whether there is any objective evidence of impairment as a result of one or more events having an impact on the estimated future cash flows of the asset. Losses expected as a result of future events, no matter how likely, are not recognised. For an equity instrument, a significant or prolonged decline in the fair value below its cost is an objective evidence of impairment.

An impairment loss in respect of loans and receivables and held-to-maturity investments is recognised in profit or loss and is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account.

If, in a subsequent period, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed, to the extent that the asset’s carrying amount does not exceed what the carrying amount would have been had the impairment not been recognised at the date the impairment is reversed. The amount of the reversal is recognised in the profit or loss.

(ii) Impairment of non-financial assets

The carrying amount of assets, except for financial assets (excluding investments in subsidiaries and jointly controlled entity), assets arising from construction contracts, investment properties measured at fair value and non-current assets (or disposal groups) held for sale, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated to determine the amount of impairment loss.

The recoverable amount of an asset is estimated for an individual asset. Where it is not probable to estimate the recoverable amount of the individual asset, the impairment test is carried out on the cash generating unit (“CGU”) to which the asset belongs.

The recoverable amount of an asset or CGU is the higher of its fair value less cost to sell and its value in use.

In estimating the value in use, the estimated future cash inflows and outflows to be derived from continuing use of the asset and from its ultimate disposal are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the future cash flow estimates have not been adjusted.

An impairment loss is recognised in the profit or loss when the carrying amount of the asset or the CGU exceeds the recoverable amount of the asset of the CGU. The impairment loss is recognised in the profit or loss.

An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Such reversals are recognised as income immediately in the profit or loss.





(p) Financial Assets

Financial assets are recognised in the statement of financial position when, and only when, the Company becomes a party to the contractual provisions of the financial instrument.

When financial assets recognised initially, they are measured at fair value, plus, in the case of financial assets not at fair value through profit or loss, directly attributable transaction costs.

The Company determines the classification of their financial assets at initial recognition, and the categories include financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments and available-for-sale financial assets.

(i) Financial assets at fair value through profit or loss Financial assets are classified as financial assets at fair value through profit or loss if they are held for

trading or are designated as such upon initial recognition. Financial assets held for trading are derivatives (including separated embedded derivatives) or financial assets acquired principally for the purpose of selling in the near future.

Subsequent to initial recognition, financial assets at fair value through profit or loss are measured at fair

value. Any gains or losses arising from changes in fair value are recognised in profit or loss. Net gains and losses on financial assets at fair value through profit or loss do not include exchange differences, interest and dividend income. Exchange differences, interest and dividend income on financial assets at fair value through profit or loss are recognised separately in profit or loss as part of other losses or other income.

Financial assets at fair value through profit or loss could be presented as current or non-current. Financial assets that are held primarily for trading purposes are presented as current whereas financial assets that are not held primarily for trading purposes are presented as current or non-current based on the settlement date.

(ii) Loan and receivables

Financial assets with fixed or determinable payments that are not quoted in an active market are classified as loans and receivables.

Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method. Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, and through the amortisation process.

Loan and receivables are classified as current assets, except for those having maturity dates later than 12 months after the reporting date which are classified as non-current.

(iii) Held-to-maturity investments

Financial assets with fixed or determinable payments and fixed maturity are classified as held to maturity when the Company has the positive intention and ability to hold the investment to maturity.

Subsequent to initial recognition, held-to-maturity investments are measured at amortised cost using the effective interest method. Gains and losses are recognised in profit or loss when the held-to-maturity investments are derecognised or impaired, and through the amortisation process.

Held-to-maturity investments are classified as non-current assets, except for those having maturity within 12 months after the reporting date which are classified as current.





(p) Financial Assets (cont’d)

(iv) Available-for-sale financial assets

Available-for-sale are financial assets that are designated as available for sale or are not classified in any of the three preceding categories.

After initial recognition, available-for-sale financial assets are measured at fair value. Any gains or losses from changes in fair value of the financial assets are recognised in other comprehensive income, except that impairment losses, foreign exchange gains and losses on monetary instruments and interest calculated using the effective interest method are recognised in profit or loss. The cumulative gain or loss previously recognised in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment when the financial asset is derecognised. Interest income calculated using the effective interest method is recognised in profit or loss. Dividends on available-for-sale equity instrument are recognised in profit or loss when the Group and the Company’s right to receive payment is established.

Investments in equity instruments whose fair value cannot be reliably measured are measured at cost less impairment loss.

Available-for-sale financial assets are classified as non-current assets unless they are expected to be realised within 12 months after the reporting date.

A financial asset is derecognised where the contractual right to receive cash flows from the assets has expired. On derecognition of a financial asset in its entirety, the difference between the carrying amount and the sum of the consideration received and any cumulative gain or loss that had been recognised in other comprehensive income is recognised in profit or loss.

Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace concerned. All regular way purchases and sales of financial assets are recognised and derecognised on the trade date i.e. the date that the Company commit to purchase or sell the asset.

(q) Financial Liabilities

Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability.

Financial liabilities, within the scope of FRS 139, are recognised in the statement of financial position when, and only when, the Company becomes a party to the contractual provisions of the financial instrument. Financial liabilities are classified as either financial liabilities at fair value through profit or loss or other financial liabilities.

(i) Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.

Financial liabilities held for trading include derivatives entered into by the Company that do not meet the hedge accounting criteria. Derivative liabilities are initially measured at fair value and subsequently stated at fair value, with any resulted gains or losses recognised in profit or loss. Net gains or losses on derivatives include exchange differences.

The Group and the Company have not designated any financial liabilities as at fair value through profit or loss.





(q) Financial Liabilities (cont’d)

(ii) Other financial liabilities

The Group’s and the Company’s other financial liabilities include trade payables, other payables and loans and borrowings.

Trade and other payables are recognised initially at fair value plus directly attributable transaction costs and subsequently measured at amortised cost using the effective interest method.

Loans and borrowings are recognised initially at fair value, net of transaction costs incurred, and subsequently measured at amortised cost using the effective interest method. Borrowings are classified as current liabilities unless the group has an unconditional right to defer the settlement of the liability for at least 12 months after the reporting date.

For other financial liabilities, gains and losses are recognised in profit or loss when the liabilities are derecognised, and through the amortisation process.

A financial liability is derecognised when the obligation under the liability is extinguished. When an existing financial liability is replaced by another from the same lender on modified terms, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in profit or loss.

(r) Employee Benefits

(i) Short term employee benefits

Wages, salaries, social security contributions, bonuses, paid annual leave, paid sick leave and non-monetary benefits are recognised as an expense in the period in which the associated services are rendered by the employees.

Short term non-accumulating compensated absences such as sick leave are recognised when the absences occur. Short term accumulating compensated absences such as paid annual leave are recognised as an expense when services are rendered by employees that increase their entitlement to future compensated absences.

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

(ii) Post-employment benefits

The Group contributes to the Employees’ Provident Fund, the national defined contribution plan. The contributions are charged to the profit or loss in the period to which they are related. Once the contributions have been paid, the Group has no further payment obligations.

(s) Ordinary Shares

Ordinary shares are recorded at the nominal value and proceeds in excess of the nominal value of shares issued, if any, are accounted for as share premium. Both ordinary shares and share premium are classified as equity. Dividends on the ordinary shares are recognised as liabilities when proposed or declared before the reporting date. A dividend proposed or declared after the reporting date, but before the financial statements are authorised for issue, is not recognised as a liability at the reporting date.





(s) Ordinary Shares (cont’d)

The transaction costs of an equity transaction are accounted for as deductions from equity, net of tax. Equity transaction costs comprise only those incremental external costs directly attributable to the equity transaction which would otherwise have been avoided.

