Page 1

RESOLVED  TO SOAR STRATECH SYSTEMS LIMITED

ANNUAL REPORT 2011/2012


CONTENTS 02 corporate profile 03 corporate information 04 chairman’s message 08 our products 14 operations review 18 board of directors 20 management

RESOLVED  TO SOAR


vision

Towards Building a Safer and Better World

mission

To Power Our Customers with intelligent Technologies to Build a Safer and Better World


CORPORATE PROFILE Stratech Systems Limited ("Stratech") is a world-class advanced technology company. Listed on the mainboard of the Singapore Exchange in 2000, it is principally engaged in the design, development, integration, implementation, maintenance and project management of information technology and advanced technology systems. The Group delivers large-scale complex, real-time, mission-critical systems in the areas of intelligent Vision, intelligent Transport (Air, Land and Sea) Systems and e-Systems for governments and businesses. Founded in 1989, the Group has established an impressive track record serving industries such as aerospace and defence, financial services, government, healthcare, homeland security and transportation (air, land and sea). The Group develops and implements advanced technological solutions that achieve significant business transformation and competitive advantage for its clients. intelligent Vision

Intelligence behind Vision

Stratech prides itself in making significant contributions to the field of intelligent Vision (“iVision”). It is constantly developing advanced technology solutions in homeland security, aerospace, defence, maritime, surveillance and other industries. Our solutions combine image and video capturing devices with intelligent software to provide computers with the ability to see, recognise, analyse and understand what is seen. Our technologies are deployed across six continents—Asia, Australia, Europe, Africa, North America and South America. Our iVision customers rely on our trusted and outstanding solutions such as iFerret™, iFerret™ BDA, iVACS™, Super BullsEye™ II and VIPS™ to provide them with comprehensive safety and security surveillance.

intelligent Transport (Air, Land and Sea) Systems The Future of Transportation and Mobility

Stratech develops and applies cutting-edge knowledge in the realm of transportation with intelligent Transport Systems (“iTS”). It constantly pursues innovative solutions to meet ongoing challenges in air, land and sea transportation. Stratech facilitates transport operators and governments in the strategic development of their transportation systems. Our key iTS products include the intelligent Border Crossing Systems (“iBCS™”) – Next-Generation High Security Border Crossing System and Vehicle Entry Permit (Toll) System (“VEPS”) for Immigration and Customs Authorities.

e-Systems

Competitive Advantage Through Technology Stratech is focussed on providing innovative, technology-intensive IT solutions capable of creating significant competitive advantage for clients. Our high value e-business applications are combined with a good understanding of our clients’ needs to transform their brick-and-mortar businesses into effective, collaborative e-businesses with their partners and clients. These clients include both private corporations and government agencies. One well-proven and well-tested solution is Stratech’s Dynamic Pricing & Secure Payment System, which powers the Land Transport Authority of Singapore’s Online Certificate of Entitlement (“OCOE”) Open Bidding System. The largest known dynamic pricing engine in the world, the system provides transparency and critical real-time information to millions of users to make informed bid decisions in an open but highly-secure environment. Other innovative e-Systems solutions include the Group’s SmartCare™, which powers the Government of Singapore’s Medical Claims Proration System (“MCPS”); the Group’s SmartReports™ which powers the Singapore Parliamentary Reporting System (“SPRS”); and integrated web services for the Media Development Authority of Singapore that is powered by Web 2.0 technology.

02 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


CORPORATE INFORMATION Directors

Bankers

David K.M. Chew Lim Soon Hock Leong Sook Ching Sajjad Ahmad Akhtar Chew Hai Chwee Lim Kim Choon

Citibank, N.A. United Overseas Bank Limited DBS Bank Ltd Hongkong and Shanghai Banking Corporation Limited

Company Secretary Leong Sook Ching

Registered Office 31 International Business Park #02-02 Creative Resource Singapore 609921

Auditors LTC LLP Certified Public Accountants 1 Raffles Place #20-02 One Raffles Place Singapore 048616

Share Registrar B.A.C.S. Private Limited 63 Cantonment Road Singapore 089758

Material Contracts Please refer to information disclosed in Section 15 of the Corporate Governance Report.

Directors’ Remuneration Please refer to information disclosed in Section 9 of the Corporate Governance Report.

Engagement Partner: Tsang Siu For Thomas (appointed since financial period ended 31 March 2011)

03 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


CHAIRMAN’S MESSAGE On behalf of the Board of Stratech Systems Limited, I am pleased to present our Annual Report for the financial year ended 31 March 2012 (“FY2012”). Resolved To Soar Man’s love affair with flight has been around since time immemorial. When the Wright Brothers invented the airplane, our dream of soaring to the skies finally became reality. We all enjoy, and sometimes even crave, this feeling of flying high up, whether literally or figuratively. From the feeling of weightlessness in the air to “soaring” as a metaphor for success, it is something that most of us desire. Success, fortunately, or unfortunately, often doesn’t follow the first attempt. It is unfortunate because of the inevitable feeling of disappointment when things do not go according to plan. It is also unfortunate because additional resources and time need to be invested to analyse what went wrong, and to improve. Not being successful on the first try can, however, come with some positives. It strengthens us to make us more resilient, more resolved, and teaches us to persevere. It brings people in the team together, heightens the hunger for success, and helps everyone unite towards that common goal. We learn lessons, and become tougher and wiser in future, when we have grown and the stakes are higher. Most importantly, when we have “failed” before, success tastes even sweeter when it finally comes. It is a feeling that money cannot buy. The Wright Brothers did not manage to fly on their first try. However, like most successful people who had gone into the history books, they did not give up. They stuck to their ideals, took their own designs apart, and looked for ways to overcome every difficulty they encountered. They were resolved to soar. Finally they succeeded, and transformed the lives of future generations. This is the spirit in Stratech that we are proud of. We do not expect to get things done right every time. However, even when the outcome is not as desired, we never allow ourselves to yield. We remain steadfast, we keep on moving, we stay united, we review things objectively and constructively to find out where things went wrong, we explore ways to solve the problems and, with our resolve, we succeed.

04 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


The Year in Review Against the backdrop of the challenging global economic conditions, Stratech has been consolidating and preparing to soar to greater heights. The significant events during the year include: • The patent application for iFerret™ was approved by the Intellectual Property Office of Singapore. Beyond Singapore, Stratech is seeking to protect its Intellectual Property (IP) in iFerret™ with similar patent applications filed in countries worldwide. •

Stratech was awarded a contract worth S$2.4 million (including options) by the Government of Singapore to operate and maintain the Medical Claims Proration System (MCPS). The MCPS, developed by Stratech in 1998, has been in service since 1999 for the management and processing of electronic claims of healthcare benefits of civil servants. In the new contract, Stratech will continue to provide maintenance services and operations support over the next one year with an option to extend up to another year.

The US FAA (Federal Aviation Administration) published its Performance Assessment Report on iFerret™. The report states that iFerret™ fulfils requirements identified in the FAA Advisory Circular (“AC”) 150-5220-24, Airport Foreign Object Debris (FOD) Detection Equipment.

iFerret™ was granted Buy American Waiver by the FAA. The Nationwide Waiver will allow iFerret™ to be used on AIP (Airport Improvement Program) funded projects without having to receive separate waivers for each project.

Delivery of the TV Ordnance Scoring System (TOSS) to the Republic of Korea Air Force (ROKAF). TOSS is powered by Stratech’s state-of-the-art Super BullsEye™ II Advanced Weapons Scoring System, and is integrated with an Electronic Warfare Training System (EWTS). The EWTS is used to train ROKAF pilots by simulating hostile threat environments, including missile interceptors, ground-to-air guided rockets, anti-aircraft guns and others.

• Stratech entered into a partnership with Punj Lloyd Limited for iFerret™ in India. India presents tremendous opportunities in both civil and military aviation.

Against the backdrop of the challenging global economic conditions, Stratech has been consolidating and preparing to soar to greater heights.

05 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


CHAIRMAN’S MESSAGE These milestones are major boosts towards strengthening iFerret™’s position in the international aviation market. This market includes a tremendous number of IATA (International Air Transport Association) listed airports globally. The iFerret™ is now well-positioned for an accelerated take-off. Soaring with iFerret™ In the past year, we have seen developments on the iFerret™ front. In March 2012, iFerret™ received FAA accreditation. The FAA published a Performance Assessment Report stating that iFerret™ had fulfilled all performance requirements listed in the Advisory Circular (AC) 150-5220-24, Airport Foreign Object Debris (FOD) Detection Equipment. This is significant because compliance with the AC requirements is mandatory for U.S. airports that wish to apply for funding via the Airport Improvement Program (AIP) and Passenger Facility Charge (PFC) Program to offset the cost of installing FOD detection systems. In the aviation industry, FAA accreditation is important. To use an analogy, it is like a pharmaceutical product that has received FDA (Food and Drug Administration) approval, and is now officially licensed for sale. The FAA also granted iFerret™ a Nationwide Waiver on the Buy American Preferences regulations. The Waiver allows iFerret™ to be used on AIP funded projects without having to receive separate waivers. This enables projects to start quickly while still ensuring funds used for airport projects are directed to manufacturers that meet Buy American requirements. Previously, there had been no technology, financing or regulations for automated FOD detection, and airports relied on the FAA or ICAO (International Civil Aviation Organization) mandated daily manual sweeps, which are inadequate and inefficient. In recent years the FAA has begun providing directions on specifications and funding of FOD detection systems, and these have subsequently been adopted as the de-facto standards by many airports globally. The accreditation of iFerret™ therefore opens up huge opportunities in this rapidly-developing market. These milestones are major boosts towards strengthening iFerret™’s position in the international aviation market. This market includes a tremendous number of IATA (International Air Transport Association) listed airports globally. iFerret™ is now well-positioned for an accelerated take-off.

Appreciation On behalf of the Company, I would like to thank shareholders for keeping your faith. Additionally, we wish to express our gratitude to all our clients and partners for your continuous support. We also appreciate the efforts and contributions of members of the Board towards the development of Stratech. Last but not least, the management team and employees deserve recognition for the hard work invested over the past year, and for staying resilient. By staying united and persevering with resolve, we have prepared ourselves well for the “flight”. We are resolved to soar! Sincerely

David K.M. Chew

Executive Chairman

06 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


SINGAPORE

CHICAGO

DĂœSSELDORF BUILDING GLOBAL PRESENCE

Through product innovation and our insights into market needs, we develop exceptional products that enable us to gain an international foothold for boundless growth.

07 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


OUR PRODUCTS iFerret™ iFerret™, the Future of Airfield Safety and Surveillance iFerret™ is the world’s first intelligent Vision-based Foreign Object & Debris (FOD) Detection System that provides real-time, automated FOD detection, location, classification and recording. Using Stratech’s intelligent Vision software and state-of-the-art Electro-Optic (EO) Sensors, iFerret™ automatically detects, locates and records FOD in civil airports and military airbases. Upon FOD detection, iFerret™ automatically zooms in on the subject for visual verification before sending a remote alert to the ground crew to remove the FOD.

iFerret™ Poised to Soar In the past year, there were several developments for iFerret™. These developments have put iFerret™ in a very good position, where it is now poised to soar. In May 2011, the Singapore patent application for iFerret™ was approved by the Intellectual Property Office of Singapore (IPOS). Beyond Singapore, Stratech is seeking to protect its IP in iFerret™ with similar patent applications filed in countries worldwide. In March 2012, the FAA (Federal Aviation Administration) published its Performance Assessment Report stating that iFerret™ fulfils requirements listed in its Advisory Circular (“AC”) 150-5220-24, Airport Foreign Object Debris (FOD) Detection Equipment. The AC contains performance specifications for systems that detect foreign

objects in airports and provides guidance and specifications for the procurement of FOD detection equipment. The report’s publication is significant because compliance with the AC is mandatory for US airports acquiring FOD detection equipment through the Airport Improvement Program (AIP) or the Passenger Facility Charge (PFC) Program. The AIP provides grants to qualifying airports for improvement projects that enhance airport safety, capacity, security, and environmental concerns. The latter allows the collection of PFC fees, commonly known as airport tax, to fund approved projects. Airports are now able to use these funds to offset the cost of installing iFerret™. In April, the FAA granted iFerret™ a Buy American Waiver, which was important because conformance with the Buy American Preferences is another requirement for AIP grants. The Buy American Preferences regulations require purchases in AIP funded projects to be produced in the U.S. The FAA, however, has the authority to waive the Buy American Preferences if certain conditions are met. With the Waiver, iFerret™ is now officially on the FAA’s Buy American Conformance List. As stated by the FAA, this is a list of equipment that is frequently used on AIP funded projects that meets the Buy American requirements or has been issued a Nationwide Waiver. The Nationwide Waiver allows iFerret™ to be used on AIP funded projects without having to receive separate waivers for each project. This enables projects to start quickly, while still ensuring the funds used for airport projects are being directed to manufacturers that meet the Buy American requirements.

iFerret™ is the world’s first intelligent Vision-based Foreign Object & Debris (FOD) Detection System

08 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


In the past year, there were several developments for iFerret™. These developments have put iFerret™ in a very good position, where it is now poised to soar.

iFerretTM at Chicago O’Hare International Airport

iFerretTM at Changi International Airport

FOD refers to articles or wildlife found on runways, taxiways or aprons that could potentially cause injuries or damage aircraft. An example of a fatal incident involving FOD was the Air France Concorde jet crash in 2000, when 113 lives were lost. FOD also reportedly incurs an estimated US$4 billion in repair and maintenance costs annually, and up to US$13 billion per year including associated costs like flight delays and cancellations; lost productivity and revenues; potential liabilities; and damaged reputations. Previously, there had been no technology, financing or regulations for automated FOD detection, and airports relied on the FAA or ICAO (International Civil Aviation Organization) mandated daily manual sweeps, which are inadequate and inefficient. In recent years the FAA has begun providing directions on specifications and funding of FOD detection systems, and these have subsequently been adopted as the de-facto standards by many airports globally. The FAA accreditation and Buy American Waiver therefore open up huge opportunities in this rapidly-developing market.

Airport at night without and with iFerretTM

iFerretTM sector scanning

iFerretTM console at Changi Airport Control Tower

In June 2012, Stratech also entered into a partnership with Punj Lloyd Limited for iFerret™ in India. India presents tremendous opportunities in both civil and military aviation. Punj Lloyd, with over 20 years of experience, is a conglomerate boasting multi-billion dollar operations. It has over 31,000 employees in 21 countries, with operations spanning across the Middle East & Africa (MEA), Caspian, Asia Pacific, South Asia, Europe and China. One of the Group’s companies, Sembawang Engineers & Constructors Pte Ltd, is based in Singapore. Punj Lloyd will market, sell and deploy iFerret™ in the Indian market. The developments are major boosts towards strengthening iFerret™’s position in the international aviation market. This market includes a tremendous number of IATA (International Air Transport Association) listed airports globally, of which the U.S. is the largest single market. iFerret™ is now well-positioned for an accelerated take-off.

iFerretTM operations workflow

09 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


OUR PRODUCTS iFerret™ BDA The Future of Airfield Battle Damage Assessment The iFerret™ BDA (Battle Damage Assessment) System is a Rapid Airfield Damage Assessment System (RADAS). iFerret™ BDA can rapidly and automatically determine and measure the damage on the runway/taxiway and recommend the Minimum Operating Strip (MOS) for critical operations to be resumed. During peace time, iFerret™ BDA functions as an automated FOD detection system to prevent injuries or damage to aircraft by detecting and facilitating the prompt removal of FOD. It automatically detects, locates and records FOD and allows operators to verify the FOD threat with the high-quality images that it captures. Through the synergistic fusion of two field-proven technologies from Stratech—Super BullsEye™ and iFerret™, iFerret™ BDA is able to automatically detect, locate, measure and classify battle damage such as craters, unexploded ordnances (UXOs), camouflets and spalls, on the runway/taxiway. The system rapidly and automatically determines and locates the weapon impact points and identifies the battle damage on the map of the runway/taxiway in the user interface. It then intelligently computes and reports the MOS with the information, optimising the resources, time and materials on hand to plan the necessary repair work. iFerret™ BDA operates round-the-clock. Its EO Sensors offer unmatched night visibility. It also offers safe and passive operations, and is designed with built-in redundancy to ensure the system’s survivability during wartime. During peace time, iFerret™ BDA can also perform some other value-added functions. Some of these include: Airside Security and Safety Surveillance; Airfield Pavement Condition Monitoring; and Wildlife Incursion Monitoring.

iFerretTM BDA Operations Workflow

10 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


iVACS™ Gen X intelligent Vehicle Access Control System iVACS™ Gen X is the next-generation security system providing total vehicle and driver surveillance and access control. Technically superior to other under-vehicle scanning systems in the market, iVACS™ is the only intelligent under-vehicle surveillance system that is capable of automated foreign object and abnormality detection. It is augmented by the ability to scan for HAZMAT (Hazardous Materials) in the trunks of vehicles without having to open them. Flexible for a wide range of security applications and adaptable to potential site constraints, iVACS™ is available in three configurations (Fixed Base, Mobile and Robotics) to aid security agencies in conducting quick and thorough inspections of all vehicle types. iVACS™ delivers unmatched high-resolution, photo-quality undervehicle images in real-time. It is able to overcome problems associated with variations in ambient lighting through its built-in adaptive image enhancement feature. It can also adapt itself to screening the undercarriages of vehicles of varying lengths. It is the only system with field-proven automated abnormality and foreign object detection capability. The system automatically identifies and highlights abnormalities like foreign objects on the under-carriage. Operators are able to zoom in on images to verify

iVACSTM Operations Workflow

and respond to suspected security threats. It is also equipped with the capability to extend detection beyond the under-carriage to include the vehicle trunk, automatically scanning the boot for HAZMAT without having to open it, facilitating a faster security clearance process. The unique “networked intelligence” capability of iVACS™ allows for further tightening of the security of facilities that have multiple entrances and exits, and even for multiple-site operations in a nation-wide/global inter-facility network. Its open architecture and modular design ensures that iVACS™ is ready for expansion and scalability for total access control and security protection. iVACS™ has another application—iVACS™ Rail. For iVACS™ Rail, iVACS™ is adapted to provide security scans on the undercarriages of trains. By employing iVACS™’s superior imaging technologies and intelligent software, iVACS™ Rail scans, detects and allows for validation of potential threats like explosive devices planted on the underside of the train carriages. iVACS™ has an impressive track record of customers, including the US government, Interpol and the United Nations. It has also been deployed in high-security facilities in Singapore, Australia, the Middle East and Latin America.

iVACS™ is the only intelligent under-vehicle surveillance system that is capable of automated foreign object and abnormality detection. It is augmented by the ability to scan for HAZMAT (Hazardous Materials) in the trunks of vehicles without having to open them.