(t) Cash and Cash Equivalents

For the purpose of the statements of cash flows, cash and cash equivalents consist of cash in hand, demand deposits, balances with banks and other short term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Cash and cash equivalents are stated net of bank overdrafts which are repayable on demand.

(u) Segment Information

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

Following the adoption of FRS 8 Operating Segments, an operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. An operating segment’s operating results are reviewed regularly by the chief operating decision maker, which in this case is the Chief Executive Officer of the Group, to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.

3. SIGnIFICAnT ACCOUnTInG ESTIMATES AnD JUDGEMEnTS

3.1 Critical Judgements Made in Applying the Group’s Accounting Policies

In the process of applying the Group’s accounting policies, which are described in Note 2 above the directors are of the opinion that there are no instances of application of judgement which are expected to have a significant effect on the amounts recognised in the financial statements, other than as disclosed in note to the financial statements (apart from those involving estimations which are dealt with below).

(a) Leases

The Group has reassessed and judged that the leasehold land of the Group which are in substance are finance leases and has reclassified the leasehold land to property, plant and equipment.

3.2 key Source of Estimation Uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are as stated below:-

(a) Impairment of loans and receivables

The Group assesses at each reporting date whether there is any objective evidence that a financial assets is impaired. To determine whether there is objective evidence of impairment, the Group considers factors such as the probability of insolvency or significant financial difficulties of the debtor and default or significant delay in payments.



3. SIGnIFICAnT ACCOUnTInG ESTIMATES AnD JUDGEMEnTS (COnT’D)

3.2 key Source of Estimation Uncertainty (cont’d)

(a) Impairment of loans and receivables (cont’d)

Where there is objective evidence of impairment, the amount and timing of future cash flows are estimated based on historical loss experience for assets with similar credit risk characteristics. The carrying amount of the Group’s loans and receivables at the reporting date is disclosed in Note 11 to the financial statements.

(b) Useful lives of property, plant and equipment

The Group estimates the useful lives of property, plant and equipment based on the period over which the assets are expected to be available for use. The estimated useful lives of property, plant and equipment are reviewed periodically and are updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of the relevant assets. In addition, the estimation of the useful lives of property, plant and equipment are based on internal technical evaluation and experience with similar assets.

It is possible, however, that future results of operations could be materially affected by changes in the estimates brought about by changes in factors mentioned above. The amounts and timing of recorded expenses for any period would be affected by changes in these factors and circumstances. A reduction in the estimated useful lives of the property, plant and equipment would increase the recorded expenses and decrease the non-current assets.

(c) Valuation of investment properties

In the absence of valuation by independent valuers, the fair value of investment properties is determined by the directors based on their assessment of available market prices of similar properties in the vicinity, outlook of the property market within the location, designation of use and acceptable level of variance in professional judgement.

(d) Impairment of investment in subsidiaries and jointly controlled entity

The Group tests investment in subsidiaries and jointly controlled entity for impairment annually in accordance with its accounting policy. More regular reviews are performed if events indicate that this is necessary.

Significant judgement is required in the estimation of the present value of future cash flows generated by the subsidiaries and jointly controlled entity, which involves uncertainties and are significantly affected by assumptions used and judgement made regarding estimates of future cash flows and discount rates. Changes in assumptions could significantly affect the results of the Group’s tests for impairment of investment in subsidiaries and jointly controlled entity.

(e) Construction contracts

The Group recognises contract revenue from its fixed price contracts based on the stage of completion method. The stage of completion is determined by the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs. The stage of completion method requires the Group to estimate the stage of completion, the extent of the contract costs incurred, the estimated total contract revenue including variation orders and contract claims and contract costs. In making the estimates, the Group relies on past experience, the use of engineering tools and the work of specialists.

Any variation to the final contract sum and the estimated cost to completion will have a corresponding effect on the contract profit or loss.



3. SIGnIFICAnT ACCOUnTInG ESTIMATES AnD JUDGEMEnTS (COnT’D)

3.2 key Source of Estimation Uncertainty (cont’d)

(f) Income taxes

The Group is subject to income taxes in numerous jurisdictions. Significant judgement is required in determining the capital allowances and deductibility of certain expenses during the estimation of the provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred income tax provisions in the period in which such determination is made.

(g) Deferred tax assets

Deferred tax assets are recognised for all unused tax losses and deductible temporary differences to the extent that it is probable that taxable profit will be available against which the losses and capital allowances can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies. The total carrying value of unrecognised deferred tax assets of the Group are RM12,244,937/- (2010 : RM12,766,938/-).

(h) Allowance for inventories

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



4. PROPERTY, PLAnT AnD EQUIPMEnT

Group

Long Term Leasehold Properties

Plant and

Machinery Motor

Vehicles

Furniture, Fittings and

Office Equipment

Office Renovation Total

RM RM RM RM RM RM

2011

CostAt 1 February 2010 1,634,703 26,001 1,285,826 1,361,182 1,578,027 5,885,739Additions - - 806,506 54,414 18,300 879,220Disposals/Written off - - (195,000) (15,316) - (210,316)Reclassification - - - (10,050) - (10,050)

At 31 January 2011 1,634,703 26,001 1,897,332 1,390,230 1,596,327 6,544,593

Accumulated DepreciationAt 1 February 2010 222,787 26,000 718,910 944,038 808,225 2,719,960Depreciation for the

financial year 20,586 - 284,677 105,666 76,828 487,757Disposals/Written off - - (194,999) (4,850) - (199,849)Reclassification - - - (1,758) - (1,758)

At 31 January 2011 243,373 26,000 808,588 1,043,096 885,053 3,006,110

Carrying Amount at 31 January 2011 1,391,330 1 1,088,744 347,134 711,274 3,538,483



4. PROPERTY, PLAnT AnD EQUIPMEnT (COnT’D)

Group

Long Term Leasehold Properties

Plant and

Machinery Motor

Vehicles


Office Equipment

Office Renovation Total

RM RM RM RM RM RM

2010

CostAt 1 February 2009 1,634,703 26,001 888,026 993,972 1,578,027 5,120,729Acquisition of a subsidiary - - 313,918 358,826 - 672,744Additions - - 155,882 8,384 - 164,266Disposals/Written off - - (72,000) - - (72,000)

At 31 January 2010 1,634,703 26,001 1,285,826 1,361,182 1,578,027 5,885,739

Accumulated DepreciationAt 1 February 2009 205,759 26,000 603,216 811,712 729,324 2,376,011Acquisition of a subsidiary - - 44,395 67,999 - 112,394Depreciation for the

financial year 17,028 - 143,298 64,327 78,901 303,554Disposals/Written off - - (71,999) - - (71,999)

At 31 January 2010 222,787 26,000 718,910 944,038 808,225 2,719,960

Carrying Amount at 31 January 2010 1,411,916 1 566,916 417,144 769,802 3,165,779

Company


OfficeEquipment

Office Renovation

Motor Vehicles Total

RM RM RM RM

2011

CostAt 1 February 2010 129,092 2,244,456 195,000 2,568,548 Additions - - - - Disposal/Written off - - (195,000) (195,000)

At 31 January 2011 129,092 2,244,456 - 2,373,548

Accumulated DepreciationAt 1 February 2010 129,078 1,146,319 194,999 1,470,396 Depreciation for the financial year - 112,223 - 112,223 Disposal/Written off - - (194,999) (194,999)

At 31 January 2011 129,078 1,258,542 - 1,387,620

Carrying Amount at 31 January 2011 14 985,914 - 985,928



4. PROPERTY, PLAnT AnD EQUIPMEnT (COnT’D)

Company


OfficeEquipment

Office Renovation

Motor Vehicles Total

2010 RM RM RM RM

CostAt 1 February 2009 129,092 2,244,456 195,000 2,568,548 Additions - - - - Disposal/Written off - - - -

At 31 January 2010 129,092 2,244,456 195,000 2,568,548

Accumulated DepreciationAt 1 February 2009 120,158 1,034,096 156,000 1,310,254 Depreciation for the financial year 8,920 112,223 38,999 160,142 Disposal/Written off - - - -

At 31 January 2010 129,078 1,146,319 194,999 1,470,396

Carrying Amount at 31 January 2010 14 1,098,137 1 1,098,152

Included in property, plant and equipment of the Group are motor vehicles with the net carrying amount of RM 803,488/- (2010: RM 105,451/-) which are acquired under hire-purchase arrangements.

5. GOODWILL On COnSOLIDATIOn

Group 2011 2010

RM RM

At the beginning of the financial year 154,416 - Acquisition of a subsidiary - 154,416

At the end of the financial year 154,416 154,416

6. InVESTMEnT PROPERTIES

Group2011 2010

RM RM

At fair valueFreehold land and buildings 535,713 535,713 Leasehold land and buildings 6,100,000 6,100,000

6,635,713 6,635,713



6. InVESTMEnT PROPERTIES (COnT’D)

In the absence of valuation by independent valuers, the fair value of investment properties is determined by the directors based on their assessment of available market prices of similar properties in the vicinity, outlook of the property market within the location, designation of use and acceptable level of variance in professional judgement.

A market indicative report has been obtained and the market value of the investment properties are stated at RM6,695,000/-.

7. InVESTMEnT In SUBSIDIARIES

Company2011 2010

RM RM

Unquoted shares, at cost 58,274,485 58,274,485Less: Impairment losses (34,075,840) (34,075,840)

24,198,645 24,198,645

The Group’s equity interest in the subsidiaries which are all incorporated in Malaysia and their respective principal activities are as below:-

name of CompanyInterest in Equity Held

by the Company Principal Activities2011 2010

Direct subsidiariesMewah Kota Sdn. Bhd. 100% 100% Contractor for various kinds of civil and

structural, mechanical and electrical works and maintenance works.

Paramount Ventures Sdn. Bhd. * 100% 100% General civil and structural, mechanical and electrical works and project management.

Merge Properties Sdn. Bhd. * 100% 100% Property investment.

MEB Realty Sdn. Bhd. * 100% 100% Property investment.

Merge Properties Management Services Sdn. Bhd.

100% 100% Inactive.

MEB Development Sdn. Bhd. * 100% 100% Inactive.

MEB Management Sdn. Bhd. * 100% 100% Inactive.

Merge Environmental Engineering Sdn. Bhd. *

100% 100% Inactive.

Merge Readymix Sdn. Bhd. * 100% 100% Inactive.

Merge Concrete Technologies Sdn. Bhd. * 100% 100% Inactive.

Merge Trading Sdn. Bhd. * 100% 100% Inactive.



7. InVESTMEnT In SUBSIDIARIES (COnT’D)

The Group’s equity interest in the subsidiaries which are all incorporated in Malaysia and their respective principal activities are as below:- (cont’d)

name of CompanyInterest in Equity Held

by the Company Principal Activities2011 2010

Direct subsidiaries (cont’d)Merge Highway Engineering Sdn. Bhd. * 100% 100% Inactive

Indirect subsidiarySubsidiary of Mewah Kota Sdn. Bhd.

Innovasi Hebat Sdn. Bhd. 100% 100% Supply of valves, spare parts and provision of related maintenance and replacement services.

* The auditors’ reports of these subsidiaries contain a modified opinion in relation to the going concern consideration.

8. InVESTMEnT In JOInTLY COnTROLLED EnTITY

Group2011 2010

RM RM

Unquoted equity shares, at cost 2,530,489 2,530,489 Share of post acquisition reserves (109,307) (103,646)

2,421,182 2,426,843

name of Company Interest in Equity Held Principal Activity2011 2010

IJMP-MK JV 30% 30% Property development.

The details of the jointly controlled entity are as follows:

2011 2010RM RM

Assets and liabilities

Current assets 2,465,860 2,469,272

Current liabilities (44,679) (42,429)

ResultsExpenses 5,661 80,035



9. AMOUnTS DUE FROM/(TO) CUSTOMERS FOR COnTRACT WORkS

Group31.01.2011 31.01.2010 01.02.2009

RM RM RM(Restated) (Restated)

Aggregate costs incurred to date 242,788,696 494,530,318 487,653,912 Add: Attributable profits 35,632,331 59,185,293 57,124,771

278,421,027 553,715,611 544,778,683 Less: Progress billings (258,270,765) (544,535,266) (536,293,132)

Net amounts due from customers for contract works 20,150,262 9,180,345 8,485,551

Analysed as:Amount due from customers for contract works 20,160,590 9,180,345 8,501,985 Amount due to customers for contract works (10,328) - (16,434)

20,150,262 9,180,345 8,485,551

10. InVEnTORIES

Group 2011 2010

RM RM

Finished goods, at cost 25,824 25,824

11. TRADE RECEIVABLES

Group2011 2010

RM RM

Trade receivables 37,476,754 35,597,947 Less: Allowance for doubtful debts (7,376,627) (7,376,627)

30,100,127 28,221,320

The credit terms offered by the Group in respect of trade receivables are 30 to 90 (2010: 30 to 90) days. Other credit terms are assessed and approved on a case by case basis.

Included in trade receivables of the Group are retention sums for contract works amounting to RM 22,453,894/- (2010: RM 23,276,323/-).

As at the reporting date, the Group had significant concentration of credit risk in the form of outstanding balances due from 4 (2010: 4) customers representing 99% (2010: 99%) of the total trade receivables. The trade receivables are non-interest bearing.



11. TRADE RECEIVABLES (COnT’D)

The analysis of the Group’s trade receivables is as follows:

2011 2010RM RM

Neither past due nor impaired 29,170,926 26,684,837

1 to 30 days past due not impaired 867,278 919,154 31 to 60 days past due not impaired 22,900 207,260 61 to 90 days past due not impaired 39,023 153,927 91 to 120 days past due not impaired - - More than 121 days past due not impaired - 256,142

929,201 1,536,483 Impaired 7,376,627 7,376,627

37,476,754 35,597,947

(a) Receivables that are neither past due nor impaired

Trade and other receivables that are neither past due nor impaired are creditworthy debtors with good payment records with the Group.

None of the Group’s trade receivables that are neither past due nor impaired have been renegotiated during the year.

(b) Receivables that are past due but not impaired

The Group has trade receivables amounting to RM929,201/- (2010: RM 1,536,483/-) that are past due at the reporting date but not impaired.

Based on past experience and no adverse information to date, the directors of the Group are of the opinion that no provision for impairment is necessary in respect of these balances as there has not been a significant change in the credit quality and the balances are still considered fully recoverable.

(c) Receivables that are impaired

The Group’s trade receivables that are impaired at the reporting date and the movement of the allowance accounts used to record the impairment are as follows:

Group2011 2010

RM RM

Individually impairedTrade receivables - nominal amount 22,118,136 22,118,136Less : Allowance for impairment (7,376,627) (7,376,627)

Retention sum (neither past due nor impaired) 14,741,509 14,741,509



11. TRADE RECEIVABLES (COnT’D)

(c) Receivables that are impaired (cont’d)

The amount is owing by a subsidiary’s customer of which RM14,741,509/- represents 5% retention sum which will be released at the end of the Defects Liability Period, which is on 31 March 2011, and upon issuance of the Certificate of Completion of Making Good Defects. This customer had been delisted from Bursa Malaysia on 20 August 2010. During the financial year ended 31 January 2010, the directors had assessed the recoverability of the amount due of RM7,376,627/- and had decided to provide an allowance for doubtful debts amounting of RM7,376,627/-.