11 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


OUR PRODUCTS Super BullsEye™ II Advanced Weapons Scoring System Super BullsEye™ II is a state-of-the-art Weapons Scoring System that is powered by Stratech’s proprietary intelligent Vision technologies. A proven product that has been deployed and used by Air Forces and Navies in several countries, Super BullsEye™ II can automatically detect and score the impacts of missiles, rockets, bombs and small rounds with high precision, locating all visible weapon impacts to an accuracy of one metre. Be it single or multiple hits, Super BullsEye™ II provides fast and accurate feedback for weapons training and defence exercises. Super BullsEye™ II features the intelligent Vision-based Scoring for rockets and bombs. This involves the real-time capture and transmission of video images, from which the system automatically detects and scores visible weapon impacts over land and water. The data is then presented in comprehensive graphical result tabulations. This is complemented by the acoustic scoring by the Air-to-ground Gunnery Scoring System (AGSS), which allows for instantaneous assessment of shots striking a target. The Super BullsEye™ II can be integrated with systems like the Electronic Warfare Training System (EWTS) and Air Combat Manoeuvring Instrumentation (ACMI) System. It can also perform firing profile and trajectory analysis, by monitoring and recording the flight path of the aircraft before, during and after the attack. Super BullsEye™ II has the ability to track projectiles of varying calibres and velocities. Stratech recently completed the delivery of the TV Ordnance Scoring System (TOSS) to the Republic of Korea Air Force (ROKAF). TOSS is powered by Stratech’s state-of-the-art Super BullsEye™ II Advanced Weapons Scoring System, and is integrated with an EWTS. The EWTS is used to train ROKAF pilots by simulating hostile threat environments, including missile interceptors, ground-to-air guided rockets, anti-aircraft guns and others.

Super BullsEyeTM II Operations Workflow

12 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


VIPS™ Vessel Identification & Positioning System

Other VIPSTM applications include:

VIPS™ is the next-generation Maritime Surveillance and Vessel Traffic Management System that enables port, naval and other maritime authorities to perform round-the-clock, all-weather coastal surveillance with remote centralised command and control management.

Vessel Height Surveillance System (VHSS) This application continuously and automatically measures and computes the heights of approaching vessels. This serves to ensure compliance with the minimum height clearance in aircraft flight zones, as well as preventing vessel collisions with suspended structures like bridges and cables.

Automatically detecting, identifying and tracking all vessels and predicting their paths in real-time, VIPS™ enhances waterside security and provides information such as length, height, shape, latitude, longitude, velocity, heading and time of vessels. It is the only maritime surveillance system in the market that is capable of automatic validation and enforcement of compliance with International Maritime Organization’s Automatic Information System (AIS). The system provides real-time detection of intrusion and maritime traffic enforcement, and is able to determine vessel length, height and identity. It offers reliable detection and incident alerts. VIPS™ also tracks the target vessels’ latitude, longitude, velocity, heading and time in real-time. It can also automatically track vessels with its PTZ (Pan, Tilt, Zoom) EO Sensor control. The Automatic Vessel Prediction feature provides early warning to aid in the prevention of collisions, by sending out alerts when it detects vessels on crossed paths or heading towards low-lying infrastructure. VIPS™ also performs vessel data logging, capturing and recording information on static, dynamic and voyage-specific vessel information. Zoomed-in images of vessels that have been tracked and monitored are also stored, allowing for video replay and scene reconstruction.

Coastal/Waterway Surveillance This feature enables classification and tracking of vessels for coastal surveillance, and automatic intruder detection. VIPS™ Anti-Piracy VIPS™ Anti-Piracy is installed on ships to detect and track approaching vessels that may pose a collision or pirate threat. It provides early warning to allow crucial response time for the ship’s crew. Ship (Perimeter) Security and Surveillance This serves as a fully-integrated ship security surveillance system. It provides early warning and intelligent visual identification of approaching vessels. Ship Collision Avoidance This feature performs vessel proximity detection, sending out alerts when ships get within unsafe distances with one another or with other nearby structures. Offshore Asset Protection The Offshore Asset Protection application automatically detects and identifies suspicious activities in the vicinity of offshore assets like oil rigs. It alerts personnel of potential impending sea-borne attacks or incursions. Hydro-Electric Dam Security and Surveillance This application offers perimeter surveillance at reservoirs and dam structures.

VIPS™ is the only maritime surveillance system in the market that is capable of automatic validation and enforcement of compliance with International Maritime Organization’s Automatic Information System (AIS). 13 VIPSTM Operations Workflow

STRATECH SYSTEMS LIMITED annual report 2011 / 2012


OPERATIONS REVIEW Revenue Revenue of the Group amounted to S$5.8 million. This reduction of S$9.29 million, or 61.6%, compared to FY2011, was largely attributed to the sale of the OCOE system to LTA in FY2011. The revenue was further affected by the uncertain global economic outlook, particularly the financial and economic uncertainties in the European Union and United States, which resulted in delays in the award of certain projects in these regions which the Group was actively pursuing. Revenue for FY2012 was derived from the following projects: • a sub-contract for the manufacture and sale of a TV Ordnance Scoring System (TOSS), powered by Super BullsEye™ II, for the Republic of Korea Air Force (ROKAF); • a Super BullsEye™ II contract with RSAF; • operations, maintenance and other revenues pursuant to the contract for OCOE System; • operations and maintenance of the Medical Claims Proration Systems ("MCPS"), which deployed the Group's SmartCare™, and the Singapore Parliamentary Reporting System ("SPRS"), which deployed the Group's SmartReports™; • the contract with CAAS to provide the next-generation Vessel Height Measurement System (VHMS III), powered by VIPS™; • the iFerret™ maintenance contract with the Changi Airport Group ("CAG"); • the lease of an iFerret™ sub-system at Düsseldorf airport in Europe; • a contract with the Media Development Authority of Singapore for integrated website service; and • sales of iVACS™ intelligent Vehicle Access Control System.

Gross Profit And Gross Margin Gross profit was S$1.42 million at 24.6% gross margin for FY2012, compared to S$9.64 million at 63.9% gross margin in FY2011. This was mainly attributed to the reduction in revenue. Despite a reduction of S$1.1 million in the cost of goods and services sold, the lower revenue was not able to cover direct overheads and salary costs.

Other Operating Income Other operating income fell by 43.7%, from S$0.73 million in FY2011 to S$0.41 million in FY2012, mainly attributed to the reduction in management fee income charged to an associated company and reversal of share option expenses that had lapsed or forfeited. This was partially off-set by the receipt of government subsidies for projects.

14 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


Selling And Distribution Expenses The selling and distribution expenses increased by 19.6%, from S$0.62 million in FY2011 to S$0.74 million in FY2012. This increase was mainly attributed to the increase in travelling, marketing and other selling expenses resulting from increased sale and marketing activities and efforts to extend the sales and distribution network for the Company’s products and capabilities.

Administrative Expenses The administrative expenses increased by 23.3% from S$5.50 million in FY2011 to S$6.78 million in FY2012. The increases was mainly attributed to corporate office relocation expenses and increase in staff costs and professional fees. Rental savings resulting from the office relocation in Q3FY2012 had minimal effect in FY2012. However, going forward, the Company is expected to save about S$0.50 million per annum in rental expenses. Right-sizing actions, which commenced in about Q3FY2012 and resulted in a reduction of total headcount by about 20% over a period of time, had not yet yielded impact in FY2012 but will continue to be part of the Company’s continuous cost-control efforts. Professional fees were higher than previous years due mainly to fees incurred for the review by Ernst & Young Advisory Pte. Ltd. commissioned by the Company’s Audit and Risk Management Committee in response to certain anonymous allegations; legal matters/advice including for the legal actions in Hong Kong; due diligence and other professional services for the aborted acquisition of Global Telecom Co. Ltd and others.

Other Operating Expenses Other operating expenses increased by 75.1% from S$3.31 million in FY2011 to S$5.79 million in FY2012. This was mainly attributed to the provisions for doubtful debts and project costs of an aggregate of S$2.02 million in relation to one project. As previously announced, the Company intends to pursue legal actions to protect its rights and to recover monies for work done, services rendered, goods delivered and damages suffered.

Other increases in operating expenses included amortisation expenses for intangible assets, bad debts written-off, intangible assets written-off and losses on the disposal of plant and equipment aggregating S$1.16 million. The increase was partially offset by lower provisions for foreseeable losses for a project recognised during the year, exchange losses and depreciation expenses, aggregating S$0.70 million. The Company commenced legal proceedings against ATAL Technologies Limited (“Atal”) in the High Court of Hong Kong SAR in 2006 relating to disputes, including for payments for work done and services rendered, arising from a subcontract awarded by Atal to the Company pursuant to the award of a contract by the Hong Kong Immigration Department (“HKIMMD”) to Atal in March 2004. The subcontract included the provision of an Automated Passenger Clearance System (“APCS”) and Automated Vehicle Clearance System (“AVCS”) (which were delivered and publicly declared opened and operational by the HKIMMD on December 2004 and May 2005 respectively) at the Hong Kong borders as part of the “e-Channel” system, for which the Hong Kong government won more than 4 awards. Atal filed a countersuit in 2006. The matter was heard in 2011. The High Court of Hong Kong SAR found, among others, in favour of the Company that Atal had breached the payment terms of the subcontract and awarded the Company the sum for work done and services rendered but not yet paid. However, the Court also found for Atal with respect to its countersuit, such that the net amount awarded to Atal was HK$8,720,000 (about S$1.41 million). Accordingly, the Company made an estimated provision for damages in FY2011 of S$3.96 million (including provision for interest and legal costs awarded). Both parties filed their respective Notice of Appeal. In 1Q FY2013, the Court of Appeal of the Hong Kong SAR heard the Company’s appeal and Atal’s Cross-appeal and delivered its judgment in May 2012. In summary, the judgment sum amounting to HK$8.7 million awarded to Atal in 2011 was reduced by HK$4.7 million. The full judgment sum of HK$8.7 million has already been fully recognised in the FY2011. As there is a possibility of further appeal at the date of this annual report, the Company has not made any adjustment to the provision already made.

15 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


OPERATIONS REVIEW Finance Costs

Corporate Governance

The finance costs increased marginally from S$0.55 million in FY2011 to S$0.59 million in FY2012.

In 2010, the Company’s Audit Committee (later renamed the Audit & Risk Management Committee -”ARMC” on 11 July 2011) commissioned Ernst & Young Advisory Pte. Ltd. (“EY Advisory”) to give an independent assessment on the veracity of certain anonymous allegations made to the SGX. The Company released an announcement of the results of the review on 10 March 2012. In summary, the exhaustive review uncovered no evidence to conclude that any of the material allegations were true, but raised matters mostly relating to procedures and policies which required improvement and as disclosed.

Net Loss Overall, the net loss of the Group increased by S$8.47 million from S$3.60 million in FY2011 to S$12.07 million in FY2012, mainly attributed to the reduction in revenue and other operating income and increase in operating expenses (excluding provision for litigation as there was no such provision made in FY2012) including the provisions for doubtful debts and project costs of an aggregate of S$2.02 million in relation to the project previously mentioned, in regard to which the Company intends to pursue legal action to recover amounts due for work done, services rendered, goods delivered but not yet paid and damages suffered. The operating expenses in FY2012 also included professional fees of S$2.22 million, most of which the Company expects to be non-recurring.

Financial Position The financial position for FY2012: Current assets Current liabilities Net current (liabilities) / assets Non-current assets Non-current liabilities Net assets

FY2012 S$'000

FY2011 S$'000

17,427 (24,601) (7,174)

19,722 (15,681) 4,041

8,159 (178) 807

8,163 (262) 11,942

The Group's net assets were S$0.81 million as at end FY2012 compared to S$11.94 million as at end FY2011. Subsequent to the financial year ended 31 March 2012, the Company made two placement issues to boost its net assets and cash flow position. Moving forward, the Company has planned to undertake the Rights Issue exercise (as announced on 29 Aug 2011 and 13 Apr 2012) to strengthen its financial position. With regards to the amount due to a director-cum-shareholder of S$5.36 million (FY2011: S$1.04 million), the director has undertaken to partially offset the repayment amount due to him under the Loan against the full satisfaction of the consideration payable by him pursuant to the proposed Rights Issue.

16 STRATECH SYSTEMS LIMITED annual report 2011 / 2012

EY Advisory raised certain concerns in relation to the revenue recognition of projects and capitalisation of development expenditure. However, having considered the findings of the review, the external auditor did not revise its audit opinions and did not require adjustments to be made to any financial statements of the Company issued during the period reviewed. The Company would like to highlight that as part of its annual external audit, the ARMC and the external auditor review and deliberate on the appropriateness of the Company’s revenue recognition policy and the revenue recognised. In addition, the ARMC commissioned Deloitte & Touche LLP – Assurance & Advisory Services in May 2012 to conduct a limited review to further ascertain independently the appropriateness of the Company’s polices and procedures on revenue recognition and capitalization of development expenditure. Also, although the Company’s processes for filing and maintenance of supporting documents for expense claims required improvement and tightening, there was no impropriety in the directors’ expenses while on the contrary, it was shown that the Executive Director cum Controlling Shareholder, David K.M. Chew, had on many occasions extended personal loans and advances to the Company in support of the Company’s business. The review highlighted certain areas of weaknesses in the procedures of the Company, of which the Company has taken seriously. The Company has since taken steps to tighten its controls and processes.


iFERRETTM BDA

iVACSTM 520330 1 0

3 1 3 0 0 0

SUPER BULLSEYETM ll

VIPSTM CULTIVATING BUSINESS DIVERSITY As ideas soar and possibilities burgeon, we open doors to endless opportunities, demonstrated by the wide range of offers across industries


BOARD OF DIRECTORS

David K.M. Chew

Lim Soon Hock

Leong Sook Ching

David K.M. Chew is the Founder and Executive Chairman of the Stratech Group. With 30 years of experience in the industry, Dr. Chew has played an integral role in the development and success of Stratech. He was awarded the Rotary-ASME Entrepreneur of the Year in 1999 and in the same year put the Company on the Enterprise 50 list of most enterprising privately-held corporations in Singapore. Dr. Chew was a member of the National University of Singapore Mechanical Engineering Departmental Consultative Committee and the Singapore ONE Steering Committee which was instrumental in the development of the world’s first nationwide broadband network. He was also a Founding Member of the Board of Directors of the Intellectual Property Office of Singapore (IPOS), where he served for three terms.

Lim Soon Hock was appointed Deputy Chairman and Executive Director on 10 August 2010. Prior to this, he was an Independent Director. Mr. Lim’s key tasks, in his role as a management mentor, are to streamline the Company’s operations, raise productivity, oversee corporate governance and risk management, to unlock the full potential of the Company’s intellectual properties (IP). He was the former Vice President and Managing Director of Compaq Computer Asia Pacific Ltd, where he was the first Asian appointed to the position. Since stepping down from Compaq in 1995, he had been involved in taking 3 companies public, one each on SGX, ASX and AIM, as well as being involved in 8 mergers and acquisitions. Mr. Lim continues to sit on the Board of Directors of several government agencies, public listed companies and civic organisations. He is presently the Founder and Managing Director of PLAN-B ICAG Pte Ltd, a boutique corporate advisory firm. He holds an honours degree in Electrical Engineering from the University of Singapore and is a Fellow of the Institution of Engineers, Singapore, the Institution of Engineering and Technology, UK and the Singapore Institute of Directors. Mr Lim was a recipient of numerous awards, which include the 1992 Distinguished Engineering Alumni Award from National University of Singapore, 2009 Public Service Medal, 2009 NUS Distinguished Alumni Service Award and 2010 IES-IEEE Joint Medal of Excellence Award. He was appointed a Justice of the Peace in May 2008.

Leong Sook Ching is the Executive Director and Chief Corporate Officer. She joined the company in 1995 to form and helm the Legal Affairs Department. She is responsible for corporate strategic planning and review, organisational planning and the formulation of general Company policies as well as policies for these other departments that she manages: Human Resource & Administration, Legal, Quality Excellence and Intellectual Property Management. Ms. Leong engaged in private law from 1989 to 1995 and she was made Partner in 1993. She practised in the areas of civil litigation and corporate matters. She has a Bachelor of Laws from the National University of Singapore.

Executive Chairman

18 STRATECH SYSTEMS LIMITED annual report 2011 / 2012

Deputy Chairman and Executive Director

Executive Director and Chief Corporate Officer


Sajjad A. Akhtar

Chew Hai Chwee

Lim Kim Choon

Sajjad Ahmad Akhtar, an independent non-executive director of the Company, is currently the Managing Partner of PKF-CAP LLP, an accounting and business advisory services firm. He has more than 30 years of experience providing attest, financial and business consulting services to large multinationals and small and medium enterprises in UK and across Asia Pacific. Mr. Sajjad is a Fellow of the Singapore Institute of Directors and he sits on its regulatory committee. In addition, he sits on the Board of Directors of other companies, government bodies and civic organisations. Mr. Sajjad holds an MBA from the Booth School of Business, University of Chicago. He is a Fellow of the Institute of Certified Public Accountants of Singapore, the Institute of Chartered Accountants in England and Wales, and the Singapore Institute of Arbitrators.

Chew Hai Chwee, an independent non-executive director of the Company, sits on the Board of Directors of several public-listed companies and privately held companies, including his current position as an Independent Director and member of the AC committee of the SGX-listed Pacific Andes. His illustrious career included having held the positions of Independent Director and Chairman of the AC committee and later as Executive Director of United Fibre System Limited, and as Executive Director of NASDAQ listed Pacific Internet Limited, one of the largest telcoindependent Internet Communications Service Providers in Singapore. He is currently a member of the Singapore Institute of Directors and several public associations. Mr. Chew is a member of the WWF Singapore Board and he also serves on the AC of Red Cross Singapore. Mr. Chew holds a Masters in Business Administration and a Bachelor of Science in Accounting with first class Honors from University of South Alabama, USA.

Lim Kim Choon (MG (R) Lim), a non-independent and non-executive director of the Company, has over 30 years of aviation and air navigation experience in both civil and military aviation. A qualified F16 pilot, MG (R) Lim held many principal appointments in the Republic of Singapore Air Force (RSAF) including the Head of Air Intelligence Department, Head of Air Operations Department and Commander of Tengah Air Base. In 1998, he was appointed Chief of Staff (Air Staff) of the RSAF, and subsequently as the Chief of Air Force from April 2001 to March 2006. He later joined the Civil Aviation Authority of Singapore (CAAS) as its Senior Deputy Director General in May 2006, and took over as Director General and Chief Executive Officer in July 2007. MG (R) Lim holds a Master of Science (Management) degree from the Massachusetts Institute of Technology and graduated from the University of Loughborough, United Kingdom with a 2nd Upper Honours in Bachelor of Science. In 2009, he attended the Advance Management Program in Harvard University. He has received numerous commendations and foreign awards for his outstanding contributions and distinguished military career.

Independent Director

Independent Director

Non-Independent Director

19 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


MANAGEMENT

David K.M. Chew

Executive Chairman

Raman Palaniappan

Patsy P.S. Mah

Kennedy K.M. Chew

Raman Palaniappan is the Chief Operating Officer. He joined the Company in March 2012 and is responsible for day-to-day operations management. Mr. Raman holds a Master of Business Administration degree from the University of Nottingham in the United Kingdom, and has accumulated extensive operational experience in regional markets at Telco/ SI companies. His previous appointments include Country Head (Vietnam) of Thakral Brothers (Private) Limited; Managing Director (India) of Pacnet Internet (S) Pte. Ltd.; and Regional Marketing Manager of Nippecraft Limited.

Patsy P.S. Mah is the Chief Financial Officer. She joined the Company in December 2010 and oversees the Group’s finance department. Ms. Mah is a member of the Institute of Certified Public Accountants Singapore and has over 15 years of experience dealing with bankers, auditors and statutory boards and was also involved in business merger and acquisitions, group restructuring matters and securing capital and funding for businesses. She previously served as the Group Financial Controller and other senior finance roles at several public-listed and privately held companies in Singapore.

Kennedy K.M. Chew is the Technical Fellow. He tracks and analyses market trends and developments, and helps chart new business and technology directions for the Company. He plays a key role in large-scale, mission-critical systems design and development, including the creation of related intellectual property rights. He has also previously held other portfolios including CTO and System Architect in the Company. Formerly, Dr. Chew worked at the R&D arm of National Computer Board (NCB) of Singapore (presently the Infocomm Development Authority or iDA) as Chief Architect and a member of the Technical Staff. Dr. Chew was awarded NCB’s undergraduate scholarship to read Computer Science at the University of Toronto, Canada. He later undertook NCB’s postgraduate scholarship and was conferred a PhD in Computer Science by the University of Texas at Austin, USA.

Chief Operating Officer

Chief Financial Officer

Technical Fellow

(Please see profile on page 18)

Lim Soon Hock

Deputy Chairman and Executive Director (Please see profile on page 18)

Leong Sook Ching

Executive Director and Chief Corporate Officer (Please see profile on page 18)

20 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


FINANCIAL CONTENTS 22 39 43 44 45 46 47 48 50 89 91

corporate governance report directors’ report statement by directors independent auditor’s report statements of financial position consolidated statement of comprehensive income consolidated statement of changes in equity consolidated statement of cash flows notes to the financial statements shareholders’ information notice of annual general meeting proxy form


CORPORATE GOVERNANCE REPORT The Board of Directors (the “Board”) of Stratech Systems Limited (the “Company” and together with its subsidiaries, the “Group”) has, in all its dealings, been committed to maintaining and upholding the highest standards of corporate governance to enhance and safeguard the best interest of all shareholders. It, therefore, recognises the importance of corporate governance and good business practices and has adopted measures and practices in line with the Code of Corporate Governance 2005 (the “Code”), which forms part of the continuing obligations under the Listing Manual of the Singapore Exchange Securities Trading Limited (“SGX-ST”). This report sets out the Company’s corporate governance practices that were in place during the year with specific reference to the Code. The Company confirms that it has generally adhered to the principles and guidelines set out in the Code where they are applicable, relevant and practicable to the Group and has explained areas of non-compliance. The Board will be reviewing, and where necessary, adopting the recommendations made by the Corporate Governance Council on the Code of Corporate Governance 2012 (“2012 Code”) which is effective in respect of the Company’s Annual Report for the financial year ended 31 March 2014.

1.

BOARD OF DIRECTORS

Board of Directors & Conduct of its Affairs (Principle 1) The Board, in addition to its statutory responsibilities, has the duty to protect and enhance long-term shareholders’ value. It sets the overall strategy for the Group and supervises the management of the Company (“Management”). The principal functions of the Board are: (1) providing effective leadership, setting directions, approving policies, strategies and financial objectives of the Group; (2) (3)

monitoring and reviewing the performance of Management towards maximising shareholders’ value; reviewing the processes for evaluating the adequacy of internal controls and risk management, including financial operational and compliance risk areas that needed to be strengthened, identified by the Audit and Risk Management Committee for assessment and its recommendations on actions to be taken to address and monitor the areas of concern as well as approval and timely release of financial results and announcements of material transactions;

(4) approving all Board appointments and appointments of key personnel as well as reviewing and approving their compensation packages as recommended by the Remuneration Committee (“RC”); (5) overseeing the proper conduct of the Company’s business, setting the Group’s values and standards and assuming responsibility for corporate governance; and (6) approving annual budgets, major funding proposals, investment and divestment proposals, material acquisitions, disposal of assets and interested person transactions (“IPT”) of a material nature. Matters requiring the Board’s approval include those involving a conflict of interest for a substantial shareholder or a director, matters which are likely to have a material impact on the Group’s operating units and/or financial positions as well as matters other than in the ordinary course of business, raising of funds and capitals, share issuance, convertible bonds, rights issue, performance share bonus for employees, dividends and other returns to shareholders. Other issues which will require the Board’s approval are guided by the requirements of the Listing Manual of the Singapore Exchange Trading Securities (“SGX-ST Listing Manual”). The Board believes that when making decisions, all directors act objectively and for the interest of the Company. To assist the Board in the detailed consideration of various issues at hand to facilitate a more effective decision-making, discharging its responsibilities and to enhance the Group Corporate Governance framework, three Board Committees had been formed, namely the Audit and Risk Management Committee, the Nominating Committee and the Remuneration Committee. All Board Committees are chaired by an Independent Director and all members of the Board Committees, save for the Nominating Committee, are non-executive. Each committee is governed and regulated by clearly defined terms of reference which sets out the scope of duties and responsibilities, rules and regulations, and procedures governing the manner in which the committee is to operate and how decisions are to be taken. Executive directors are invited to attend the board committees’ meetings as and when required, to provide additional insight to matters raised at such meetings. The Board accepts that while the Board Committees have the delegated power to make decision, execute actions or make recommendations in their specific areas respectively, the ultimate responsibility for the decisions and actions rests with the Board.

22 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


CORPORATE GOVERNANCE REPORT The Board is headed by David K.M. Chew, Executive Chairman and Chief Executive Officer (“CEO”), who is responsible for: (i)

Guiding the strategic direction and goals of the Company;

(ii)

Putting in place appropriate and adequate systems of internal control, risk management processes and financial controls;

(iii) Monitoring the business and financial performance, major capital and operating expenses; and (iv) Monitoring managerial and staff performance. The Board has delegated the day-to-day management and running of the Company to the management team led by the Executive Chairman and CEO, David K.M. Chew, and the Executive Directors, Lim Soon Hock (Deputy Chairman) and Leong Sook Ching (Chief Corporate Officer), while reserving certain key issues and policies for its approval. During the year, there was a change to the Board. Lim Kim Choon was appointed as a Non-Executive and Non-Independent Director of the Company with effect from 19 May 2011. Details of the changes in Board Committees are disclosed under Directors’ Information on page 24. The Board conducts regular scheduled meetings and ad-hoc meetings are convened to address significant issues or approve major transactions. The members of the Board are provided with regular updates on the Company’s business operations and, as the case may be, are briefed by the Executive Chairman on matters to be discussed at Board meetings so that they can effectively provide strategic direction and guidance to the Company. In place of physical meetings, the Board and Board Committees also circulate written resolutions for approval by the relevant Board and Board Committee members. The Company’s Articles of Association provides for telephone and audio-visual communication conferences at Board meetings. The attendances of the directors at meetings of the Board and Board Committees as well as the number of meetings held (excluding management meetings) for FY2012 are disclosed below. Directors’ Attendance at Board and Board Committee Meetings for FY2012

Board

Names of Directors

Audit and Risk Management Committee

Nominating Committee

Remuneration Committee

Held

Attended

Held

Attended

Held

Attended

Held

Attended

David K.M. Chew

3

3

12

12*

2

1*

3

1*

Lim Soon Hock

3

2

12

12**

2

2

3

1*

Leong Sook Ching

3

3

12

12*

2

2*

3

1*

Lim Kim Choon

3

3

12

10***

2

0

3

3

Sajjad Ahmad Akhtar

3

3

12

12

2

2

3

3

Chew Hai Chwee

3

3

12

12

2

2

3

3

* ** ***

Attended meetings by invitation of the respective Committees. Lim Soon Hock attended 2 meetings of the Audit and Risk Management Committee as a Member and attended 10 meetings of the Audit and Risk Management Committee by invitation of the Audit and Risk Management Committee. Lim Kim Choon was appointed as a Member of the Audit and Risk Management Committee with effect from 19 May 2011.

23 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


CORPORATE GOVERNANCE REPORT 2.

BOARD COMPOSITION AND GUIDANCE (Principle 2) There is a strong and independent element on the Board. Presently, the Board comprises the following Directors: (1) David K.M. Chew – Executive Chairman and Chief Executive Officer (2) Lim Soon Hock – Deputy Chairman and Executive Director (3) Leong Sook Ching – Executive Director (4) Lim Kim Choon – Non-Executive and Non-Independent Director (5) Sajjad Ahmad Akhtar – Independent Director (6) Chew Hai Chwee – Independent Director The independence of each director is reviewed annually by the Nominating Committee (“NC”) based on the Code’s definition of independent director and guidelines as to relationships which would deem a director not to be independent. The size and composition of the Board will be reviewed annually by the NC to ensure that there is an appropriate mix of expertise and experience so as to facilitate effective decision making. The review will also ensure that Board members collectively possesses the relevant and necessary skills sets and core competencies which the Group may tap on for assistance in furthering its business objectives and shaping its business strategies. The NC, with the concurrence of the Board, is of the view that the current composition of the Board is appropriate and balanced, comprising persons who as a group, provide core competencies in the areas of finance, legal, commercial and domain knowledge. The diversity of the Directors’ experience allows for useful exchange of ideas and views. The NonExecutive Directors contribute to the Board process by monitoring and reviewing Management’s performance against goals and objectives. In addition, the NC also considered the Board size of 6 directors to be adequate and effective taking into account the size, nature and scope of the Company’s business. Key information regarding the directors is set out on pages 25 to 27 of the Annual Report. The composition of the Board complies with the Code’s guideline that Independent Directors make up at least one-third of the Board. Directors’ Information Board of Directors

Date of first Appointment

Date of last re-election

David K.M. Chew

19 Nov 1996

29 Jul 2009

-

-

-

Leong Sook Ching

19 Nov 1996

16 Aug 2010

-

-

-

Sajjad Ahmad Akhtar

31 Oct 2002

29 Jul 2011

Chairman

Member

Member

Lim Soon Hock

16 Sep 2004

29 Jul 2011

**

Member

**

Chew Hai Chwee

30 May 2006

16 Aug 2010

Member

Chairman

Chairman

Lim Kim Choon***

19 May 2011

29 Jul 2011

Member

-

Member

* ** ***

* Audit and Risk Nominating Management Committee Committee

Remuneration Committee

The Audit Committee was re-named Audit and Risk Management Committee on 11 July 2011. Lim Soon Hock resigned as a member of the then Audit Committee and Remuneration Committee with effect from 19 May 2011. Lim Kim Choon was appointed as a member of the Board, the then Audit Committee and the Remuneration Committee with effect from 19 May 2011.

24 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


CORPORATE GOVERNANCE REPORT 3.

EXECUTIVE CHAIRMAN & CHIEF EXECUTIVE OFFICER (“CEO”) (Principle 3) David K.M. Chew, founder of the Stratech Group, is the Executive Chairman and CEO of the Company. He plays a key role in developing the business of the Group and provides the Group with leadership and vision. He is responsible for the business strategy and directions, formulation of the Group’s corporate plans and policies. The Company currently has no plans to separate the roles of Chairman of the Board and CEO in line with the Company’s cost containment measures. Although this is a deviation from the recommendation of the Code, the Board believes that vesting the roles of both Chairman and CEO on the same person who is knowledgeable in the business of the Group, provides the Group with a strong and consistent leadership and allows for more effective planning and execution of long-term business strategies. To ensure an appropriate balance of power such that no one individual represents a considerable concentration of power or influence, the Executive Chairman is assisted by the Deputy Chairman and Executive Director, Lim Soon Hock, whose role as a management mentor includes helping to streamline the Company’s operations, raising productivity, overseeing corporate governance and risk management on behalf of the Audit and Risk Management Committee, given the complex nature of the business, which is largely project-based, and to prepare the Company for the next phase of growth. David K.M. Chew and Lim Soon Hock are not related. The NC will review the need to separate the roles from time to time and make its recommendation when necessary. All major decisions are reviewed and approved by the Board. The performance and appointment of the Executive Chairman and Deputy Chairman/Executive Director are reviewed by the NC and their remuneration packages by the RC. Both the NC and RC are chaired by Independent Directors. The Board believes that there are adequate safeguards and checks in place to ensure that the process of decision making by the Board is independent and based on collective decision making without any individual exercising any considerable concentration of power of influence. As Chairman of the Board, David K.M. Chew is responsible for the effective working of the Board such as ensuring that Board meetings are held when necessary, assisting in ensuring compliance with the Company’s guidelines on corporate governance, acting as a facilitator at Board meetings and maintaining regular dialogue with Management on all operational matters. The Company Secretary assists the Chairman in scheduling the Board and Board Committee meetings respectively in consultation with the Chief Financial Controller.

4.

BOARD MEMBERSHIP (Principle 4) Nominating Committee The NC is regulated by a set of written terms of reference and comprises three members, a majority of whom are independent Directors, including the Chairman. The Chairman of the NC is not associated with any substantial shareholder. The members are as follows: (1) Chew Hai Chwee – Chairman (2) Sajjad Ahmad Akhtar – Member (3) Lim Soon Hock - Member The NC’s main functions include: (1) evaluating and making recommendations to the Board on the appointment of new executive and non-executive directors, including disclosure on the search and nomination process; (2) regularly reviewing the Board structure, size and composition and making recommendations to the Board with regard to any adjustments that are deemed necessary to ensure a balanced Board; (3) making recommendations to the Board on the nomination of retiring directors and those appointed during the year standing for re-election at annual general meeting (“AGM”), having regard to the directors’ contribution and performance; (4) evaluating the effectiveness of the Board as a whole and contributions of each director. Identifying the skills, expertise and capabilities needed for the effective functioning of the Board; 25 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


CORPORATE GOVERNANCE REPORT (5) reviewing and evaluating a director who has multiple board representations on various companies is able to and has been adequately carrying out his/her duties as a director, having regard to the competing time commitments that are faced when serving on multiple boards; and (6) reviewing on an annual basis the independence of Directors, bearing in mind the circumstances set forth in the Code and any other salient factors. From time to time, new directors may be identified for appointment to the Board whereupon the NC will evaluate and assess their suitability, based on their qualifications, working experience and expertise, to determine if they are able to fit into the overall competency matrix of the Company’s Board before recommending them to the Board for its approval. The NC has a process for selection and appointment of new directors.This provides the procedure for the identification of potential candidates, skills, knowledge and experience, and subsequent recommendations to the Board. All directors, including newly appointed directors will be briefed and given an orientation by Management to familiarise themselves with the businesses and operations of the Group. Directors who do not have prior experience or are not familiar with the duties and obligations required of a listed company in Singapore, will undergo the necessary training and briefing. The Directors also have the opportunity to visit the Group’s operating facilities and meet with Management to gain a better understanding of the Group’s business operations and governance practices. The Directors may join institutes and group associations of specific interests, and attend relevant training seminars or informative talks from time to time to apprise themselves of legal, financial and other regulatory developments. As an ongoing exercise, the Directors will also be briefed during Board meetings or at separate seminars on amendments and requirements of the SGX-ST Listing Manual and other statutory and regulatory changes which may have an important bearing on the Company and the Directors’ obligations to the Company, from time to time. To ensure that there is a formal and transparent process for the appointment of new directors to the Board, all directors of the Company are required to submit themselves for re-election at regular intervals of at least every 3 years. Article 104 of the Articles of Association of the Company requires at least one-third of the Directors (except the Managing Director or Joint Managing Director or equivalent office) to retire by rotation at every AGM. Article 108 of the Articles of Association of the Company requires any person appointed as a director of the Company to hold office only until the next AGM following their appointment. The retiring directors are eligible to offer themselves for re-election. The NC, having considered the attendance and participation of the following of the Directors at Board and Board Committees meetings, in particular, their contributions to the business and operations of the Company as well as Board processes, had recommended to the Board the re-election of David K.M. Chew and Chew Hai Chwee who will be retiring in accordance with Article 104 of the Company’s Articles of Association at the forthcoming AGM. The Board had accepted the NC’s recommendation and accordingly, David K.M. Chew and Chew Hai Chwee will be offering themselves for re-election at the forthcoming AGM. Each member of the NC shall abstain from voting on any resolution and making any recommendation and/or participating in respect of his re-election as a director. Accordingly, Chew Hai Chwee, an NC member, being interested, had abstained from all deliberations and decisions on the matter. The NC has also reviewed the independence of the Board members with reference to the guidelines set out in the Code. Each non executive director is required to complete a confirmation stating his independence and whether he considers himself independent despite having any of the Directorships identified in the Code which would deem him not to be independent, if any. Based on their confirmations, the Board concurred with the NC’s views and has determined Chew Hai Chwee and Sajjad Ahmad Akhtar to be independent and free from any of their relationships as outlined in the Code. Lim Kim Choon is nonindependent by virtue of his position as a non-executive Director and consultant of the Company’s wholly-owned subsidiary, Stratech Aerospace Pte Ltd since 1 October 2010. He previously also served as a non-executive Director and consultant of the Company’s associated company, Stratech Aeronautics Pte Ltd (a joint venture company of which the Company owned 40% from 1 August 2010. As announced on 22 October 2011, the joint venture has since been terminated and is in the process of dissolution).

5.

BOARD PERFORMANCE (Principle 5) The NC conducts an annual assessment of the effectiveness of the Board as a whole and the contribution of each director to the effectiveness of the Board. In pursuance thereto, the NC has implemented a set of objective performance criteria, approved by the Board, to evaluate the performance of its directors. Besides their attendance at Board meetings, the directors’ abilities to provide strategic networking to enhance the business of the Company, availability for guidance and advice outside the scope of formal Board meetings, and contributions in specialised areas are also factors relevant in assessing the contributions of the directors.