Subsequently, the Group received a letter dated 7 March 2011, wherein the customer had proposed to settle the remaining balance by way of contra of land at Bandar Serendah, Hulu Selangor. The Group had appointed a professional valuer to carry out a valuation of the land and based on the valuation report, the 23 plots of industrial land and 12 shop house plots has been valued at RM17.18 million. A settlement agreement dated 16 May 2011 has been signed by both parties as full and final settlement of the Outstanding Amount owing from WWE to MKSB in an amicable manner. The agreement is subject to all necessary consents and approvals from the relevant authorities.

12. OTHER RECEIVABLES, DEPOSITS AnD PREPAYMEnTS

Group Company31.01.2011 31.01.2010 01.02.2009 31.01.2011 31.01.2010

RM RM RM RM RM(Restated) (Restated)

Other receivables 81,087 133,538 832,252 508 100 Less: Allowance for doubtful debts - - (686,676) - -

81,087 133,538 145,576 508 100 Deposits 243,279 187,751 778,854 11,786 11,230 Prepayments 552,093 44,403 864,578 19,647 24,971

876,459 365,692 1,789,008 31,941 36,301

13. AMOUnTS DUE FROM/(TO) SUBSIDIARIES

Company 2011 2010

RM RM

Amounts due from subsidiaries 20,172,412 20,152,855 Less: Allowance for doubtful debts (17,249,667) (17,249,667)

2,922,745 2,903,188

Amounts due to subsidiaries 10,330,535 9,835,449

The amounts due from/(to) subsidiaries are unsecured, interest-free and repayable on demand.

14. AMOUnT DUE FROM JOInTLY COnTROLLED EnTITY

The amount due from jointly controlled entity is unsecured, interest-free and repayable on demand.



15. DEPOSITS PLACED WITH LICEnSED BAnkS

Group

Fixed deposits of the Group placed with licensed banks amount to RM 8,147,747/- (2010: RM 11,859,278/-). Information on financial risks of deposits with licensed banks is disclosed in Note 28 to the financial statements.

16. SHARE CAPITAL

Group and Company2011

numberof Shares

2010number

of SharesUnit RM Unit RM

Ordinary shares of RM1.00 each

Authorised: At the beginning/end of the financial year 100,000,000 100,000,000 100,000,000 100,000,000

Issued and fully paid: At the beginning/end of the financial year 67,000,000 67,000,000 67,000,000 67,000,000

17. HIRE PURCHASE LIABILITIES

Group2011 2010

RM RM

Future minimum hire purchase payments- not later than one year 188,487 39,629 - later than one year and not later than five years 554,511 96,872

742,998 136,501

Future interest charges (98,256) (17,109)

Present value of hire purchase liabilities 644,742 119,392

Represented by:-

Current - not later than one year 163,992 34,663

Non-current- later than one year and not later than five years 480,750 84,729

644,742 119,392

Information on financial risks of hire purchase liabilities is disclosed in Note 28 to the financial statements.



18. TRADE PAYABLES

The credit terms available to the Group in respect of trade payables range from 30 to 90 (2010: 30 to 90) days.

19. OTHER PAYABLES, ACCRUALS AnD DEPOSITS

Group Company2011 2010 2011 2010

RM RM RM RM

Other payables 562,043 667,515 67,478 76,013 Accruals 15,206,511 5,613,461 40,189 39,189 Deposits received 97,200 87,200 - -

15,865,754 6,368,176 107,667 115,202

20. AMOUnTS DUE TO DIRECTORS

The amounts due to directors are unsecured, interest-free and repayable on demand.

21. REVEnUE

Group2011 2010

RM RM

Contract revenue 42,046,293 40,377,332 Rental income 30,550 23,400

42,076,843 40,400,732

22. COST OF SALES

Group2011 2010

RM RM

Contract works 36,563,105 32,314,480 Quitrentandassessments 19,054 19,292

36,582,159 32,333,772



23. OPERATInG PROFIT/(LOSS)

Operating profit/(loss) has been arrived at:

Group Company2011 2010 2011 2010

RM RM RM RM

After charging:-Allowance for doubtful debts - 7,376,627 - -Auditors’ remuneration:- current 63,000 58,800 25,000 24,000- under/(over) accrual in prior year 4,200 (15,700) 1,000 (8,000)Depreciation of property, plant and equipment 485,999 303,554 112,223 160,142Directors’ remuneration:- fees 172,000 128,049 172,000 128,049- other emoluments 781,105 706,019 - -Interest expense 18,773 3,058 - -Loss on disposal of property, plant and equipment 7,803 - - -Rental of:- premises 25,200 8,400 - -- equipment 2,950 7,250 - -Staff costs:- salaries and allowances 1,800,093 1,220,145 153,328 147,675- bonus - 289,827 - 36,092- defined contribution plan 217,496 180,383 18,445 22,082- SOCSO contribution 17,971 14,107 1,240 1,240

And crediting:Creditors written back - 275,629 - -Gain on disposal of property, plant and equipment 69,999 22,599 69,999 -Interest income on:- fixed deposits 238,470 198,540 - -- repo 16,140 62,048 - -Rental income 225,400 205,500 - -

24. InCOME TAX EXPEnSES

Group Company2011 2010 2011 2010

RM RM RM RM

Income tax- current year (217,787) (78,106) - - - over accrual in prior years 54,858 8,058 - -

(162,929) (70,048) - -

The income tax is calculated at Malaysian Statutory rate of 25% of the estimated assessable profit for the year.



24. InCOME TAX EXPEnSES (COnT’D)

A reconciliation of income tax expense applicable to profit /(loss) before tax at the statutory income tax rate to income tax expense at the effective income tax rate of the Group and of the Company are as follows:-

Group Company2011 2010 2011 2010

RM RM RM RM

Profit/(Loss) before taxation 1,203,186 (3,595,828) (595,158) (1,710,517)

Tax at the applicable rate of 25% (300,797) 898,957 148,790 427,629 Tax effect arising from- non-deductible expenses (149,927) (481,045) (148,790) (427,629)- non-taxable income 55,001 32,004 - - - (origination)/reversal of deferred tax not recognised 179,351 (508,013) - - - over accrual in prior years 54,858 8,058 - - - share of result of jointly controlled entity (1,415) (20,009) - -

Income tax expense for the financial year (162,929) (70,048) - -

Further, the deferred tax assets have not been recognised for the following items:

Group Company2011 2010 2011 2010

RM RM RM RM

Unutilised tax losses 48,849,952 49,292,035 - - Taxable temporary differences 129,795 405,117 - -

48,979,747 49,697,152 - -

Potential deferred tax assets not recognised at 25% 12,244,937 12,424,288 - -

25. EARnInGS/(LOSSES) PER ORDInARY SHARE

(a) Basic earnings/(losses) per share amounts are calculated by dividing profit/(loss) for the year attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares on issue during the financial year.

Group2011 2010

RM RM

Total comprehensive income/(loss) attributable to equity holders of the Company 1,040,257 (3,725,876)

Weighted average number of ordinary shares on issue 67,000,000 67,000,000

Basic earnings/(losses) per share (sen) 1.55 (5.56)

(b) There are no diluted earnings per share as the Company does not have any dilutive potential ordinary share.



26. RELATED PARTY DISCLOSURES

(a) Identities of related parties

Parties are considered to be related to the Group if the Group has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Group and the party are subject to common control or common significant influence. Related parties may be individuals or other entities.

The Company has controlling related party relationship with its direct subsidiaries.