26 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


CORPORATE GOVERNANCE REPORT The NC subscribes to the view that while it is important for directors to devote sufficient time and attention to the affairs of the Company, the issue of multiple board representations should be left to the judgment and discretion of each director. While the NC will not stipulate the maximum number of boards each director should be involved in, the NC will continue to monitor the contributions and the performance of each director and to assess whether each director has devoted sufficient time and attention to the affairs of the Group. The NC, having reviewed the multiple-board seats held by the Non-Executive Directors and considered their confirmations, is of the view that such multiple board representations do not hinder them from carrying out their duties as Directors of the Company. During the year, an evaluation of the Board performance had been conducted. The NC is generally satisfied with the results of the Board Performance Evaluation for FY2012 which indicated areas of strengths and those that require improvement. No significant problems were identified. The NC had discussed the results with the Board members who agreed to work on those areas that require improvements. The NC would continue to evaluate the process for such review, its effectiveness and development from time to time.

6.

ACCESS TO INFORMATION (Principle 6) To ensure that the Board is able to fulfill its responsibilities, Management regularly provides Board members with updates and the non-executive directors have full access to all members of the management team, without the presence or interference of Management if necessary. The directors have also been provided with the telephone numbers and e-mail addresses of the Company’s management and Company Secretary to facilitate access. Should directors, whether as a group or individually, need independent professional advice, the Company Secretary will, upon direction of the Board, appoint a professional advisor selected by the group or the individual to render the advice. The cost of such professional advice will be borne by the Company. The Company Secretary attends all board meetings and is responsible for ensuring that Board procedures are followed. It is the Company Secretary’s responsibility to ensure that the Company complies with the requirements of the Companies Act and SGX-ST Listing Manual. Together with the management staff, the Company Secretary is responsible for the compliance with all other rules and regulations which are applicable to the Company. The Company has also engaged an external professional firm as the Company’s Compliance Advisor.

7.

REMUNERATION MATTERS Procedures for Developing Remuneration Policies (Principle 7) The RC was formed to provide the Board with an independent assessment and review of the directors’ remuneration. The RC also reviews from time to time the remuneration framework and strategy for executive compensation. In accordance with the Code, the RC shall comprise wholly of non-executive directors who are independent of management, so as to ensure that the members are able to exercise their independent judgment and to minimise the risk of any potential conflict of interest. The RC, regulated by a set of written terms of reference and comprises three members, all of whom are Non-Executive Directors: (1) Chew Hai Chwee – Chairman (2) Sajjad Ahmad Akhtar – Member (3) Lim Kim Choon– Member The RC, which also administers the Stratech Share Option Scheme (“2011 Scheme”) and Stratech Performance Share Scheme (“PSS”), performs the following main duties: (1)

reviews and recommends to the Board in consultation with management and the Chairman of the Board, a framework of remuneration and the specific remuneration packages and terms of employment for each of the executive directors and senior executives/divisional directors (those reporting directly to the Executive Chairman and the CEO) including those employees related to the executive directors and controlling shareholders of the Company;

27 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


CORPORATE GOVERNANCE REPORT

In the case of service agreements, to consider what compensation commitments in the Directors’ service agreements, if any, would entail in the event of early termination with a view to be fair and avoid rewarding poor performance;

(2) carries out its duties in the manner that it deems expedient, subject always to any regulations or restrictions that may be imposed upon the RC by the Board of Directors from time to time; (3) (4)

recommends a formal and transparent policy for determining all aspects of remuneration on directors’ fees for nonexecutive directors of the Company, including directors’ fees, salaries, allowances, bonuses, options and benefits-inkind; and approves the participants and determines the quantum of options to be granted under the 2011 Scheme and to reward directors and employees on the number of shares to be given out under the PSS scheme.

In the discharge of its responsibilities, the RC has sought expert advice from a human resource consultancy firm to conduct salary benchmarking of the executive management team, considered the National Wage Council guidelines and recommendations and made various comparisons with similar-sized listed companies within the same industry on the shares to be awarded.

8.

LEVEL AND MIX OF REMUNERATION (Principle 8) In recommending to the Board the remuneration packages for the Company’s Directors and officers, the RC’s objective is to achieve a level of remuneration that would be appropriate to attract, retain and motivate the directors and officers needed to run the Company successfully and at the same time avoid incurring excessive payments for this purpose. In setting a remuneration package, the RC will consider the pay and conditions of employment within the industry and comparable companies accordingly. The structure for the payment of Directors’ fees for Non-Executive Directors is based on a framework comprising basic fees and additional fees for serving on Board Committees and also for undertaking additional services for the Group. The fees are also subject to approval of shareholders at the AGM. The Executive Directors do not receive any director’s fees for their Board directorship with the Company. No Director is involved in deciding his or her own remuneration. The Non-Executive Directors of the Company are appointed pursuant to, and hold office in accordance with, the Articles of Association. They are eligible for and have been granted options under the 2011 Scheme and also been granted performance shares under the PSS scheme. For FY2012, the RC is satisfied with the Executive Directors and Senior Management’s remuneration packages and recommended the same for the Board’s approval. The Board had approved the RC’s recommendation accordingly. Additional directors’ fee of S$121,725 have been proposed for the financial year ended 31 March 2012 for participating in board committee meetings and attendance fees. Directors’ fee amounting to S$108,000 for the financial year ending 31 March 2013 at S$36,000 to each Non-Executive Director have been proposed for payment in arrears on a monthly basis. The RC will continue to develop and refine the structure of the remuneration packages and the PSS scheme as and when necessary.

9.

DISCLOSURE OF REMUNERATION (Principle 9) A.

Executive Directors David K.M. Chew was appointed Executive Chairman and Chief Executive Officer and Leong Sook Ching was appointed Executive Director and Chief Corporate Officer (each an “Appointee” and collectively the “Appointees”) pursuant to their respective service agreements with the Company (each a “Service Agreement” and collectively, the “Service Agreements”). The Service Agreements commenced from 1 January 2008 for a period of two years, renewable for subsequent periods of two years each by the mutual consent of the Company and the Appointees. The RC has commissioned a benchmarking survey of the remuneration packages of some of the executive management positions, namely those of the Appointees and Chief Operating Officer, by independent consultants, with the view of negotiating new contracts with the Appointees. Pending the exercise, the existing Service Agreements have been extended by mutual agreement of the Company and the Appointees.

28 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


CORPORATE GOVERNANCE REPORT Their remuneration packages consist of fixed salaries, allowances, benefits, bonuses and performance share awards under the PSS scheme conditional upon achievement of performance targets. No bonuses were paid and no performance shares under the PSS scheme were awarded to the directors in FY2012. Pursuant to the shareholders’ approval obtained on 29 July 2011 options comprising of 9,182,830 and 3,935,500 shares at an exercise price of S$0.0187 were granted on 2 September 2011 to David K. M. Chew and Leong Sook Ching and are valid from 1 September 2012 to 31 August 2022. The exercise price is equal to the average of the last dealt prices for the shares on the SGX-ST for the three (3) consecutive trading days immediately preceding the date of grant of the option. Lim Soon Hock was appointed Deputy Chairman and Executive Director with effect from 10 August 2010 for a term of two years, pursuant to his service agreement dated 6 August 2010. His remuneration package consists of fixed salary, allowances, benefits, bonuses and performance share awards under the PSS scheme conditional upon achievement of performance targets. No bonus was paid and no performance shares were awarded to him in FY2012. Pursuant to his service agreement, he is remunerated during his employment as follows: (a) Cash of S$8.00 for each year of his employment; (b) Allotment and issue to him (on or about 1 August 2011) of 28,818,443 new ordinary shares in the capital of the Company (the “Remuneration Shares”) for the full term of his employment; and (c) Options to subscribe for 12,500,000 ordinary shares in the capital of the Company (“Remuneration Options”) at S$0.0187 granted on 2 September 2011 pursuant to and in accordance with the terms of the Company’s 2011 Scheme. Executive Directors’ Remuneration (FY2012 and FY2011) Range

FY2012

FY2011

S$500,000 to S$750,000

2

1

S$250,000 to S$499,000

1

2*

Below S$250,000

-

-

* B.

Lim Soon Hock’s remuneration for FY2011 was calculated on a pro rata basis for the number of months served of the two-year term.

Non-Executive Directors At the AGM held on 29 July 2011, the shareholders approved the additional payment of Directors’ fees of S$90,381 for the financial year ended 31 March 2011. Payment of S$108,000 for FY2012 at S$36,000 to each Non-Executive Director payable monthly in arrears had also been approved at the AGM held on 29 July 2011, which is the same fee structure as FY2010 and FY2011. The non-executive directors’ fee structure adopted includes an annual fee and additional fees for participation in Board committees as follows: (1) Chairman of Audit and Risk Management Committee (“ARMC”) – 50% of annual fee (2) Member of ARMC – 50% of ARMC Chairman’s fee (3) Chairman of other committees – 25% of annual fee (4) Member of other committees – 50% of committee Chairman’s fee Based on Management’s proposal, the RC accepted and the Board has adopted attendance fee of S$1,000 per Board or committee meeting and teleconference fee of S$500 for attendance via teleconference payable to each nonexecutive director with effect from FY2009.

29 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


CORPORATE GOVERNANCE REPORT The fees are established annually for the non-executive directors, taking into consideration, amongst others, the performance of the Company, size and complexity of the Company’s operations, achievements of the Company, workload requirements of directors and comparison with industry peers. Pursuant to the fee structure, the additional fees proposed for non-executive directors amounted to S$121,725 for FY2012. Subject to approval at the Company’s AGM for the collective additional fees for participation in Board Committees, the non-executive directors will be paid directors’ fees totaling S$229,725 for FY2012. Non-Executive Directors’ Remuneration (Financial Year 2012 & 2011) Range

FY2012

FY2011

S$75,000 to S$99,999

2

2

S$50,000 to S$75,000

1

-

S$25,000 to S$49,999

-

1*

* C.

Lim Soon Hock ceased to draw Director’s fees as a non-executive director upon his appointment as an Executive Director.

Stratech ESOS Scheme The 2011 Scheme was adopted at an Extraordinary General Meeting held on 29 July 2011. The 2011 Scheme is for a duration of 10 years from the adoption date of 29 July 2011 and will expire on 28 July 2021. The 2011 Scheme was adopted to acknowledge the contributions made by the employees and directors of the Company to the success and development of the Company and to motivate employees and directors to optimise their performance standards, dedication and efficiency. The Scheme is also a strong incentive to attract and recruit new employees with abilities and expertise which are crucial to the long-term growth and profitability of the Company. The 2011 Scheme is administered by the RC, which determines the terms and conditions of the grant of options, the vesting periods, (which may be over and above the minimum vesting periods prescribed by the Listing Manual of the SGX-ST.) The number of shares which may be offered to an employee or eligible director of the Company is determined by taking into account criteria such as rank, performance, years of service and the potential for future development of the particular employee or director. Under the 2011 Scheme, the RC has the ability to grant options to confirmed employees of the Group who have attained the age of 18 on or before the date of grant and eligible directors including Controlling Shareholders and their Associates. Pursuant to the SGX-ST, the grant of options to Controlling Shareholders and their Associates requires the approval of the independent shareholders of the Company at a general meeting. It is provided in the 2011 Scheme that the Board may make grants to non-executive directors, as it recognised that the non-executive directors, although not employed within the Group and are not involved in the day-to-day running of the Group’s business, work closely with the Company and by reason of their relationship with the Company are in a position to provide valuable input and contribute their experience, knowledge and expertise to the development of the Group. The total number of shares, which may be granted under the 2011 Scheme, shall not exceed 15% of the issued capital of the Company at any time and from time to time. Not more than 25% of the total number of these shares may be offered or granted to Controlling Shareholders and their Associate. The number of shares may be granted to each Controlling Shareholder and his Associate shall not exceed 10% of the shares available under the Scheme.

30 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


CORPORATE GOVERNANCE REPORT Options granted under the 2011 Scheme in FY2012: Aggregate Options granted Aggregate Options exercised Name of Participants since commencement of since commencement of Options granted the Options Scheme the Options Scheme during the FY2012 to end of the FY2012 to end of the FY2012

Aggregate Options outstanding as at end of the FY2012

Phung Nhuong Giang*

6,000,000

-

6,000,000

Lim Soon Hock

12,500,000

-

12,500,000

David K.M. Chew

9,182,830

-

9,182,830

Leong Sook Ching

3,935,500

-

3,935,500

500,000

-

500,000

4,000,000

-

4,000,000

Lim Kim Choon Mah Peek Sze Patsy *

The Options granted to Phung Nhuong Giang has been revoked on 6 June 2012.

• •

Lim Soon Hock, David K.M. Chew, Leong Sook Ching and Lim Kim Choon are Directors of the Company. No Participant received 5% or more of the total number of Option(s) available under the Option Scheme.

The options granted under the 2011 Scheme may be granted at the market price or at a discount to the market price, provided that the maximum discount shall not exceed 20% of the market price. There were no options granted granted at a discount to the market price in FY2012. Shares allotted and issued on the exercise of an option rank in full for all dividends or other distributions declared or recommended in respect of the then existing shares and shall in other respects rank pari passu with other existing shares. The subscription price payable for each share is calculated based on the average of the last dealt prices per share for the 3 consecutive market days in which trades were done in the shares immediately preceding the date of grant or its nominal value, whichever is higher. The Company deems it desirable for share options to be granted to non-executive directors to form part of the Directors’ remuneration and the RC has established a framework approved by the Board for the determination of the number of shares to be granted to the directors. The annual grants to each of the non-executive directors shall comprise shares not exceeding 0.4% of the total shares available under the Scheme in any one year and a grant of 500,000 shares shall be made to each non-executive member upon joining the Board. This number of shares is insignificant and will not affect the non-executive directors’ independence or judgment in their decision-making or Board Committee functions.

Performance Share Scheme On 4 June 2007, the shareholders approved the implementation of a new performance share scheme (“PSS Scheme”) in addition to the ESOS Scheme that will increase the Company’s flexibility and effectiveness in its continuing efforts to reward, motivate and retain employees to achieve superior performance. The PSS Scheme will further strengthen the Company’s competitiveness in attracting and retaining superior local and foreign talent. The PSS Scheme differs from the ESOS Scheme in that it allows the Company to target specific performance objectives and to provide an incentive for participants to achieve these targets. The PSS provides a more broad-based incentive that is based on the overall performance of the Company. The PSS Scheme is not intended to replace the ESOS Scheme, but to complement it. The Directors believe that together, the two plans will provide the Company with a flexible approach to provide performance incentives to its staff, and consequently to improve performance and achieve sustainable growth for the Company in the changing business environment, and to foster a greater ownership culture amongst key senior management and senior executives.

31 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


CORPORATE GOVERNANCE REPORT By implementing the PSS Scheme, the Company hopes to inculcate in all participants a stronger and more lasting sense of identification with the Group. The PSS Scheme will also operate to attract, retain and provide incentive to participants to encourage greater dedication and loyalty by enabling the Company to give recognition for past contributions and services as well as motivating participants generally to contribute towards the Group’s long-term prosperity. Unlike Options granted under the ESOS Scheme, the PSS Scheme contemplates the award of fully-paid Shares (the “Awards”) to eligible employees after the pre-determined performance target(s) has been achieved. The PSS Scheme is to reward and motivate the directors and employees to achieve superior performance. The Company believes that with the PSS Scheme in place, it will be more effective than merely having pure cash performance bonuses in place to motivate employees to work towards determined goals. In addition, the ESOS Scheme has a vesting period which is normally imposed before the Options can be exercised, while such vesting period is not applicable to performance shares granted under the PSS Scheme, save that the employees shall be obliged to hold these shares awarded to them for a period of 9 months from the date of grant. A performance target based share may be granted, for example, on the successful completion of a project and therefore, under the PSS Scheme, participants are encouraged to continue serving the Group beyond the achievement date of the performance targets. An option may be granted, for example, as a supplement to the remuneration packages for employees. The Company believes that with both Schemes in place, it will strengthen and enhance the Company’s ability in attracting and retaining suitable talents. The PSS Scheme is administered by the RC. Senior executives and executive directors who, in the opinion of the RC, have contributed or will contribute to the success of the Group shall be eligible to participate in the PSS Scheme. Nonexecutive directors shall also be eligible. In compliance with the requirements of the Listing Manual, a participant of the PSS Scheme who is a member of the RC shall not be involved in its deliberations in respect of shares to be granted to that member of the RC. The performance shares given to a particular participant under the PSS Scheme will be determined at the discretion of the RC, who will take into account factors such as the participant’s capability, scope of responsibility, skill and vulnerability to leaving the employment of the Group. In addition, the RC will also consider the compensation and/or benefits to be given to the participant under the PSS Scheme as well as such other share-based incentive schemes of the Company, if any. When deciding on the number of shares to be awarded under the PSS Scheme to a participant at any time, the RC will also take into consideration the number of shares to be awarded to that participant under the other Scheme at that time, if any. A total of 4,324,114 performance shares were issued to 39 eligible employees on 27 March 2012 in appreciation of their hardwork and dedication pursuant to the PSS Scheme. D.

Remuneration for Top 5 Key Executives FY2012 *Name

Designation

Date Joined

Date Left

Kennedy K.M. Chew

Technical Fellow

15 May 1996

-

Nwee Kok Thai

Director of Technology

6 Nov 1998

-

Chua Ah Leng

President & Chief Operating Officer

5 Jan 2007

31 Aug 2011

Mah Peek Sze Patsy

Chief Financial Officer

13 Dec 2010

-

Phung Nhuong Giang

Chief Operating Officer

1 Sept 2011

6 Jun 2012

*

Ranked by joining date

32 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


CORPORATE GOVERNANCE REPORT

Range

FY2011

FY2012

S$300,000 to S$450,000

-

1

S$150,000 to S$299,000

2

1

Below S$150,000

3

3

There were no employees whose remuneration exceeded S$150,000 during FY2012 who were related to the Directors or CEO or Substantial Shareholders, except for Kennedy K.M. Chew, who is the brother of David K.M. Chew and brother-in-law of Leong Sook Ching.

10.

ACCOUNTABILITY & AUDIT Accountability (Principle 10) The Board of Directors is accountable to the shareholders while the Company’s management team is accountable to the Board. Management presents to the Board half-year and full-year accounts and ARMC reports on the results for review and approval by the Board. The Board approves the results and authorizes the release of results to SGX-ST and public via SGXNET. In line with the requirements of the SGX-ST Listing Manual, a negative assurance statement was issued by the Board to accompany the half-year results confirming to the best of the Board’s knowledge that nothing has come to its attention that may render the results to be false or misleading. In addition, the Company has also kept its shareholders abreast of material developments of the Company in its periodic announcement of its financial results.

11.

AUDIT AND RISK MANAGEMENT COMMITTEE (Principle 11) On 11 July 2011, the Audit Committee has been re-named as “Audit and Risk Management Committee” (“ARMC”) in line with the recommendation of the Code. The functions previously carried out by the Audit Committee are now assumed by the ARMC. The ARMC, regulated by a set of written terms of reference, comprises 3 members, all of whom are non-executive directors. The members of the ARMC were as follows: (1) Sajjad Ahmad Akhtar – Chairman, Independent Director (2) Chew Hai Chwee – Member, Independent Director (3) Lim Kim Choon – Member, Non-Executive and Non-Independent Director The background of the ARMC Chairman and members are as stated in the relevant section of the Annual Report. The Board has reviewed and is satisfied that the members of the ARMC are appropriately qualified, having the necessary accounting or related financial management expertise and experience as the Board interprets such qualification to discharge their responsibilities. The ARMC is granted full authority and access to the Company’s auditor, finance and accounts department without the presence and interference of the executive management and senior management.

33 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


CORPORATE GOVERNANCE REPORT The role of the ARMC is to assist the Board with discharging its responsibilities to: (1) safeguard the Company’s assets; (2) maintain adequate accounting records; (3) develop and maintain effective systems of internal control; and (4) provide oversight of financial reporting compliance and risk management The overall objective of the ARMC is to ensure that Management has created and maintained an effective control environment in the Company and that management demonstrates and stimulates the necessary respect of the internal control structure amongst all parties. As a sub-committee of the Board, the ARMC provides a channel of communication between the Board, management and external auditor on matters arising out of the external audits. The duties of the ARMC are: (1) to review with the external auditor: (2)

• • • •

the audit plan, including the nature and scope of the audit before the audit commences their evaluation of the system of internal accounting controls their audit report their management letter and management’s response

to ensure co-ordination where more than one audit firm is involved;

(3) to review the Group’s half-year and full-year financial statements before submission to the Board for approval, focusing in particular, on:

• • • • • •

changes in accounting policies and practices major risk areas significant adjustments resulting from the audit the going concern statement compliance with accounting standards compliance with stock exchange and statutory/ regulatory requirements

(4) to discuss problems and concerns, if any, arising from the interim and final audits, and any matters which the auditor may wish to discuss (in the absence of Management where necessary); (5) to review the assistance given by Management to the Auditor; (6) to review the internal controls and ensure co-ordination between external auditor and the management; (7) to review the effectiveness of the Group’s internal audit procedures and internal controls, including financial, operational, compliance and risk management; (8)

to review the balance sheet and profit and loss account of the Company and the consolidated balance sheet and profit and loss account, before approval by the Board, and to review significant accounting and reporting issues and also their impact on financial statements so as to ensure the integrity of the financial statements and any formal announcements relating to the Company’s financial performance and recommend to the Board the acceptance of such financial statements;

34 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


CORPORATE GOVERNANCE REPORT (9) to review and discuss with the external auditor any suspected fraud, irregularity or suspected infringement of any Singapore law, rules or regulations which has or is likely to have a material impact on the Company’s operating results or financial position and Management’s response; (10) to report to the Board its findings from time to time on matters arising and requiring the attention of the Committee; (11) to review transactions falling within the scope of Chapter 9 (Interested Person Transactions) of the SGX Listing Manual; (12) to undertake such other reviews and projects as may be requested by the Board; (13) to undertake such other functions and duties as may be required by statute or the Listing Manual and by such amendments made thereto from time to time; (14)

to keep under review the scope and results of the audit and its cost effectiveness and the independence and objectivity of the external auditor. Where the auditor also supplies a substantial volume of non-audit services to the Company, the ARMC will keep the nature and extent of such services under review, seeking to balance the maintenance of objectivity and value for money;

(15) to consider the appointment, re-appointment and removal of the external auditor at the Annual General Meeting and to review the audit fee and matters relating to the auditor; and (16) to meet and review the audit plans with external auditor. The ARMC has the authority to investigate any matter within its terms of reference, full access to and co-operation by management and full discretion to invite any director or executive officer to attend its meetings. The ARMC is entitled to reasonable resources to enable it to discharge its functions properly. The ARMC has also adopted a Risk Management Policy which forms part of the internal control and governance arrangements of the Stratech Group. The Risk Management Policy explains the underlying approach to risk management, documents the roles and responsibility of the ARMC and other key parties. It also outlines key aspects of the risk management process and identifies the main reporting procedures. In addition, it describes the process that the ARMC will use to evaluate the effectiveness of the Group’s internal control procedures. The ARMC will oversee the review of the Group’s business and operational activities to identify areas of significant business risks as well as of appropriate measures to control and mitigate these risks within the Group’s policies and strategies. Any significant matters detected by Management are reported to the ARMC and the Board. The Group’s financial risk management is disclosed under Note 4 of the Notes to Financial Statements on pages 63 to 67 of this Annual Report. During the financial year, the ARMC has: (i)

met with the external auditor without the presence of the Management. The external auditor, LTC LLP, confirmed that they had full access to and had the full cooperation and assistance of Management;

(ii)

reviewed the independence and objectivity of the external auditor including the scope of non-audit services performed, to satisfy itself that the nature and extent of such services will not prejudice the independence and objectivity of the external auditor as well as the cost effectiveness of the audit before confirming their re-nomination. The following fees were approved:

FY2012

FY2011

S$’000

S$’000

150

150

-

52

Audit fee Non-audit fee

The external auditor had also confirmed its independence in this respect.

35 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


CORPORATE GOVERNANCE REPORT (iii) confirmed that Company had complied with Rule 712 of the SGX-ST Listing Manual in relation to the appointment of a suitable auditing firm to meet its audit obligations. LTC LLP, the appointed auditor of the Group, is registered with the Accounting and Corporate Regulatory Authority and is an independent member firm of BKR International.

The ARMC was satisfied that the resources in terms of supervisory and professional staff assigned to the audit of the Group and experience of LTC LLP, the Audit Engagement Partner and his team assigned to the audit were adequate.

(iv)

confirmed that the Company had complied with Rule 715 of the SGX-ST Listing Manual in relation to the appointment of the same auditing firm based in Singapore to audit its accounts, its Singapore-incorporated subsidiaries and, its foreign-incorporated subsidiaries. The Group’s subsidiaries and associated companies are disclosed under Note 7 and Note 8 respectively to the Financial Statements on pages 70 to 71 of this Annual Report.

The ARMC, with the concurrence of the Board, had recommended the re-appointment of LTC LLP as external auditor at the forthcoming AGM. The Company has a “Whistle-Blowing” policy in place which provides a well-defined and accessible channel for staff of the Group through which the staff may, in confidence, raise concerns about possible fraudulent activities, malpractices or improprieties in matters of financial reporting or other matters in a responsible and effective manner. Arrangements for independent investigation of such matters and appropriate follow up actions were also provided for in the “Whistle-Blowing” policy. There were no reports of whistle blowing received in FY2012.

12.

INTERNAL CONTROLS (Principle 12) The Company strives continually to identify gaps, develop, improve and enforce compliance of internal controls procedures. This is to improve the overall internal controls in order to safeguard shareholders’ investment and the Company’s assets. The ARMC reviews the Company’s internal controls, including internal financial controls, operational and compliance controls, risk management policies and systems established by Management and their adequacy on an annual basis. The ARMC will review the external auditor’s recommendations and ensure that the follow-up on actions are implemented. During the current year, the Management has introduced new and/or recommended policies and procedures to tighten the Group’s controls in areas where weaknesses and shortcomings were discovered, pursuant to an independent review performed at the behest of the ARMC. The ARMC has during the financial year conducted periodical random checks and have independently met with members of the Company’s Quality & Excellence, Human Resource and Finance teams without the presence of the Executive Directors to assess and monitor implementation of new processes and policies and their respective compliances. The ARMC will continue to work with the auditor and the Company to monitor that the internal controls are adequate. The Board recognises that no internal control system will preclude all errors and irregularities, as a system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can provide only reasonable and not absolute assurance against material misstatement or loss. The review of the Group’s internal control systems is a concerted and continuing process. As recommended by the SGX-ST, an opinion of the Board with the concurrence of the ARMC on the adequacy of the internal controls, addressing financial, operational and compliance risks is set out in the Directors’ Report under page 42 of the Annual Report.

13.

INTERNAL AUDIT (Principle 13) The ARMC appointed Ernst & Young Advisory Pte Ltd (“EY Advisory”) in September 2010 to conduct an independent assessment on the veracity of certain anonymous allegations made to the Singapore Exchange Securities Trading Limited (“SGX”). The review spanned 16 months until March 2012 and included the review of certain processes and policies of the Company relating to the Group’s internal control process in certain key areas. Pursuant to the review, it was recommended that certain of the Group’s internal controls be improved upon/tightened. In view of this, the Company did not outsource its internal audit function in FY2012. During the year, the Group followed up on internal audits conducted in previous years and the said review to implement the recommendations and improve upon procedures and internal controls for a number of the Group’s key business processes. Further to the above, the ARMC had requested the external auditor to pay extra attention in their FY2012 audit to certain key elements of financial reporting and related internal controls, including income recognition, preparation of timesheets for capitalization of development costs and approval of travel warrants and reimbursements of expense claims. The ARMC has closely monitored the implementations of improvements to tighten controls. The ARMC will review the adequacy of the internal audit function annually to determine whether to continue to outsource the Group’s internal audit or to establish an in-house internal audit function.

36 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


CORPORATE GOVERNANCE REPORT 14.

COMMUNICATIONS WITH SHAREHOLDERS (Principles 14 & 15) The Company regularly communicates pertinent and relevant information to shareholders, gathers views and addresses shareholders’ concerns. Information is communicated to shareholders on a timely basis. Communication with shareholders is conducted through announcements to the SGX and press releases, press and media briefings, if any, after the announcement of the financial results, and the posting of announcements and releases on the Company’s regularly updated website at www.stratechsystems.com. Investors may send in their requests or queries to the Company through the e-mail address on the website. The Company does not participate in selective disclosure in the communication of material information. Communication with SGX is handled by the Company Secretary and its Compliance Advisor while communication with shareholders, analysts and fund managers is handled by the Company Corporate Communications Officer. In addition, the Company has responded promptly to queries from the SGX on any unusual trading activities in its securities and or any queries thereto. The Company announces its half-year and full-year results via the SGXNet. Price sensitive information is publicly released via SGXNet before the Company meets with any group of investors or analysts. In line with continuous obligations, the Company is mindful of the need for regular and proactive communication with its shareholders. All shareholders of the Company receive the notice of Annual General Meeting (AGM) and/or Extraordinary General Meeting (EGM), if any, through the post. The notice is also advertised in the newspapers and also through SGXNet. At shareholders’ meetings, shareholders are given the opportunity to air their views and pose questions to Directors or Management. The external Auditor will be present to assist the Directors in addressing any relevant queries by shareholders. Each distinct issue is proposed as a separate resolution. The Articles allow a member of the Company to appoint one or more proxies to attend and vote instead of the member. The duly completed proxy form is to be submitted 48 hours before the shareholders’ meeting and deposited at the Company’s registered office.

15.

OTHER MATTERS Interested Person Transactions (“IPT”) Policy The Company reviews interested person transactions in accordance with the requirements of the SGX-ST Listing Manual. The following have been declared: (a) David K.M. Chew provided a continuing guarantee for the recovery of outstanding debts from Procurement Bureau of the Republic of China, Taiwan, Ministry of National Defence and EDS Electronic Data Systems (HK) LTD. (b)

During FY2011, David K.M. Chew had extended a loan amounting to S$3.7 million to the Company pursuant to a loan agreement dated 8 August 2011 (the “Loan”). David K.M. Chew has also undertaken to partially offset the repayment amount due to him under the Loan against the full satisfaction of the consideration payable by him pursuant to the proposed Rights Issue as mentioned in the Notes 2.4(ii), 4.5, 13a and 27(a) of the Notes to Financial Statements on pages 52, 66, 77 and 88 of this Annual Report. The Loan bears interest at five percent (5%) per annum (but not exceeding S$100,000), is unsecured, and is repayable on the completion of the Rights Issue. During FY2012, the Company has accrued S$100,000 in interest payable to David K.M. Chew.

(c)

During the financial year, Lim Kim Choon who was appointed as director of the Company since 19 May 2011, was also a director of a subsidiary and at the same time he also provided consultancy services to the Group. The consultancy fees paid to him in respect of his services rendered to the subsidiary was S$120,000 (FY2011: S$60,000).

37 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


CORPORATE GOVERNANCE REPORT (d) In accordance with Rule 907 of the SGX-ST Listing Manual: Aggregate value of all interested person transactions during the financial year under review (excluding transactions less than S$100,000 each)

Transactions not conducted under shareholders’ mandate pursuant to Rule 920 Name of interested person David K.M. Chew Note 27 (a) Provision of continuing guarantee Lim Kim Choon (Para 15(c) and Material Contracts) Provision of consultancy service

FY2012 S$’000

FY2011 S$’000

2,414 120

Transactions conducted under shareholders’ mandate pursuant to Rule 920 FY2012 S$’000

FY2011 S$’000

2,402

-

-

60

-

-

(e) Other than disclosed above, there was no IPT shareholders’ mandate or IPT disclosable under Chapter 9 of the Listing Manual of the Singapore Exchange Securities Trading Limited. Dealing in Securities The Company has adopted an internal code on dealings in securities to govern dealings in its shares by key employees within the Group pursuant to Rule 1207(19) of the SGX-ST Listing Manual. Officers of the Company are not allowed to deal in the Company’s shares during the period commencing one month before the announcement of the Company’s full year and half-yearly financial results and ending on the date of the announcement of the results. Officers are also not allowed to deal in the Company’s shares while in possession of material price sensitive information and on short-term considerations at all times. Material Contracts Lim Kim Choon was appointed as a non-executive director of the Company in May 2011. Subsequently in October 2011, the Group renewed the consultancy agreement with him which was entered into in April 2010. Consultancy fees paid to him during the financial year were S$120,000 (FY2011: S$60,000). Save as disclosed, there is no material contract involving the interests of any director or controlling shareholders of the Company entered into by the Company or any of its subsidiary companies in FY2012 except the transaction with the Director disclosed in Principle 15, Interested Person Transactions Policy on page 37.

38 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


DIRECTORS’ REPORT

for the financial year ended 31 March 2012

The directors present to the members of Stratech Systems Limited (the "Company") their report together with the audited consolidated financial statements of the Company and its subsidiaries (the "Group") for the financial year ended 31 March 2012 (the "year") and the statement of financial position of the Company as at 31 March 2012. 1

Directors The directors of the Company in office at the date of this report are: David K.M. Chew ("Dr. Chew") Leong Sook Ching Sajjad Ahmad Akhtar Lim Soon Hock Chew Hai Chwee Lim Kim Choon (appointed on 19 May 2011)

2

Arrangements to enable directors to acquire shares and debentures Except as described in paragraph 5 below, neither at the end of nor at any time during the financial year was the Company a party to any arrangement whose object was to enable the directors of the Company to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate.

3

Directors' interests in shares or debentures According to the register of directors' shareholdings, none of the directors holding office at the end of the financial year had any interest in the shares or debentures of the Company or its related corporations, except as follows:

Name of directors

Direct interest At start At end of year of year

Deemed interest At start At end of year of year

Stratech Systems Limited (no. of ordinary shares) David K.M. Chew Leong Sook Ching Sajjad Ahmad Akhtar Lim Soon Hock Chew Hai Chwee

269,303,102 54,897,489 641,380 641,380 609,380

269,303,102 54,897,489 641,380 29,459,823 609,380

54,897,489 269,303,102 -

54,897,489 269,303,102 -

By virtue of Section 7 of the Singapore Companies Act, Cap. 50, David K.M. Chew and Leong Sook Ching are each deemed to have an interest in the shares of the Company’s subsidiaries. Sajjad Ahmad Akhtar and Chew Hai Chwee are non-executive and independent directors of the Company. The directors' interests in the shares of the Company as at 21 April 2012 were the same as those as at 31 March 2012. 4

Directors' contractual benefits Except as disclosed in the financial statements, since the end of the previous financial year, no director has received or become entitled to receive a benefit, 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.

39 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


DIRECTORS’ REPORT

for the financial year ended 31 March 2012

5

Share options (a)

ESOS 2000 Scheme Options to take up unissued shares During the previous financial year ended 31 March 2011, the Company had an employee share option scheme (the "Employee Stock Option Scheme 2000" or the "ESOS 2000 Scheme") for the granting of non-transferable options to eligible employees. The Company had, at an extraordinary general meeting held on 29 July 2011, obtained a shareholders' mandate to terminate the ESOS 2000 Scheme and replace it with the Employee Share Option Scheme 2011 ("ESOS 2011 Scheme). Unissued shares under options and options exercised under the ESOS 2000 Scheme The number of outstanding options under the ESOS 2000 Scheme as at 31 March 2012 were as follows:Expiry date

Exercise price (S$)

03 February 2013 08 July 2013 19 May 2014 02 January 2015 22 January 2016 (b)

Number of options

0.073 0.190 0.143 0.060 0.076

111,000 453,000 1,011,000 1,347,000 741,000

ESOS 2011 Scheme At the Company's extraordinary general meeting held on 29 July 2011, the Company obtained a shareholders' mandate for the ESOS 2011 Scheme for granting of non-transferrable options to eligible employees and directors, including certain executive directors who are also controlling shareholders of the Company. Options are granted for terms of up to 10 years to purchase the Company's ordinary shares ("shares") at the prevailing market price or at a discount of up to but not exceeding 20% of the prevailing market price of the Company's share on the relevant date of the grant of the options. The options, upon payment of its exercise price, are exercisable in numbers or percentages according to each grant made, beginning on the first or second anniversary and subsequent relevant anniversaries of the date of each grant or other option periods as granted by the Company. Options granted with a discount under the ESOS 2011 Scheme are subject to a longer vesting period (two (2) years) than those granted at the Market Price (one (1) year). Options to take up unissued shares Pursuant to the ESOS 2011 scheme the Company had, during FY2012, granted to: (i)

David K.M. Chew, an Executive Director and Chairman of the Company, 9,182,830 share options exercisable for 9,182,830 shares. These share options are exercisable from 1 September 2012 to 31 August 2022 at an exercise price of S$0.0187 per share option.

(ii)

Lim Soon Hock, an Executive Director and Deputy Chairman, 12,500,000 share options exercisable for 12,500,000 shares. These share options are exercisable from 1 September 2012 to 31 August 2022 at an exercise price of S$0.0187 per share option.