(b) Significant related party transactions and balances

In the normal course of business, the Group undertakes transactions with certain of its related parties defined above. Set out below are the significant related party transactions for the financial year (in addition to related party disclosures mentioned elsewhere in the financial statements). The related party transactions described below were carried out on terms and conditions mutually agreed between the respective parties.

Group Company

2011 2010 2011 2010RM RM RM RM

Related companies:Project revenue 16,500,635 20,653,420 - -Contract costs 9,890 659,577 - -Project management fees received - 659,577 - -Rental income 96,000 96,000 - -Rental expense 96,000 96,000 - -

(c) key management personnel compensation

The remuneration of key management during the financial year is as follows:

Group Company2011 2010 2011 2010

RM RM RM RM

Directors’ emoluments other than fees 697,806 620,906 - -Defined contribution plan 81,147 83,726 - -SOCSO contribution 2,152 1,387 - -

781,105 706,019 - -

There is no disclosure for compensation to other key management personnel of the Company, other than the directors, as the authority and responsibility for planning, directing and controlling the activities of the entity is by the Board of Directors of the Company.

27. SEGMEnT InFORMATIOn

During the financial year, the Group adopted FRS 8 Operating Segments. FRS 8 requires the identification of operating segments on the basis of internal reports that are regularly reviewed by the Group’s chief operating decision maker in order to allocate resources to the segment and assess their performance.



27. SEGMEnT InFORMATIOn (COnT’D)

The primary segment reporting format is determined to be business segments as the Group’s risks and returns are affected predominantly by differences in the services it produces.

(a) General information

For management purpose, the Group is organised into business segments based on their product and services, and has five reportable operating segments as follows:

Investment holding : Investment holdingConstruction : Construction of civil and structural, mechanical and electrical works and project managementProperty investment : Investment in propertiesTrading : Supply of valves, spare parts and provision of related maintenance and replacement servicesOthers : Inactive companies

Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets, liabilities and expenses.

Inter-segment pricing is determined on an arm’s length basis under terms, conditions and prices not materially different from transactions with unrelated parties.

No reporting by geographical segment is presented as the Group operates predominantly in Malaysia.



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27. SEGMEnT InFORMATIOn (COnT’D)

(c) Information about major customers

Major customers’ information is revenues from transactions with a single external customer amount to ten percent or more of the Group’s revenue. A group of entities known to a reporting entity to be under common control shall be considered a single customer, and a government and entities known to the reporting entity to be under the control of that government shall be considered a single customer.

Revenue from major customers amount of RM31,892,173/- (2010: RM41,234,473/-), arising from construction activities.

28. FInAnCIAL InSTRUMEnTS

(a) Classification of financial instruments

Financial assets and financial liabilities are measured on an ongoing basis either at fair value or at amortised cost. The significant accounting policies in Note 2.3 describe how the classes of financial instruments are measured, and how income and expense, including fair value gains and losses, are recognised. The following table analyses the financial assets and liabilities in the statements of financial position by the class of financial instruments to which they are assigned, and therefore by the measurement basis:

2011

Group Carrying Amount

Company Carrying Amount

RM RM

Financial assets:

Loans and receivablesAmount due from customers for contract works 20,160,590 - Trade receivables 30,100,127 - Other receivables, deposits and prepayments 876,459 31,941 Amount due from subsidiaries - 2,922,745Amount due from jointly controlled entity 141,430 - Deposits placed with licensed banks 8,147,747 - Cash and bank balances 2,280,030 29,472

Total financial assets 61,706,383 2,984,158

Financial liabilities at amortised cost:

Amount due to customers for contract works 10,328 - Trade payables 12,401,950 - Other payables, accruals and deposits 15,865,754 107,667 Amount due to subsidiaries - 10,330,535 Amount due to a director - - Hire purchase liabilities 644,742 -

Total financial liabilities 28,922,774 10,438,202



28. FInAnCIAL InSTRUMEnTS (COnT’D)

(b) Financial risk management

The Group’s financial risk management objective is to optimise value creation for shareholders whilst minimising the potential adverse impact arising from interest rates and the unpredictability of the financial markets. The Group’s policy is not to engage in speculative transactions.

The Group operates within an established risk management framework and clearly defined guidelines that are regularly reviewed by the Board of Directors and does not trade in derivative financial instruments. Financial risk management is carried through internal control systems and adherence to Group financial risk management policies. The Group is exposed mainly to liquidity risk, interest rate risk and credit risk.

(i) Liquidity risk

Liquidity risk is the risk that the Group and the Company will encounter difficulty in meeting financial obligations due to shortage of funds. The Group and the Company’s liquidity is primarily dependent on its ability to maintain adequate cash inflow from operations to meet its debt obligations as and when they fall due and on its ability to obtain external financing for its committed future capital expenditures.

The following table details the remaining contractual maturities at the reporting date of the Group and of the Company’s financial liabilities, which are based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on rates current at the reporting date) and the earliest date the Group and the Company is required to pay:

2011Contracted undiscounted cash flow

GroupCarryingamount

On Demand or Within 1

Year 1 - 5 Years > 5 Years TotalRM RM RM RM RM

Financial liabilities:Amounts due to customers for

contract works 10,328 10,328 - - 10,328 Trade payables 12,401,950 12,401,950 - - 12,401,950 Other payables, accruals

and deposits 15,865,754 15,865,754 - - 15,865,754 Hire purchase payables 644,742 188,487 554,511 - 742,998

28,922,774 28,466,519 554,511 - 29,021,030

2011Contracted undiscounted cash flow

CompanyCarryingamount

On Demand or Within 1

Year 1 - 5 Years > 5 Years TotalRM RM RM RM RM

Financial liabilities:Other payables, accruals

and deposits 107,667 107,667 - - 107,667 Amount due to subsidiaries 10,330,535 10,330,535 - - 10,330,535

10,438,202 10,438,202 - - 10,438,202




(b) Financial risk management (cont’d)

(ii) Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of the Company’s financial instruments will fluctuate because of changes in market interest rates.

The Company’s exposure to interest rate risk arises primarily from its obligations under hire purchase liabilities and lease payables. Borrowings issued at variable rates and fixed rates expose the Company to cash flow interest rate risk and fair value interest rate risk respectively.

The following tables set out the carrying amounts, the weighted average effective interest rates at the reporting date and the remaining maturities of the Group’s and the Company’s financial instruments that are exposed to interest rate risk.

Group2011

Effective interest

rate

On DemandOr Within

1 year1 - 5

years

More than

5 Years Total% RM RM RM RM

Financial assetDeposits placed with

licensed banks 3.00 8,147,747 - - 8,147,747

Financial liabilitiesHire purchase liabilities 3.59-6.70 163,992 480,750 - 644,742

Group2010

Effective interest

rate

On DemandOr Within

1 year1 - 5

years

More than

5 Years Total% RM RM RM RM

Financial AssetDeposits placed with

licensed banks 3.00 11,859,278 - - 11,859,278

Financial LiabilitiesHire purchase liabilities 3.59-6.70 34,663 84,729 - 119,392

Sensitivity analysis for fixed rate instruments

The Group does not account for any fixed rate financial assets and financial liabilities and a change in interest rate at the end of the reporting period would not affect the Group’s net gain and equity.

(iii) Credit risk

Cash deposits and trade receivables may give rise to credit risk which requires the loss to be recognised if a counter party fails to perform as contracted. It is the Group’s policy to monitor the financial standing of these counter parties on an ongoing basis to ensure that the Group is exposed to minimal credit risk.

The Group’s historical experience in collection of trade receivables fall within the recorded allowances. Due to these factors, the directors believe that no additional credit risk beyond amounts provided for doubtful debts is inherent in the Group’s trade receivables.




(b) Financial risk management (cont’d)

(iii) Credit risk (cont’d)

As at reporting date, the Group and the Company has a significant concentration of credit risk in the form of outstanding balances arising from amount due from 4 (2010:4) customers representing approximately 99% (2010: 99%) of the total trade receivables.

(c) Fair values

(i) Recognised financial instruments

The fair values of financial assets and financial liabilities approximate their respective carrying values on the statements of financial position of the Group and of the Company due to the relatively short term to maturity of these financial instruments.

(ii) Unrecognised financial instruments

There were no unrecognised financial instruments as at 31 January 2011.

29. CAPITAL MAnAGEMEnT

The primary objective of the Group’s capital management is to ensure that it maintains a strong capital base and safeguard the Group’s ability to continue as a going concern, so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Group manages its capital structure by monitoring the capital and net debt on an ongoing basis.

There were no changes in the Group’s approach to capital management during the financial year.

Group Company2011 2010 2011 2010

RM RM RM RM

Total borrowings 644,742 119,392 - -Trade and other payables 28,267,704 18,175,587 107,667 115,202Less: Cash and cash equivalents (10,427,777) (12,466,587) (29,472) (40,052)

Net debts 18,484,669 5,828,392 78,195 75,150

Total equity attributable to the owner of the parent 45,497,900 44,457,643 17,730,529 18,325,687

Capital and net debts 63,982,569 50,286,035 17,808,724 18,400,837

Gearing ratio 29% 12% 0% 0%

The Group is also required to comply with the disclosure and necessary capital requirements as prescribed in the Main Market Listing Requirements of Bursa Malaysia Securities Berhad.



30. COMPARATIVE FIGURES

During the financial year, the Group has reclassified certain comparative figures to conform to the current year presentation:-

Group31.01.2010

As previously stated

Asrestated

01.02.2009As previously

statedAs

restatedRM RM RM RM

Statement of financial position

Current assetsOther receivables, deposits and prepayments 3,598,480 365,692 3,995,008 1,789,008 Amount due from customers for contract works 5,947,557 9,180,345 6,295,985 8,501,985



A. SUPPLEMEnTARY InFORMATIOn On REALISED AnD UnREALISED PROFITS OR LOSSES

On 25 March 2010, Bursa Malaysia Securities Berhad (Bursa Malaysia) issued a directive to all listed issuers and requires to disclose the breakdown of the unappropriated profits or accumulated losses as at the end of the reporting period, into realised and unrealised profits or losses. On 20 December 2010, Bursa Malaysia further issued guidance on the disclosure and the format required.

The determination of realised and unrealised profits is complied based on Guidance on Special Matter No. 1. Determination of Realised and Unrealised Profits or Losses in the Context of Disclosures Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, issued by the Malaysian Institute of Accountants on 20 December 2010.

The disclosure of realised and unrealised profits or losses is solely for complying with the disclosure requirements stipulated in the directive of Bursa Malaysia and should not be applied for any other purposes.

The Group’s accumulated losses as at reporting date may be analysed as follows:

Group CompanyRM RM

Total retained earnings/(accumulated losses) of the Company and its subsidiaries - Realised (66,063,229) (56,981,979) - Unrealised (1,198,617) -

(67,261,846) (56,981,979)

Total retained earnings/(accumulated losses) of the jointly controlled entities - Realised (109,308) - - Unrealised - -

(67,371,154) (56,981,979)Less: Consolidation adjustments 38,156,546 -

Total group accumulated losses as per statements of financial position (29,214,608) (56,981,979)


STATUTORY DECLARATION

We, DATO’ RAJA SHAH ZURIN BIN RAJA AMAN SHAH and DATO’ ABDUL JALIL BIN ABDUL KARIM, being two of the directors of Merge Energy Bhd., do hereby state that in the opinion of the directors, the accompanying financial statements are properly drawn up so as to give a true and fair view of the state of affairs of the Group and of the Company as at 31 January 2011 and of the results and cash flows of the Group and of the Company for the financial year ended on that date in accordance with the Financial Reporting Standards and the Companies Act, 1965.

The information set out on page 82 have been compiled in accordance with the Guidance of Special Matter No.1, Determination of Realised and Unrealised Profits or Losses in the Context of Disclosure Pursuant to Bursa Malaysia Securities Berhad Listing Requirement, issued by the Malaysian Institute of Accountants.

On behalf of the Board,

........................................................…….….............................. DATO’ RAJA SHAH ZURIn BIn RAJA AMAn SHAHDirector

..........................................……................…...............................DATO’ ABDUL JALIL BIn ABDUL kARIMDirector

Shah AlamDate: 30 May 2011

I, RAIZITA AHMAD, being the officer primarily responsible for the financial management of Merge Energy Bhd., do solemnly and sincerely declare that to the best of my knowledge and belief, the financial statements and the supplementary information set out on page 82 are correct, and I make this solemn declaration conscientiously believing the same to be true, and by virtue of the provisions of the Statutory Declarations Act, 1960.

...................................…………………….........RAIZITA AHMAD

Subscribed and solemnly declared by the above named at Kuala Lumpur in the Federal Territory on 30 May 2011.

Before me,

........................................................................ZULkIFLA MOHD DAHLIM (No. W541)Commissioner for Oaths

STATEMENT BY DIRECTORS


INDEPENDENTAUDITORS’ REPORTTO THE MEMBERS OF MERGE ENERGY BHD.(Incorporated in Malaysia)

Report on the Financial Statements

We have audited the financial statements of Merge Energy Bhd., which comprise the statements of financial position as at 31 January 2011 of the Group and of the Company, and the statements of comprehensive income, statements of changes in equity and statements of cash flows of the Group and of the Company for the financial year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on pages 35 to 81. Directors’ Responsibility for the Financial Statements

The directors of the Company are responsible for the preparation of financial statements that give a true and fair view in accordance with the Financial Reporting Standards (“FRS”) and the Companies Act, 1965 (“the Act”) in Malaysia, and for such internal controls as the directors determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud and error.

Auditors’ Responsibility

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

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

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

Opinion

In our opinion, the financial statements have been properly drawn up in accordance with the FRS and the Act so as to give a true and fair view of the financial position of the Group and of the Company as at 31 January 2011 and of their financial performance and cash flows for the financial year then ended.

Emphasis of matter

Without qualifying our opinion, we draw attention to Note 11(c) to the financial statements. Included in trade receivables is an amount of RM22,118,136/- owing by a customer of which RM14,741,509/- represents a 5% retention sum. The director had assessed the recoverability of the amount due and had decided to provide an allowance for impairment amounting to RM7,376,627/- during the last financial year ended 31 January 2010. Subsequent to the current financial year end, a settlement agreement had been signed on 16 May 2011 as full and final settlement of the outstanding amount. The agreement is subject to all necessary consents and approvals from the relevant authorities.

We have considered that these factors are of significance, and draw your attention to it.


INDEPENDENTAUDITORS’ REPORT (Cont’d)

TO THE MEMBERS OF MERGE ENERGY BHD.(Incorporated in Malaysia)

Report on other Legal and Regulatory Requirements

In accordance with the requirements of the Act, we also report the following:

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

(b) We are satisfied that the financial statements of the subsidiaries that have been consolidated with the Company’s financial statements are in the form and content appropriate and proper for the purposes of the preparation of the financial statements of the Group and we have received satisfactory information and explanations required by us for those purposes.

(c) Other than those subsidiaries with modified opinions in the auditors’ reports as indicated in Note 7 to the financial statements, the auditors’ reports on the financial statements of the remaining subsidiaries did not contain any material qualification or any adverse comment made under Section 174(3) of the Act.