(iii)

Leong Sook Ching, an Executive Director and Chief Corporate Officer of the Company, 3,935,500 share options exercisable for 3,935,500. These share options are exercisable from 1 September 2012 to 31 August 2022 at an exercise price of S$0.0187 per share option.

40 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


DIRECTORS’ REPORT

for the financial year ended 31 March 2012 Directors' Report (cont'd) For the financial year ended 31 March 2012 5

Share options (cont'd) (iv)

Lim Kim Choon, a Non-executive Director of the Company, 500,000 share options exercisable for 500,000 shares. These share options are exercisable from 11 November 2012 to 10 November 2022 at an exercise price of S$0.0166 per share option.

(v)

A management staff of the Company, 4,000,000 share options exercisable for 4,000,000 shares. These share options are exercisable from 11 November 2012 to 10 November 2022 at an exercise price of S$0.0166 per share option.

The Company's ESOS scheme are administered by the Remuneration Committee whose members are: Chew Hai Chwee Sajjad Ahmad Akhtar Lim Kim Choon (appointed on 19 May 2011) Further particulars of the options granted under the ESOS Scheme are set out in Note 16 to the financial statements. 6

Performance Share Scheme The Company establised a performance share scheme (the "PSS Scheme") on 4 June 2007. The performance share given to a particular participant under the PSS Scheme will be determined at the discretion of the Remuneration Committee, who will take into account factors such as the participant's capability, scope of responsibility, skill, and vulnerability to leaving the employment of the Group. Pursuant to the PSS Scheme, the Company had, on 27 March 2012, awarded 4,324,114 (FY2011: nil) fully paid shares to certain eligible employees. The scheme is administered by the Remuneration Committee.

7

Audit and Risk Management Committee On 11 July 2011, the Audit Committee has been re-named as “Audit and Risk Management Committee” (“ARMC”) in line with the recommendation of the Singapore Code of Corporate Governance 2005. The functions previously carried out by the Audit Committee are now assumed by the ARMC. The ARMC, regulated by a set of written terms of reference, comprises 3 members, all of whom are nonexecutive directors. The members of the ARMC were as follows: Sajjad Ahmad Akhtar – Chairman, non-executive and independent Chew Hai Chwee – Member, non-executive and independent Lim Kim Choon – Member, non-executive and non-independent The ARMC carried out its functions in accordance with Section 201B(5) of the Singapore Companies Act, Cap. 50. In performing those functions, the ARMC reviewed: (i)

the effectiveness of the Group’s internal audit procedures and internal controls, including financial, operational, compliance and risk management;

(ii)

the audit plan of the Company's independent auditor and any recommendations on internal accounting control arising from the statutory audit;

(iii)

the assistance given by the Company's management to the independent auditor;

41 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


DIRECTORS’ REPORT

for the financial year ended 31 March 2012 Directors' Report (cont'd) For the financial year ended 31 March 2012 7

Audit and Risk Management Committee (cont'd) (iv)

to review and discuss with the external auditor any suspected fraud, irregularity or suspected infringement of any Singapore law, rules or regulations which has or is likely to have a material impact on the Company’s operating results or financial position and Management’s response;

(v)

the statement of financial position of the Company and the consolidated statement of financial position and statement of comprehensive income, before approval by the Board, and to review significant accounting and reporting issues and also their impact on financial statements so as to ensure the integrity of the financial statements and any formal announcements relating to the Company’s financial performance and recommend to the Board the acceptance of such financial statements;

The duties and functions performed by the ARMC are explained in more detailed in the Corporate Governance Report set out in this Annual Report of the Company. 8

Compliance with Rule 1207(10) of the Listing Manual of the Singapore Exchange Securities Trading Limited ("SGX-ST") The Board, with the concurrence of the ARMC, after carrying out a review, is of the opinion that the internal controls of the Group are adequate to address operational, financial and compliance risks. In arriving at the opinion, the Board is of the view that the internal controls of the Group have reasonable assurance about achieving the objectives set out below: (a)

effectiveness and efficiency of operations

(b)

reliability of financial reporting

(c)

compliance with applicable laws and regulations.

With regards to the Company's internal control system, the Board notes that no system of internal controls and risk management can provide absolute assurance in this regard, or absolute assurance against the occurrence of material errors, poor judgement in decision-making, human error, losses, fraud or other irregularities. The Board, together with the ARMC and management, will continue to enhance and improve the existing internal control framework to identify and mitigate these risks. 9

Independent Auditor The independent auditor, LTC LLP, has expressed its willingness to accept re-appointment.

On behalf of the directors

David K.M. Chew Director

Lim Soon Hock Director

Singapore, 26 June 2012

42 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


STATEMENT BY DIRECTORS

for the financial year ended 31 March 2012 Statement by Directors For the financial year ended 31 March 2012 In the opinion of the directors, (a)

the statement of financial position of the Company and the consolidated financial statements of the Group are drawn up so as to give a true and fair view of the state of affairs of the Company and of the Group as at 31 March 2012, and of the results of the business, changes in equity and cash flows of the Group for the financial year then ended; and

(b)

as more fully described in note 2.4, at the date of this statement, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they fall due.

On behalf of the directors

David K.M. Chew Director

Lim Soon Hock Director

Singapore, 26 June 2012

43 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


INDEPENDENT AUDITOR’S REPORT

To the Members of Stratech Independent Auditor's Report Systems Limited for the financial year ended 31 March 2012 To the Members of Stratech Systems Limited For the financial year ended 31 March 2012 Report on the Financial Statements We have audited the accompanying financial statements of Stratech Systems Limited (the "Company") and its subsidiaries (the "Group"), which comprise the statements of financial position of the Group and of the Company as at 31 March 2012, and the statement of comprehensive income, statement of changes in equity and statement of cash flows of the Group, for the financial year then ended, and a summary of significant accounting policies and other explanatory information. Management’s Responsibility for the Financial Statements Management is responsible for the preparation of financial statements that give a true and fair view in accordance with the provisions of the Singapore Companies Act (the "Act") and Singapore Financial Reporting Standards, and for devising and maintaining a system of internal accounting controls sufficient to provide a reasonable assurance that assets are safeguarded against loss from unauthorised use or disposition; and transactions are properly authorised and that they are recorded as necessary to permit the preparation of true and fair profit and loss accounts and balance sheets and to maintain accountability of assets. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Singapore Standards on Auditing. Those standards require that we 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 the auditor's judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation of financial statements that give a true and fair view 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 entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, 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 consolidated financial statements of the Group and the statement of financial position of the Company are properly drawn up in accordance with the provisions of the Act and Singapore Financial Reporting Standards so as to give a true and fair view of the state of affairs of the Group and of the Company as at 31 March 2012, and the results, changes in equity and cash flows of the Group for the financial year ended on that date. Report on Other Legal and Regulatory Requirements In our opinion, the accounting and other records required by the Act to be kept by the Company and by those subsidiaries incorporated in Singapore of which we are the auditor, have been properly kept in accordance with the provisions of the Act.

LTC LLP Public Accountants and Certified Public Accountants Singapore, 26 June 2012

44 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


STATEMENTS OF FINANCIAL POSITION As at 31 March 2012

Statements of Financial Position As at 31 March 2012 Note Assets Non-current assets Plant and equipment Investments in subsidiaries Investment in an associated company Intangible assets

6 7 8 9

Current assets Inventories Trade and other receivables Fixed deposits Cash and bank balances

10 11 11

Total assets

FY2012 S$'000

Group

FY2011 S$'000

Company FY2012 S$'000

FY2011 S$'000

774 7,385 8,159

463 7,700 8,163

774 876 7,385 9,035

463 876 40 7,636 9,015

141 6,140 11,103 43 17,427

167 10,069 9,388 98 19,722

141 9,807 11,103 21 21,072

167 13,441 9,388 90 23,086

25,586

27,885

30,107

32,101

Liabilities Current liabilities Borrowings Trade and other payables Deferred development grant Provisions

12 13a 15 13b

9,317 11,067 55 4,162 24,601

7,806 4,377 3,389 15,572

9,317 10,984 55 4,162 24,518

7,806 4,315 3,389 15,510

Non-current liabilities Deferred development grant Borrowings

15 12

178 178

164 207 371

178 178

164 207 371

24,779

15,943

24,696

15,881

807

11,942

5,411

16,220

98,692 449 (247) (86,952) 11,942

99,508 353 (94,450) 5,411

98,692 449 (82,921) 16,220

Total liabilities Net assets Equity Capital and reserves attributable to equity holders of the Company Share capital 17 Share option reserve Translation reserve Accumulated losses Total equity

99,508 353 (244) (98,810) 807

The accompanying notes form an integral part of these financial statements. 45 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the financial year ended 31 March 2012

Consolidated Statement of Comprehensive Income For the financial year ended 31 March 2012 Group

Revenue Cost of goods and services sold

Note

FY2012 S$'000

FY2011 S$'000

18

5,787 (4,366)

15,081 (5,444)

1,421

9,637

413 (744) (6,775) (5,792) (594) -

733 (622) (5,496) (3,308) (3,956) (547) (40)

(13,492)

(13,236)

Gross profit Other operating income Selling and distribution expenses Administrative expenses Other operating expenses Provision for litigation Finance costs Share of loss of an associated company

20

22

Operating expenses, net Loss before income tax

24

(12,071)

(3,599)

Income tax expense

23

-

-

(12,071)

(3,599)

Net loss for the year Other comprehensive income: Foreign currency translation relating to financial statements of foreign subsidiaries

3

97

Other comprehensive income for the year, net of tax

3

97

Total comprehensive loss for the year

(12,068)

(3,502)

Net loss attributable to equity holders of the Company

(12,071)

(3,599)

Total comprehensive loss attributable to equity holders of the Company

(12,068)

(3,502)

(1.37)

(0.41)

Loss per share (cents) - basic and diluted

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

46 STRATECH SYSTEMS LIMITED annual report 2011 / 2012

25


CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the financial year ended 31 March 2012 Consolidated Statement of Changes in Equity For the financial year ended 31 March 2012 Share capital Group As at 1 April 2011

S$'000

Share Translation Accumulated reserve option losses reserve S$'000 S$'000 S$'000

98,692

449

(247)

Total S$'000

(86,952)

11,942

(12,071)

(12,068)

Total comprehensive loss for the year

-

-

Share based payment to a director

721

-

-

-

721

95

-

-

-

95

-

213

Employees' performance share expenses Reversal of equity-settled share options

(213)

-

Employees' share option expense As at 31 March 2012

117 99,508

Share capital Group As at 1 April 2010

S$'000

353

98,692

646

-

Employees' share option expense

-

(197)

98,692

449

117

(244)

(98,810)

Share Translation Accumulated option reserve losses reserve S$'000 S$'000 S$'000

Total comprehensive loss for the year

As at 31 March 2011

3

807

Total S$'000

(344)

(83,353)

15,641

97

(3,599)

(3,502)

-

(247)

(86,952)

(197) 11,942

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

47 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


CONSOLIDATED STATEMENT OF CASH FLOWS for the financial year ended 31 March 2012 Consolidated Statement of Cash Flows For the financial year ended 31 March 2012

Group FY2012 S$'000

FY2011 S$'000

Cash flows from operating activities Loss before income tax Adjustments: Amortisation of deferred development grant Amortisation of intangible assets Bad debts written off Depreciation expense Intangible assets written off Loss on disposal of plant and equipment Equity-settled share option expenses granted to employees Equity-settled remuneration payment to a director Reversal of employees' share option expenses, net Employee performance share expense Provision for doubtful trade and other receivables Provision for impairment of accrued revenue Provision for project costs Provision for foreseeable project loss Provision for litigation Unrealised foreign exchange loss Write-back of impairment of plant and equipment Write-back of provision for doubtful debts Interest income Finance costs

(12,071)

(3,599)

(109) 2,678 233 108 157 88 117 299 95 1,527 343 154 470 3 (34) 594

(112) 1,999 1 223 (197) 805 3,956 100 (67) (20) (10) 547

Changes in working capital:

(5,348)

3,626

Inventories Trade and other receivables Trade and other payables

26 1,955 2,711

411 1,416 (347)

Cash (used in) / generated from operations

(656)

Interest paid Interest received

(462) 7

5,106 (536) 10

Net cash (used in) / provided by operating activities

(1,111)

4,580

Cash flows from investing activities Additions of intangible assets Additions to plant and equipment Proceeds from disposal of plant and equipment

(2,520) (507) -

(2,594) (4) 388

Net cash used in investing activities

(3,027)

(2,210)

The accompanying notes form an integral part of these financial statements. 48 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


CONSOLIDATED STATEMENT OF CASH FLOWS for the financial year ended 31 March 2012 Consolidated Statement of Cash Flows For the financial year ended 31 March 2012

Cash flows from financing activities Repayment to hire purchase creditor Increase in bills payable Proceeds/(repayment) of amount due to a director-cum-shareholder Proceeds from loan from financial institution Repayment of loan from financial institution Fixed deposit pledged as security for banking facilities Net cash generated from/(used in) financing activities Effects of currency translation on cash and cash equivalents Net increase in cash and cash equivalents Cash and cash equivalents at start of the year Cash and cash equivalents at end of the year (Note 11)

Group FY2012 S$'000

FY2011 S$'000

(27) 673 4,316 2,150 (1,779) (1,250)

(24) (87) 2,000 (3,602) (568)

4,083

(2,281)

(55) 98

(1) 89 10

43

98

The accompanying notes form an integral part of these financial statements. 49 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


NOTES TO THE FINANCIAL STATEMENTS for the financial year ended 31 March 2012 Notes to the Financial Statements for the financial year ended 31 March 2012 1.

General information The Company (Registration No. 199608251Z) is incorporated and domiciled in Singapore with its principal place of business and registered office at 31 International Business Park, #02-02 Creative Resource, Singapore 609921. The Company is listed on the mainboard of the Singapore Exchange Securities Trading Limited. The Company is principally engaged in the design, development, integration, implementation, maintenance and project management of information technology and advanced technology systems. The Company (together with its subsidiaries, the "Group") delivers large-scale complex, real-time, mission critical systems in areas of intelligent Vision, intelligent Transport Systems and e-Systems for governments and businesses, serving industries such as aerospace and defence, financial services, government, healthcare, homeland security and transportation (air, sea and land). The principal activities of the subsidiaries are disclosed in Note 7 to the financial statements. The consolidated financial statements of the Group for the financial year ended 31 March 2012 (the "year") and the statement of financial position of the Company as at 31 March 2012 were authorised for issue in accordance with a resolution of the directors on the date of the Statement by Directors.

2.

Basis of preparation and summary of significant accounting policies 2.1

Basis of preparation

The consolidated financial statements of the Group and the statement of financial position of the Company have been prepared in accordance with Singapore Financial Reporting Standards (FRS). The preparation of the consolidated financial statements in conformity with FRS requires management to exercise its judgement in the process of applying the Group's accounting policies. It also requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expense during the year. Although these estimates are based on management's best knowledge of current events and actions, actual results may ultimately differ from those estimates. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 3. The financial statements are presented in Singapore Dollars (S$ or SGD) and all values are rounded to the nearest thousand (S$'000) except where otherwise indicated. 2.2

Interpretations and amendments to published standards effective in FY2012

The accounting policies have been consistently applied by the Group and the Company and are consistent with those used in the previous financial year except that in the current financial year, the Group has adopted all of the new and revised FRS and Interpretations of FRS ("INT FRS") that are mandatory for application for accounting periods beginning on or after 1 April 2011. Changes to the Group's accounting policies have been made as required, in accordance with the relevant transitional provisions in the respective FRS and INT FRS. The adoption of these standards and interpretations did not result in substantial changes to the Group's and Company's accounting policies and had no material effect on the amounts reported for the current or prior financial year. 2.3

New or revised accounting standards and interpretations

Following are the mandatory FRSs and amendments to FRS that have been published by the Accounting Standards Council as at the date of authorisation of these financial statements by the Company's Directors, and may be relevant for the Group's and/or Company's financial year beginning on or after 1 April 2012 and later financial years and which the Group/Company has not early adopted:

50 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


NOTES TO THE FINANCIAL STATEMENTS for the financial year ended 31 March 2012 Notes to the Financial Statements for the financial year ended 31 March 2012 2.3

New or revised accounting standards and interpretations (cont'd)

FRS 110 Consolidated Financial Statements (effective for annual periods beginning on or after 1 January 2013)

FRS 111 Joint Arrangements (effective for annual periods beginning on or after 1 January 2013)

FRS 112 Disclosure of Interests in Other Entities (effective for annual periods beginning on or after 1 January 2013)

FRS 113 Fair Value Measurement (effective for annual periods beginning on or after 1 January 2003)

FRS 27 (Revised 2011) Separate Financial Statements (effective for annual periods beginning on or after 1 January 2013)

Amendments to FRS 1 Presentation of Items of Other Comprehensive Income (effective for annual periods beginning on or after 1 July 2012)

As at the date of authorisation of these financial statements, the possible impact that the application of the above FRSs and amendments to FRS will have on the Group and Company's financial statements in their period of mandatory initial application is not known as management has not made an assessment on the possible impact. 2.4

Going Concern

As at 31 March 2012, the Group recorded a net loss of $12.07 million (FY2011 : net loss of $3.60 million) and its total current liabilities also exceeded its total current assets by $7.17 million. The ability of the Group and the Company to continue as going concern dependent on factors including: (a)

the Company and the Group being able to secure new contracts and projects;

(b)

the Company and the Group continuing to receive adequate financial support from bankers and financial institutions in relation to the banking and credit facilities made available to the Group;

(c)

sufficient funding being made available by controlling shareholders of the Company;

(d)

successful fund raising by the Company.

51 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


NOTES TO THE FINANCIAL STATEMENTS for the financial year ended 31 March 2012 Notes to the Financial Statements for the financial year ended 31 March 2012 2.4

Going Concern (cont'd)

The financial statements have been prepared on the assumption that the Company and the Group will continue as going concern. This assumption is premised on future events, the outcome of which is uncertain. The Directors of the Company are of the view that it is appropriate for the financial statements to be prepared on a going concern basis having regard to the support received from a director and controlling shareholder of the Company and the measures and proposed measures to raise additional working capital and certain post balance sheet events as mentioned below: (i)

Subsequent fund raising Subsequent to the financial year in 1QFY2013, the Company made two placements of an aggregate 160 million new shares to raise S$3.28 million in gross proceeds to finance the Group's working capital and operations.

(ii)

Proposed fund raising Moving forward, the Company has planned to undertake the Rights Issue exercise (as announced on 29 Aug 2011 and 13 Apr 2012) to strengthen its financial position. With regards to the amount due to a director-cum-shareholder as mentioned in note 4.5, the director has undertaken to partially offset the repayment amount due to him under the Loan against the full satisfaction of the consideration payable by him pursuant to the proposed Rights Issue.

(iii)

Potential reduction in provision for litigation On 25 May 2012, the Company made an announcement relating to the decision of the Court of Appeal of the Hong Kong SAR of the appeal proceedings heard on 9 May 2012 with respect to the matter between the Company and Atal Technologies Limited ("Atal"). In summary, the judgment of 30 June 2011 resulting in a net award of HKD$8,720,000 (S$1.41 million equivalent) to Atal is reduced by HKD$4,700,000 (S$761,000 equivalent) (see note 13b). The full judgment sum of HKD$8,720,000 has already been fully recognised in the FY2011. As there is a possibility of further appeal at the date of this report, the Company is not making any adjustment to the provision already made. The reduction in the provision for litigation will improve the negative working capital position and cash flow of the Group.

(iv)

The Company obtained FAA approval for its iFerret™ FOD System and also been granted Buy American Waiver The Company made two announcements on the 25th of April 2012 and the 7th of May 2012 that (i) it received FAA (US Federal Aviation Administration) approval for its iFerret™ intelligent Airfield/Runway Surveillance and FOD (Foreign Object & Debris) Detection System and that (ii) its # iFerret™ has also been granted Buy American Waiver also by the FAA.

In the event that the Company and the Group are unable to continue in operational existence for the foreseeable future, adjustments may have to be made to reflect the situation that assets may need to be realised other than in the amounts at which they are currently recorded in the statements of financial position. In addition, the Group and the Company may have to reclassify non-current assets and non-current liabilities as current assets and current liabilities respectively. No such adjustments have been made to these financial statements. #

The Buy American Preferences regulations require purchases in AIP (Airport Improvement Program) funded projects to be produced in the U.S. The FAA however has the authority to waive the Buy American Preferences if certain conditions are met.

2.5

Group Accounting

(i)

Subsidiaries

Subsidiaries are entities (including special purpose entities) over which the Group has power to govern their financial and operating policies so as to obtain benefits from its activities, generally accompanied by a shareholding giving rise to a majority of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity.

52 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


NOTES TO THE FINANCIAL STATEMENTS for the financial year ended 31 March 2012 Notes to the Financial Statements for the financial year ended 31 March 2012 2.5

Group Accounting (cont'd)

(i)

Subsidiaries (cont'd)

Subsidiaries are consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date on which control ceases. In preparing the consolidated financial statements, transactions, balances and unrealised gains on transactions between group entities are eliminated. Unrealised losses are also eliminated but are considered an impairment indicator of the assets transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Non-controlling interest are that part of the net results of operations and of net assets of a subsidiary attributable to the interests which are not owned directly or indirectly by the equity holders of the Group. Acquisitions The acquisition method of accounting is used to account for business combinations by the Group. The consideration transferred for the acquisition of a subsidiary or business comprises the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred also includes the fair value of any contingent consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary. Investments in subsidiaries are carried at cost less accumulated impairment losses in the Company's statement of financial position. Acquisition-related costs are expenses as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the Group recognises any non-controlling interest in the acquiree at the date of acquisition either at fair value or at the non-controlling interest's proportionate share of the acquiree's net identifiable assets. The excess of (i) the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the (ii) fair value of the net identifiable assets acquired is recorded as goodwill. Disposals When a change in the Group ownership interest in a subsidiary results in a loss of control over the subsidiary, the assets and liabilities of the subsidiary including any goodwill are derecognised. Amounts previously recognised in other comprehensive income in respect of that entity are also reclassified to profit or loss or transferred directly to retained earnings if required by a specific Standard. Any retained equity interest in the entity is remeasured at fair value. The difference between the carrying amount of the retained interest at the date when control is lost and its fair value is recognised in profit or loss. (iii)

Associated Companies

Associated companies (or "Associates") are entities over which the Group has significant influence, but not control, and generally accompanied by a shareholding giving rise to between and including 20% and 50% of the voting rights. Investments in associated companies are accounted for in the consolidated financial statements using the equity method of accounting less impairment losses, if any. Acquisitions Investments in associated company are initially recognised at cost. The cost of an acquisition is measured at fair value of the asset given, equity instruments issued or liabilities incurred or assumed at the date of exchange, plus cost directly attributable to the acquisition.

53 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


NOTES TO THE FINANCIAL STATEMENTS for the financial year ended 31 March 2012 Notes to the Financial Statements for the financial year ended 31 March 2012 2.5

Group Accounting (cont'd)

Equity method of accounting In applying the equity method of accounting, the Group share of its associated companies' post-acquisition profits or losses is recognised in profit or loss and its share of post-acquisition other comprehensive income is recognised in other comprehensive income. These post-acquisition movements and distributions received from the associated company are adjusted against the carrying amount of the investment. When the Group's share of losses in an associated company equals or exceeds its interest in the associated company, including any other unsecured receivables from or obligations made on behalf of the associated company, the Group does not recognised further losses. Unrealised gains on transactions between the Group and its associated companies are eliminated to the extent of the Group's interest in the associated companies. Unrealised losses are also eliminated but are considered an impairment indicator of that interest. Accounting policies of associated companies have been changed where necessary to ensure consistency with the policies adopted by the Group. Disposal Investments in associated company are derecognised when the Group loses significant influence. Any retained interest in the entity is remeasured at its fair value. The difference between the carrying amount of the retained interest at the date when the significant influence is lost and its fair value is recognised in profit or loss. 2.6

Basis of preparation and summary of significant accounting policies

2.6.1

Plant and equipment

Measurement (i)

Plant and equipment Plant and equipment are initially recognised at purchase cost and subsequently carried at cost less accumulated depreciation and accumulated impairment loss.

(ii)

Components of cost The cost of plant and equipment initially recognised includes expenditure that is directly attributable to the acquisition of the items. Dismantlement, removal or restoration costs are included as part of the cost of plant and equipment if the obligation for dismantlement, removal or restoration is incurred as a consequence of acquiring or using the asset.

Depreciation Depreciation on plant and equipment are calculated using the straight-line method to allocate their respective depreciable amounts over their estimated useful lives. The estimated useful lives are as follows: Estimated useful lives Computers Furniture and fittings Motor vehicles Office equipment Renovation

5 years 5 years 5 years 5 to 10 years 5 years

The residual values and useful lives of plant and equipment are reviewed and adjusted, as appropriate, at the end of each reporting period. Fully depreciated plant and equipment still in use are retained in the financial statements.

54 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


NOTES TO THE FINANCIAL STATEMENTS for the financial year ended 31 March 2012 Notes to the Financial Statements for the financial year ended 31 March 2012 2.6

Basis of preparation and summary of significant accounting policies (cont'd)

2.6.1

Plant and equipment (cont'd)

Subsequent expenditure Subsequent expenditure relating to plant and equipment that has already been recognised is added to the carrying amount of the asset when it is probable that future economic benefits, in excess of the standard of performance of the asset before the expenditure was made, will flow to the Group and the cost can be reliably measured. Other subsequent expenditure is recognised as an expense during the financial year in which it is incurred. Disposal On disposal of plant and equipment, the difference between the net disposal proceeds and its carrying amount is recognised in profit or loss. 2.6.2

Intangible assets (development expenditure)

Expenditure on software and/or product development activities is recognised as an expense in the period in which it is incurred. It is recognised in the statements of financial position only if all of the following conditions are met: ●

The technical feasibility of the Group's ability in completing the intangible asset so that it will be available for use or sale;

The Group's intention to complete the intangible asset and use or sell it;

The Group's ability to use or sell the intangible asset;

How the intangible asset will generate probable future economic benefits for the Group;

The availability of adequate technical, financial and other resources of the Group to complete the development and to use or sell the intangible asset; and

The Group's ability to measure reliably the expenditure attributable to the intangible asset during its development.

Software and/or product development expenditure are amortised on a straight-line basis over their estimated useful lives of 3 to 5 years. 2.6.3

Intangible assets (patents and trademarks)

Patents and trademarks are initially measured at purchase cost and subsequently carried at cost less accumulated amortisation and accumulated impairment loss. These costs are amortised to profit or loss using the straight-line basis over an estimated useful life of 5 years. 2.6.4

Impairment of non-financial assets

Intangible assets Plant and equipment Investment in subsidiaries and associated companies The carrying amounts of the Group's non-financial assets are reviewed for impairment whenever there is any objective evidence or indication that these assets may be impaired. If any such indication exists, the recoverable amount of the asset is estimated to determine the amount of impairment loss.

55 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


NOTES TO THE FINANCIAL STATEMENTS for the financial year ended 31 March 2012 Notes to the Financial Statements for the financial year ended 31 March 2012 2.6

Basis of preparation and summary of significant accounting policies (cont'd)

Recoverable amount (i.e., the higher of fair value less cost to sell and value in use) is determined on an individual asset basis unless the asset does not generate cash flows that are largely independent of those from other assets. If that is the case, the recoverable amount is determined for the cash generating unit ("CGU") to which the asset belongs. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessment of the time value of money and the risks specific to the asset. If the recoverable amount of the asset or CGU is estimated to be less than its carrying amount, the carrying amount of the asset or CGU is reduced to its recoverable amount. The difference between the carrying amount and recoverable amount is recognised as an impairment loss in profit or loss unless the asset is carried at a revalued amount, in which case, such impairment loss is treated as a revaluation decrease. An impairment loss for an asset (other than goodwill) is reversed if, and only if, there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognised. The carrying amount of this asset (other than goodwill) is increased to its revised recoverable amount, provided that this amount does not exceed the carrying amount that would have been determined (net of amortisation or depreciation) had no impairment loss been recognised for the asset in prior years. A reversal of impairment loss for an asset (other than goodwill) is recognised in profit or loss, unless the asset is carried at a revalued amount, in which case, such reversal is treated as a revaluation increase. However, to the extent that an impairment loss on the same revalued asset was previously recognised in profit or loss, a reversal of that impairment is also recognised in profit or loss. 2.6.5

Financial assets

Financial assets are recognised on the statements of financial position when, and only when, the Group becomes a party to the contractual provision of the financial instruments. They are initially recognised at fair value plus transaction costs. The Group classifies its financial assets as loans and receivables. The classification depends on the purpose for which the assets were acquired. Management determines the classification of its financial assets at initial recognition. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are presented as current assets, except for those maturing later than 12 months after the end of the reporting period which are presented as non-current assets. Loans and receivables are presented as “trade and other receivables”, "fixed deposits" and “cash and bank balances” on the statement of financial position. Regular way purchases and sales of financial assets are recognised on trade-date – the date on which the Group commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred whereby the Group has transferred substantially all risks and rewards of ownership. On disposal of a financial asset, the difference between the carrying amount and the sale proceeds is recognised in profit or loss. Any amount in the fair value reserve relating to that asset is transferred to profit or loss. Loans and receivables are subsequently carried at amortised cost using the effective interest method.

56 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


NOTES TO THE FINANCIAL STATEMENTS for the financial year ended 31 March 2012 Notes to the Financial Statements for the financial year ended 31 March 2012 2.6

Basis of preparation and summary of significant accounting policies (cont'd)

2.6.6

Impairment of financial assets

The Group assesses at each end of the reporting period whether there is any objective evidence that a financial asset or a group of financial assets is impaired and recognises an allowance for impairment when such evidence exists. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy, and default or significant delay in payments are objective evidence that these financial assets are impaired. The carrying amount of these assets is reduced through the use of an impairment allowance account which is calculated as the difference between the carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. When the asset becomes uncollectible, it is written off against that allowance account. Subsequent recoveries of amounts previously written off are recognised against the same line item in profit or loss. The impairment allowance account is reduced through the profit or loss in a subsequent period when the amount of impairment loss decreases and the related decrease can be objectively measured. The carrying amount of the asset previously impaired is increased to the extent that the new carrying amount does not exceed the amortised cost, had no impairment been recognised in prior periods. 2.6.7

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the first-in-first-out method. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. 2.6.8

Trade and other payables

Trade and other payables are initially recognised at fair value, and subsequently carried at amortised cost using the effective interest method. 2.6.9

Cash and cash equivalents

For the purpose of presentation in the consolidated statement of cash flows, cash and cash equivalents include cash on hand and a fixed deposit with a financial institution, which are subject to an insignificant risk of change in value, and bank overdrafts. Bank overdrafts are presented as current borrowings on the statements of financial position. 2.6.10 Loans and borrowings Loans and borrowings are presented as current liabilities unless the Group has an unconditional right to defer settlement for at least 12 months after the end of the reporting period, in which case they are presented as non-current liabilities. Loans and borrowings are initially recognised at fair value (net of transaction costs) and subsequently carried at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised in profit or loss over the period of the borrowings using the effective interest method. 2.6.11 Fair value estimation of financial assets and liabilities The fair value of current financial assets and liabilities carried at amortised cost approximate their carrying amounts.

57 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


NOTES TO THE FINANCIAL STATEMENTS for the financial year ended 31 March 2012 Notes to the Financial Statements for the financial year ended 31 March 2012 2.6

Basis of preparation and summary of significant accounting policies (cont'd)

2.6.12 Provisions Provisions are recognised when the Group has a present legal or contractual obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation. Provisions are measured at the directors' best estimate of the expenditure required to settle the obligation at the end of the reporting period, and are discounted to present value where the effect is material. 2.6.13 Share-based payments The Group issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at date of grant of a equity-settled share-based payment is expensed on a straight-line basis over the vesting period, based on the Group's estimate of shares that will eventually vest and adjusted for the effect of non market-based vesting conditions. Fair value is measured using the Black-Scholes pricing model. The expected life used in the model has been adjusted, based on management's best estimate for the effects of non-transferability, exercise restrictions and behavioural considerations. When the options are exercised, the proceeds received (net of transaction costs) and the related balance previously recognised in the share option reserve are credited to share capital account, when new ordinary shares are issued. 2.6.14 Revenue recognition Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts and sales related taxes. The Group recognises revenue when the amount of revenue and related costs can be reliably measured, when it is probable that the collectibility of the related receivables is reasonably assured and when the specific criteria for each of the Group's activities are met as follows: â—? â—?

â—?

Revenue from sale of goods is recognised when goods are delivered and title has passed. Revenue from projects is recognised by reference to the stage of completion of the contract activity at the end of the reporting period (Note 3.1.1); and in respect of third party component, revenue is recognised equivalent to the cost without any mark up, when goods and services are delivered, installed, or used in the project. Interest income is accrued on a time proportionate basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount.

2.6.15 Employee defined contribution plan As required by law, the Company and relevant subsidiaries make contributions to state managed retirement schemes, such as the Central Provident Fund ("CPF"). CPF contributions are recognised as a compensation expense in the same period as the employment that gives rise to the contributions. 2.6.16 Employee leave entitlements Employee entitlements to annual leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave as a result of services rendered by employees up to the end of the reporting period.

58 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


NOTES TO THE FINANCIAL STATEMENTS for the financial year ended 31 March 2012 Notes to the Financial Statements for the financial year ended 31 March 2012 2.6

Basis of preparation and summary of significant accounting policies (cont'd)

2.6.17 Income tax Income tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on the taxable profit for the year. Taxable profit differs from profit as reported in profit or loss because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are not taxable or tax deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted in countries where the Company and its subsidiaries operate at the end of the reporting period. Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investment in subsidiaries and associates, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax is charged or credited to profit or loss, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. 2.6.18 Leases Leases of plant and equipment are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee at the end of the lease period. All other leases are classified as operating leases. Assets held under finance leases are recognised as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the statements of financial position as a finance lease obligation. Lease payments are apportioned between financial charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to profit or loss. Rental payable under operating leases are charged to profit or loss on a straight-line basis over the term of the relevant lease. 2.6.19 Borrowing costs Borrowing costs are recognised in profit or loss using the effective interest method.

59 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


NOTES TO THE FINANCIAL STATEMENTS for the financial year ended 31 March 2012 Notes to the Financial Statements for the financial year ended 31 March 2012 2.6

Basis of preparation and summary of significant accounting policies (cont'd)

2.6.20 Currency translation Items included in the financial statements of each entity in the Group are measured using the currency of the primary economic environment in which the entity operates (“functional currency”). The financial statements are presented in Singapore Dollars, which is the Company’s functional and presentation currency. Transactions in a currency other than the functional currency (“foreign currency”) are translated into the functional currency using the exchange rates at the dates of the transactions. Currency translation differences from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at the closing rates at the end of the reporting period are recognised in profit or loss, unless they arise from borrowings in foreign currencies, other currency instruments designated and qualifying as net investment hedges and net investment in foreign operations. Those currency translation differences are recognised in the translation reserve in the consolidated financial statements and transferred to profit or loss as part of the gain or loss on disposal of the foreign operation. The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: ●

Assets and liabilities are translated at the closing exchange rates at the date of the statement of financial position; Income and expenses are translated at average exchange rates (unless the average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case, income and expenses are translated using the exchange rates at the dates of the transactions); and All resulting currency translation differences are recognised in the translation reserve.

2.6.21 Government grant Government grant is recognised at its fair value where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognised in profit or loss over the period necessary to match it on a systematic basis to the cost that it is intended to compensate. Where the grant relates to an asset, the fair value is recognised as deferred capital grant in the statement of financial position and is amortised to profit or loss over the expected useful life of the relevant asset by equal annual instalments. 2.6.22 Segment reporting A business segment is a distinguishable component of the Group engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is a distinguishable component of the Group engaged in providing products or services within a particular economic environment that is subject to risks and returns that are different from those of segments operating in other economic environments. For management purposes, the Group is organised into operating segments based on their products and services. Additional disclosures on each of these segments are shown in Note 19, including factors used to identify the reportable segments and the measurement basis of segment information. 2.6.23 Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of new ordinary shares are charged directly to the accumulated losses account.

60 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


NOTES TO THE FINANCIAL STATEMENTS for the financial year ended 31 March 2012 Notes to the Financial Statements for the financial year ended 31 March 2012 3.