Other Matters

(a) The supplementary information set out on page 82 is disclosed to meet the requirement of Bursa Malaysia Securities Berhad and is not part of the financial statements. The directors are responsible for the preparation of the supplementary information in accordance with the Guidance on Special Matter No. 1, Determination of Realised and Unrealised Profits or Losses in the Context of Disclosure Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, as issued by the Malaysian Institute of Accountants (“MIA Guidance”) and the directive of Bursa Malaysia Securities Berhad. In our opinion, the supplementary information is prepared, in all material respects, in accordance with the MIA Guidance and the directive of Bursa Malaysia Securities Berhad.

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

BAkER TILLY MOnTEIRO HEnG No. AF 0117 Chartered Accountants

M. J. MOnTEIRONo. 828/05/12 (J/PH)Partner

Kuala LumpurDate: 30 May 2011


LIST OFPROPERTIES AS AT 31 JANUARY 2011

LocationDescription

(Existing Use)

Tenure(Age of

Building)

Land Area(Built-Up Area)

sq. ft.

net Book Value as at 31.1.2011

RMDate of

Acquisition

Lots 727, 728 and 729No. 230, 231 and 232Jalan Kota Kenari 2Taman Kota Kenari09000 Kulim Kedah Darul Aman

3 units of 2-storey

shop house(rented)

Freehold(14 years)

5,764(6,492)

535,713 13.1.1997

Lot 444No. 2 Jalan Apollo U5/190Seksyen U5 Bandar Pinggiran Subang40150 Shah Alam Selangor Darul Ehsan

2½-storeysemi-detached

factory(office)

LeaseholdExpiring on7.12.2093(16 years)

18,238(5,400)

651,537 27.2.1995


2½-storeysemi-detached

factory(office)


17,668(5,400)

745,335 31.10.1996


3-storeydetached factory

(rented)


23,153(10,240)

1,900,000 30.12.1994

Lot 097(C)No. 1 Jalan Suria X U5/XSeksyen U5 Bandar Pinggiran Subang40150 Shah Alam Selangor Darul Ehsan

2-storeyshop office

(rented)


7,280(3,610)

900,000 7.6.2000

Lot 043(E)No. 30 Jalan Matahari AA U5/AASeksyen U5 Bandar Pinggiran Subang40150 Shah Alam Selangor Darul Ehsan

3-storeyshop office

(rented)


2,516(8,916)

950,000 23.4.2001

Lot 071(E)No. 29 Jalan Matahari AA U5/AASeksyen U5 Bandar Pinggiran Subang40150 Shah Alam Selangor Darul Ehsan

3-storeyshop office

(rented)


2,516(8,916)

950,000 23.4.2001

Lot 080No. 16 Jalan Dinar D U3/DSeksyen U3Taman Subang Perdana40150 Shah Alam Selangor Darul Ehsan

4-storeyshop office

(ground floor is rented)

LeaseholdExpiring on25.9.2095

(8 years)

1,760(7,040)

700,000 9.10.2002

Lot 081No. 14 Jalan Dinar D U3/DSeksyen U3 Taman Subang Perdana40150 Shah Alam Selangor Darul Ehsan

4-storeyshop office

(ground floor is rented)

LeaseholdExpiring on25.9.2095

(8 years)

1,760(7,040)

700,000 9.10.2002


ANALYSIS OFSHAREHOLDINGS

AS AT 3 May 2011

Authorised share capital : RM100,000,000Issued and paid-up share capital : RM67,000,000Class of shares : OrdinaryNominal value : RM1.00 per shareVoting rights : 1 vote per share

DIRECTORS’ SHAREHOLDInGS

Direct Interest Indirect Interestname of Director no. of Shares % no. of Shares %

YM Dato’ Raja Shah Zurin bin Raja Aman Shah* - - 13,000,000 19.40Dato’ Abdul Jalil bin Abdul Karim* - - 13,000,000 19.40Haji Sanusi bin Paijan - - - -Haji Mat Anuar bin Hasan - - - -Sheah Kok Fah - - - -Abd Latiff bin Ahmad - - - -Tahirruddin bin Ahmad - - - -

SUBSTAnTIAL SHAREHOLDERS

Direct Interest Indirect Interestname of Shareholder no. of Shares % no. of Shares %

Desa Binapuri Sdn Bhd 13,000,000 19.40 - -YM Dato’ Raja Shah Zurin bin Raja Aman Shah* - - 13,000,000 19.40Dato’ Abdul Jalil bin Abdul Karim* - - 13,000,000 19.40Jumat bin Salihen 10,015,000 14.95 - -Dato’ Mohd Said bin Mat Saman 10,000,000 14.93 - -Dr Mohd Soib bin Mustakim 8,000,000 11.94 - -

* Deemed interest by virtue of 50% equity interest in Desa Binapuri Sdn Bhd.

DISTRIBUTIOn OF SHAREHOLDInGS

Size of Holdings no. of Holders % no. of Shares %

1 to 99 7 0.69 276 0.00100 to 1,000 400 39.49 384,890 0.571,001 to 10,000 444 43.83 1,897,437 2.8310,001 to 100,000 130 12.83 4,391,100 6.55100,001 to less than 5% of issued shares 28 2.77 19,311,297 28.835% and above of issued shares 4 0.39 41,015,000 61.22

Total 1,013 100.00 67,000,000 100.00


ANALYSIS OFSHAREHOLDINGS (Cont’d) AS AT 3 May 2011

30 LARGEST SHAREHOLDERS

no. name of Shareholder no. of Shares %

1 Desa Binapuri Sdn Bhd 13,000,000 19.402 Jumat bin Salihen 10,015,000 14.953 Mohd Said bin Mat Saman 10,000,000 14.934 Mohd Soib bin Mustakim 8,000,000 11.945 Zon bin Abdul Hamid 3,032,000 4.536 Mohmad Damahuri bin Mohmad Tahir 2,723,000 4.067 Hamdan bin Mohamed 2,690,100 4.028 Zahidan bin Abdullah 1,500,000 2.249 Hiap Huat Realty Sdn Bhd 1,472,997 2.2010 Solarcom Sdn Bhd 1,300,000 1.9411 Nusmakmur Development Sdn Bhd 1,000,000 1.4912 Shin Kong Kew @ Chin Kong Kew 574,200 0.8613 Tan Lean Choo 493,298 0.7414 SSF Venture Sdn Bhd 485,600 0.7215 AIBB Nominees (Tempatan) Sdn Bhd

[P/S for Southern Consolidated Projects Sdn Bhd] 470,800 0.7016 Tan Huat Sheng 312,758 0.4717 Goh Beng Ee 300,000 0.4518 Lim Boon Liat 292,100 0.4419 Lim Ah Gek @ Lim Chor Kheng 291,382 0.4320 Wong Wing Kheong 244,100 0.3621 Mayban Nominees (Tempatan) Sdn Bhd

[P/S for Wong Wing Kheong] 241,300 0.3622 Ang Swee Pian @ Ang Swee Yong 237,423 0.3523 Chenderoh Jaya Sdn Bhd 234,100 0.3524 Tan Hoi Chon 215,839 0.3225 Amsec Nominees (Tempatan) Sdn Bhd

[P/S for Lee Heng Choong] 203,200 0.3026 Hew Choy Yin 200,000 0.3027 Ang Seng Chew @ Ong Seng Chew 160,000 0.2428 Tan Yu Wei 151,000 0.2329 Sabbir Husain bin Akbarali 150,000 0.2230 Lim Poh Fong 118,700 0.18

Total 60,108,897 89.72

Note: P/S means pledged securities account


NOTICE OFANNUAL GENERAL MEETING

nOTICE IS HEREBY GIVEn THAT the 14th Annual General Meeting of Merge Energy Bhd. will be held at the Board Room of the Company, No. 2 Jalan Apollo U5/190, Bandar Pinggiran Subang, Seksyen U5, 40150 Shah Alam, Selangor Darul Ehsan on Wednesday, 6 July 2011 at 10:00 a.m. for the following purposes:

AGEnDA

Ordinary Business

1. To receive the Audited Financial Statements for the financial year ended 31 January 2011 together with the Reports of the Directors and Auditors thereon.

Please see Explanatory

Note onAgenda 1

2. To approve the payment of Directors’ fees for the financial year ended 31 January 2011. Resolution 1

3. To re-elect the following Directors retiring pursuant to Article 105 of the Company’s Articles of Association:

(a) Abd Latiff Bin Ahmad(b) Tahirruddin Bin Ahmad

Resolution 2Resolution 3

4. To re-elect the following Directors retiring pursuant to Article 112 of the Company’s Articles of Association:

(a) Dato’ Abdul Jalil Bin Abdul Karim(b) Haji Sanusi Bin Paijan

Resolution 4Resolution 5

5. To re-appoint Messrs Baker Tilly Monteiro Heng as Auditors and to authorise the Directors to fix their remuneration. Resolution 6

Special BusinessTo consider and if thought fit, pass the following resolution:

6. Ordinary Resolution Authority to Issue Shares

“THAT pursuant to Section 132D of the Companies Act, 1965, the Directors be and are hereby empowered to issue shares in the Company at any time until the conclusion of the next Annual General Meeting or until the expiration of the period within which the next Annual General Meeting is required by law to be held, whichever is earlier and upon such terms and conditions and for such purposes as the Directors may in their absolute discretion deem fit, provided that the aggregate number of shares issued pursuant to this resolution does not exceed 10% of the issued share capital of the Company for the time being AND THAT the Directors be and are hereby also empowered to obtain the approval for the listing of and quotation for the additional shares so issued on Bursa Malaysia Securities Berhad.”

Resolution 7

7. To transact any other business of which due notice shall have been given.

By Order of the Board

WOnG SOOn kIOnG (LS 0009395) Company Secretary

Shah Alam, Selangor Darul Ehsan15 June 2011


NOTICE OFANNUAL GENERAL MEETING (cont’d)

notes:

1. A member entitled to attend and vote at the Meeting is entitled to appoint a proxy to attend and vote in his stead. Where a member appoints more than one proxy, the appointment shall be invalid unless he specifies the proportions of his holdings to be represented by each proxy. A proxy need not be a member of the Company.

2. Where a member of the Company is an authorised nominee as defined under the Securities Industry (Central Depositories) Act 1991, it may appoint at least one proxy in respect of each securities account it holds with ordinary shares of the Company standing to the credit of the said securities account.

3. The instrument appointing a proxy shall be in writing under the hand of the appointer or his attorney duly authorised in writing or if such appointer is a corporation, under its Common Seal or the hand of its attorney.

4. The instrument appointing a proxy must be deposited at the registered office of the Company at No. 2 Jalan Apollo U5/190, Bandar Pinggiran Subang, Seksyen U5, 40150 Shah Alam, Selangor Darul Ehsan not less than 48 hours before the time appointed for holding the Meeting or any adjournment thereof.

5. Explanatory note on Agenda 1 This Agenda is meant for discussion only as under the provision of Section 169(1) of the Companies Act 1965, the audited

financial statements do not require formal approval of the shareholders. Hence, this matter will not be put forward for voting.

6. Explanatory note on Resolution 7 The existing general mandate for the authority to issue shares pursuant to Section 132D of the Companies Act, 1965 was

approved by the shareholders of the Company at the 13th Annual General Meeting held on 13 July 2011. The Company did not issue any new shares pursuant to the general mandate obtained at the 13th Annual General Meeting.

The proposed Ordinary Resolution 7 is to renew the authority granted by the shareholders of the Company at the 13th Annual General Meeting. The proposed mandate, if passed, will give the Directors, authority to issue shares of not more than 10% of the issued share capital for such purposes as the Directors consider would be in the best interests of the Company. This is to avoid any delay and cost involved in convening a general meeting to approve such an issue of shares. This authority will, unless revoked or varied by the Company in a general meeting, expire at the conclusion of the next Annual General Meeting or will subsist until the expiration of the period within which the next Annual General Meeting is required by law to be held, whichever is earlier.

The proceeds raised from the mandate will provide flexibility to the Company for any possible fund raising activities for purpose of funding current/or future investment project(s), working capital and/or acquisition(s).

MERGE EnERGY BHD.(420099-X)

PROXY FORM

Number of Shares Held

I/We,

of

being a member/members of MERGE ENERGY BHD., hereby appoint

of

or failing him/her/them, the Chairman of the Meeting as my/our proxy(ies) to vote for me/us on my/our behalf at the 14th Annual General Meeting of the Company to be held at the Board Room of the Company, No. 2 Jalan Apollo U5/190, Bandar Pinggiran Subang, Seksyen U5, 40150 Shah Alam, Selangor Darul Ehsan on Wednesday, 6 July 2011 at 10:00 a.m. and at any adjournment thereof.

nO. RESOLUTIOn FOR AGAInST

1 To approve the payment of Directors’ fees for the financial year ended 31 January 2011.

2 To re-elect Abd Latiff bin Ahmad as Director of the Company.

3 To re-elect Tahirruddin bin Ahmad as Director of the Company.

4. To re-elect Dato’ Abdul Jalil bin Abdul Karim as Director of the Company.

5. To re-elect Haji Sanusi bin Paijan as Director of the Company

6. To re-appoint Messrs Baker Tilly Monteiro Heng as Auditors and to authorise the Directors to fix their remuneration.

7. Ordinary Resolution - Authority to Issue Shares.

Please indicate with an “X” how you wish to cast your votes. In the absence of specific directions, the proxy(ies) will vote or abstain as he/she/they think(s) fit.

Dated this day of 2011 Signature/Common Seal of Shareholder(s)

Notes:

1. A member entitled to attend and vote at the Meeting is entitled to appoint a proxy to attend and vote in his stead. Where a member appoints more than one proxy, the appointment shall be invalid unless he specifies the proportions of his holdings to be represented by each proxy. A proxy need not be a member of the Company.

2. Where a member of the Company is an authorised nominee as defined under the Securities Industry (Central Depositories) Act 1991, it may appoint at least one proxy in respect of each securities account it holds with ordinary shares of the Company standing to the credit of the said securities account.

3. The instrument appointing a proxy shall be in writing under the hand of the appointer or his attorney duly authorized in writing or if such appointer is a corporation, under its Common Seal or the hand of its attorney.

4. The instrument appointing a proxy must be deposited at the registered office of the Company at No. 2 Jalan Apollo U5/190, Bandar Pinggiran Subang, Seksyen U5, 40150 Shah Alam, Selangor Darul Ehsan not less than 48 hours before the time appointed for holding the Meeting or any adjournment thereof.

The Company Secretary

MERGE EnERGY BHD. (420099-X)

No. 2 Jalan Apollo U5/190Bandar Pinggiran Subang, Seksyen U540150 Shah AlamSelangor Darul Ehsan

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MERGE ENERGY BHD. (420099-X)No. 2 Jalan Apollo U5/190Bandar Pinggiran Subang, Seksyen U540150 Shah AlamSelangor Darul Ehsan

Tel : +603 - 7847 2900Fax : +603 - 7845 3900 / 7845 5800Website : www.merge-energy.com.myEmail : [email protected]

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AnnuAl RepoRt

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Documents

l Repo R Email new logo signifies the merging of ... (“PKK”) Bumiputra ... is a substantial shareholder of the Company and holds shares via Desa Binapuri