Critical accounting judgements and key sources of estimation uncertainty 3.1

Critical judgements in applying the entity's accounting policies

In the process of applying the entity's accounting policies, which are described in the notes above, management will have made judgements that would have significant effect on the amounts recognised in the financial statements (apart from those involving estimations, which are dealt with further below) mostly from the following. 3.1.1

Revenue recognition

Revenue from projects is recognised in the financial statements by reference to the stage of completion of the contract activity at the end of the reporting period, which is measured by the percentage of actual manpower cost to the estimated total manpower cost required for the project (note 2.6.14). Where the outcome of a contract cannot be reliably estimated, contract costs are recognised as revenue to the extent of costs incurred. Management has exercised its best judgement based on its industry experience and expertise in arriving at the revenue recognised as measured above. The accrued revenue as at 31 March 2012 was S$2.1 million (FY2011: S$5.4 million). 3.1.2

Capitalisation of development expenditure, patents and trademarks

As described in the notes to the financial statements, it is the Group's policy to capitalise development expenditure, patents and trademarks related to its advanced technology systems. Management is satisfied that it is probable that the expenditure so capitalised will generate future economic benefits. The carrying amounts of development expenditure and patents and trademarks at 31 March 2012 were S$7.0 million and S$0.4 million, respectively (FY2011: S$7.2 million and S$0.4 million, respectively). 3.2

Key sources of estimation uncertainty

The key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below. 3.2.1

Impairment of tangible and intangible assets

Management considered the recoverability of the Group's tangible and intangible assets at the end of the reporting period. Changes in the expected level of usage, technological development, level of competition, and economic climate could impact the economic useful lives and the recoverable amounts of these assets and, therefore, future depreciation and amortisation charges could be revised or impairment charges could be recorded. There was no impairment of tangible and intangible assets at the end of the reporting period.

61 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


NOTES TO THE FINANCIAL STATEMENTS for the financial year ended 31 March 2012 Notes to the Financial Statements for the financial year ended 31 March 2012 3.

Critical accounting judgements and key sources of estimation uncertainty (cont'd) 3.2.2

Recognition of equity-settled share-based payments

FRS 102 "Share-based Payment" requires the recognition of equity-settled share-based payments at fair value at the date of grant. The fair value of share-based payment of the Group was calculated using the Black-Scholes pricing model and certain assumptions were made to variables used in the pricing model. These included the expected volatility and life of options, the risk-free rate of return used, and the expected dividend yield in the future. These variables used were based on management's best estimate of the effects of non-transferability, exercise restrictions, and behavioural considerations of option holders. Future changes in variables like interest rates, the Company's share price, and future changes in circumstances like the Group's performance and stock market performance will result in differences between the estimated and the actual variables used in the calculations and, hence, would have resulted in different fair value amounts calculated at the initial recognition of these options under FRS. 3.2.3

Allowances for doubtful receivables and impairment of accrued revenue (Note 10)

The policy for allowances for doubtful receivables of the Group is based on management's evaluation of collectibility and aging analyses of accounts. A considerable amount of judgement is required in assessing the ultimate realisation of these receivables, including the current credit-worthiness and the past collection history of each customer. If the financial conditions of customers of the Group were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. There was an aggregate allowance for doubtful trade, accrued revenue and other receivables aggregating to S$1.9 million in the current financial year (FY2011: nil). The allowance was made pursuant to the Company's announcement made on 7 June 2012 in relation to the legal action that the Company intends to pursue relating to a project to protect its rights and to recover monies for work done, services rendered, goods delivered and damages suffered. 3.2.4

Allowances for slow moving inventory

Inventory consisted mainly of standby spare-parts for the Group's projects. Upon management's continual assessment, there was no slow moving inventory in the year. 3.2.5

Provision for foreseeable loss (Note 13b and Note 24)

After management's risk assessment of all its projects, there was an estimated provision of $0.7 million for foreseeable project loss during the financial year (FY2011: S$0.8 million). The provision for foreseeable project loss recognised during the year comprised of provision for liquidation damages S$0.5 million (FY2011: S$0.8 million) and provision for project costs S$0.2 million (FY2011: nil). The provision for liquidation damages was derived based on management's estimates taking into consideration commercial practices and the probable quantum of future cash outlay to settle the liabilities.

62 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


NOTES TO THE FINANCIAL STATEMENTS for the financial year ended 31 March 2012 Notes to the Financial Statements for the financial year ended 31 March 2012 4.

Financial risk management 4.1

Financial risk factors

The Group's activities expose it to a variety of financial risks such as market risk, credit risk and liquidity risk. The Group's overall business strategies, tolerance of risk and general risk management philosophy are determined by directors in accordance with prevailing economic and operating conditions. The main risks arising from the Group's financial instruments during the year were interest rate risk, liquidity risk, currency risk and credit risk. The Board reviewed and agreed policies for managing each of these risks and they are summarised below: 4.2

Credit risk

Credit risk is the risk that companies and other parties would be unable to meet their obligations to the Group resulting in financial loss to the Group. The Group manages such risk by dealing with a diversity of creditworthy counterparties to mitigate any significant concentration of credit risk. Credit policy includes assessing and evaluation of existing and new customers' credit reliability and monitoring of receivable collections. The Group's trade receivables comprise 1 debtor (2011: 2 debtors) that individually represented more than 5% of trade receivables at the year-end. The Group places its cash and cash equivalents with credit-worthy institutions. The maximum exposure to credit risk in the event that the counterparties fail to perform their obligations at the year-end in relation to each class of financial assets is the carrying amount of these assets in the statements of financial position (Note 10). Financial assets that are neither past due nor impaired: Bank deposits that are neither past due nor impaired are mainly deposits with banks with high credit-ratings assigned by international credit-rating agencies. Trade receivables that are neither past due nor impaired are substantially debtors with good collection track records with the Group. Financial assets that are past due and/or impaired: As mentioned in note 3.2.3, there was an allowance for doubtful trade and other receivables of S$1.9 million in the current financial year (FY2011: nil). The allowance was made pursuant to the Company's announcement made on 7 June 2012 in relation to the proposed legal actions that the Company intends to pursue legal actions to protect its rights and to recover monies for work done, services rendered, goods delivered and damages suffered. Save as disclosed, there was no other class of financial assets that was past due and/or impaired at the yearend. The aged analysis of trade receivables past due but not impaired was as follows: Group FY2012 S$'000

FY2011 S$'000

Not past due Past due 0 to 3 months Past due over 6 months

52 53 1,338

107 50 837

At end of the year

1,443

994

63 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


NOTES TO THE FINANCIAL STATEMENTS for the financial year ended 31 March 2012 Notes to the Financial Statements for the financial year ended 31 March 2012 4.

Financial risk management (cont'd) 4.3

Currency risk

The Group operates in Asia with dominant operations in Singapore. The Company and entities in the Group regularly transact in currencies other than their respective functional currencies ("foreign currencies") such as United States Dollar (USD), Euro (EUR), Hong Kong Dollar (HKD), Great Britain Pound Sterling (GBP) and Japanese Yen (JPY). Currency risk arises when transactions are denominated in foreign currencies. The Group does not use financial derivatives to hedge foreign currency risk. To manage the currency risk, companies within the Group manage this risk as far as possible by natural hedges of matching assets and liabilities. At the same time, the Group also maintains foreign currency bank accounts for operating purposes. In addition, the Group is exposed to currency translation risk on the net assets in foreign operations. The Group's currency exposure based on the information provided to key management is as follows: Group As at 31 March 2012 Financial assets

Cash and bank balances and fixed deposits

SGD

USD

S$'000

EUR

HKD

S$'000

S$'000

JPY

GBP

S$'000

S$'000 -

1

Total

S$'000

S$'000

11,122

23

2,471

916

939

363

363

-

(21,346)

(38)

(17)

(2,901)

(17)

(7,753)

901

346

(2,900)

(17)

-

-

11,146

Trade and other

receivables excluding prepayments

13,593

1

-

21

21

-

3,771

14,917

Financial liabilities Trade and other payables and borrowings

-

(24,319) 21

(9,402)

21

(1,681)

Less: Net financial

liabilities dominated in the respective

entities' functional currencies

64 STRATECH SYSTEMS LIMITED annual report 2011 / 2012

7,753 -

(32)

869

-

346

-

(2,900)

-

(17)

-

7,721


NOTES TO THE FINANCIAL STATEMENTS for the financial year ended 31 March 2012 Notes to the Financial Statements for the financial year ended 31 March 2012 4.

Financial risk management (cont'd) 4.3

Currency risk (cont'd)

Group

As at 31 March 2011 Financial assets

Cash and bank balances and fixed deposits

USD

SGD

S$'000

S$'000

EUR

GBP

HKD

S$'000

S$'000

8,897

587

-

3,118

946

351

12,015

1,533

351

JPY

S$'000 2

S$'000

Total

S$'000

-

-

9,486

-

-

4,415

-

-

13,901

Trade and other

receivables excluding prepayments

Financial liabilities Trade and other payables and borrowings

(12,990)

(975)

(116)

1,417

2

(35)

(2,431)

-

-

(15,572)

316

(2,429)

-

-

(1,671)

-

-

Less: Net financial

liabilities dominated in the respective

entities' functional currencies

975 -

(59)

1,358

-

316

(2,429)

916

-

-

-

(755)

Sensitivity analysis If the USD, EUR and HKD vary against the SGD by 5% (FY2011: 5%) respectively, with all other variables including tax rate being held constant, the effect on the total profit will be as follows:

USD against SGD - Strengthen - Weaken

Increase/(decrease) Group FY2012 FY2011 S$'000 S$'000 43 (43)

71 (71)

EUR against SGD - Strengthen - Weaken

17 (17)

16 (16)

HKD against SGD - Strengthen - Weaken

(145) 145

(121) 121

GBP against SGD - Strengthen - Weaken

(1) 1

-

JPY against SGD - Strengthen - Weaken

1 (1)

-

-

-

65 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


NOTES TO THE FINANCIAL STATEMENTS for the financial year ended 31 March 2012 Notes to the Financial Statements for the financial year ended 31 March 2012 4.

Financial risk management (cont'd) 4.4

Interest rate risk

Interest rate risk is the adverse financial effect that changes in interest rates might have on the Group's financial conditions and results. The primary sources of the Group's interest rate risk during the year were its borrowings from a bank and other financial institutions and leasing arrangements in Singapore. The Group's policy was to obtain the most favourable interest rates available. The Group had cash balances placed with a reputable bank as at year-end. The Group managed its interest rate risk on its interest income by placing the cash balances in applicable maturities and interest rate terms. The financial assets and liabilities of the Group as at year-end were non-interest bearing except for cash and bank balances and borrowings. The Group's cash and bank balances and borrowings during the year were at variable interest rates for 6 months or less. The Group’s and the Company’s borrowings at variable rates, upon which effective hedges have not been entered into, are denominated mainly in SGD. If the SGD interest rates increased/decreased by 0.5% (FY2011: 0.5%) with all other variables including the tax rate being held constant, the net profit would be lower/higher by S$0.05 million (FY2011: S$0.04 million) as a result of higher/lower interest expense on these 4.5

Liquidity risk

Prudent liquidity management implies maintaining sufficient cash and the availability of funding through an adequate amount of committed credit facilities. The Group maintains sufficient cash balances to provide flexibility in meeting its day to day funding requirements and has managed its tight cash situation via various measures including fund raising, loans and advances from directors, and others. As mentioned in note 2.40 (i), the Company had, subsequent to the financial year in 1QFY2013, made two placements of an aggregate 160 million new shares to raise S$3.28 million in gross proceeds to finance the Group's working capital and operations and improve its liquidity. Moving forward, the Company has planned to undertake the Rights Issue exercise (as announced on 29 Aug 2011 and 13 Apr 2012) to strengthen its financial position. With regards to the amount due to a director-cumshareholder as mentioned in the earlier paragraph, the director has undertaken to partially offset the repayment amount due to him under the Loan against the full satisfaction of the consideration payable by him pursuant to the proposed Rights Issue. The Company is continuing to evaluate various strategies to improve the cash flow of the Group, which include fund raising through the involvement of strategic investors and financiers and increased efforts in obtaining new contracts. Other than the non-current finance lease portion, the Group's trade and other payables and bank borrowings were payable within 12 months from the end of the reporting period.

66 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


NOTES TO THE FINANCIAL STATEMENTS for the financial year ended 31 March 2012 Notes to the Financial Statements for the financial year ended 31 March 2012 4.

Financial risk management (cont'd) 4.5

Liquidity risk (cont'd)

The Group's financial liabilities based on the remaining period at the end of the reporting period to the contractual maturity date based on contractual undiscounted cash flows are as follows:

Less than one year Trade and other payables Borrowings Between 2 to 5 years Borrowings

Group FY2012 S$'000

FY2011 S$'000

11,067 9,328 20,395

4,377 7,819 12,196

206

246

20,601

12,442

Balances due within 12 months equal their carrying amounts as the impact of discounting is not significant.

5.

Compensation of directors and key management personnel The remuneration of directors and other members of key management during the year was as follows: FY2012 S$'000 Short-term benefits Share-based payments

Group

FY2011 S$'000

1,673 422

1,737 322

2,095

2,059

Share-based payments relate to the ESOS Scheme (Paragraph 5 of the Report of Directors, Note 16 and 21) and the PSS Scheme (Paragraph 6 of the Report of Directors, Notes 16 and 21). Employee Share Option Scheme 2000 ("ESOS 2000") Pursuant to ESOS 2000, options to subscribe for 500,000 shares at the exercise price of S$0.052 were granted each to Sajjad Ahmad Akhtar and Chew Hai Chew, who are non-executive and independent directors of the Company and options to subscribe for 500,000 shares at the exercise price of S$0.052 were also granted to Lim Soon Hock who is an executive director of the Company. These options had expired during the current financial year. The Employee Share Option Scheme 2000 was terminated and replaced by the Employee Share Option Scheme 2011 (ESOS 2011) pursuant to the shareholders' approval obtained at the Company's extraordinary general meeting held on 29 July 2011 (the "AGM").

67 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


NOTES TO THE FINANCIAL STATEMENTS for the financial year ended 31 March 2012 Notes to the Financial Statements for the financial year ended 31 March 2012 5.

Compensation of directors and key management personnel (cont'd) Employee Share Option Scheme 2011 ("ESOS 2011") Pursuant to the ESOS 2011 scheme the Company had, during FY2012, granted to: (a)

David K.M. Chew, an Executive Director and Chairman of the Company, 9,182,830 share options exercisable for 9,182,830 shares. These share options are exercisable from 1 September 2012 to 31 August 2022 at an exercise price of S$0.0187 per share option.

(b)

Lim Soon Hock 12,500,000 share options exercisable for 12,500,000 shares. These share options are exercisable from 1 September 2012 to 31 August 2022 at an exercise price of S$0.0187 per share option.

(c)

Leong Sook Ching, an Executive Director and Chief Corporate Officer of the Company, 3,935,500 share options exercisable for 3,935,500. These share options are exercisable from 1 September 2012 to 31 August 2022 at an exercise price of S$0.0187 per share option.

(d)

Lim Kim Choon, a Non-executive Director of the Company, 500,000 share options exercisable for 500,000 shares. These share options are exercisable from 11 November 2012 to 10 November 2022 at an exercise price of S$0.0166 per share option.

(e)

A management staff of the Company, 4,000,000 share options exercisable for 4,000,000 shares. These share options are exercisable from 11 November 2012 to 10 November 2022 at an exercise price of S$0.0166 per share option.

Save as disclosed, there were no other long-term benefits made to directors and key management during the year.

68 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


NOTES TO THE FINANCIAL STATEMENTS for the financial year ended 31 March 2012 Notes to the Financial Statements for the financial year ended 31 March 2012 6.

Plant and equipment Office

Renovation

S$'000

S$'000

equipment

Computers

S$'000

and fittings

vehicle

Motor

Total

S$'000

S$'000

S$'000

Furniture

Group and Company Cost: As at 1 April 2010 Addition Disposal

173 1 -

1,573 (31)

2,358 3 (924)

558 -

391 -

5,053 4 (955)

As at 31 March 2011

174

1,542

1,437

558

391

4,102

Addition Disposal Reclassification during the year

(18)

501 (1,542)

5 (120)

29

-

(29)

As at 31 March 2012

185

501

Accumulated Depreciation: As at 1 April 2010 Charge Disposal

172 -

As at 31 March 2011

-

507 (2,035)

-

-

-

1,293

204

391

2,574

1,557 6 (21)

1,664 156 (547)

523 22 -

68 39 -

3,984 223 (568)

172

1,542

1,273

545

107

3,639

Charge Disposal Reclassification during the year

4 (18)

12 (1,542)

39 (32)

14 (355)

39

108 (1,947)

22

-

(22)

As at 31 March 2012

180

Impairment: As at 1 April 2010 Write-back

-

-

As at 31 March 2011

-

As at 31 March 2012

-

1 (355)

-

-

204

146

67 (67)

-

-

67 (67)

-

-

-

-

-

-

-

-

-

-

164

284

463

245

774

12

Carrying amount: As at 31 March 2011

2

-

As at 31 March 2012

5

489

1,258

35

13 -

1,800

At 31 March 2012, the carrying amount of the motor vehicle of the Group and Company held under a finance lease amounted to S$0.25 million (FY2011: S$0.28 million).

69 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


NOTES TO THE FINANCIAL STATEMENTS for the financial year ended 31 March 2012 Notes to the Financial Statements for the financial year ended 31 March 2012 7.

Investments in subsidiaries Company FY2012 S$'000 Unquoted equity shares, at cost At start of the year Written-off during the year At end of the year Impairment loss At start of the year Written-off during the year At end of the year Net investment in subsidiaries at start and end of the year

FY2011 S$'000

8,561 8,561

9,061 (500) 8,561

(7,685) (7,685)

(8,185) 500 (7,685)

876

876

Details of the Company’s subsidiaries as at 31 March 2012 were as follows: Proportion (%) of ownership interest and voting power held FY2012 FY2011 % %

Name of subsidiary

Country of incorporation and operation

Stratech (Aerospace) Pte Ltd *

Singapore

100

100

Design and development of aerospace information technology systems services

Safe-Ex Global Pte Ltd *

Singapore

100

100

Dormant

Hong Kong

100

100

Dormant

Singapore

-

100

Struck-off during the year

United States of America

100

100

Design and development of information technology systems services

Stratech Systems (Shanghai) # Co., Ltd.

China

100

100

Dormant

Stratech Sub-sea Technologies Pte Ltd @

Singapore

-

100

Struck-off during the year

Strategic Technologies Pte Ltd *

Singapore

100

100

Dormant

Stratech Vision Pte Ltd *

Singapore

100

100

Dormant

Stratech (Hong Kong) Ltd

#

Stratech Life Sciences Pte Ltd @ Stratech Systems, Inc.

70 STRATECH SYSTEMS LIMITED annual report 2011 / 2012

#

Principal activities


NOTES TO THE FINANCIAL STATEMENTS for the financial year ended 31 March 2012 Notes to the Financial Statements for the financial year ended 31 March 2012 7.

Investments in subsidiaries (cont'd) *

#

@

Audited by LTC LLP, Singapore. Audited by LTC LLP, Singapore for the purpose of consolidation of the Group. The subsidiaries had been struck-off during the year.

The subsidiaries, except for Stratech Systems Inc., are dormant or inactive during the year. 8.

Investment in an associated company Company FY2012 S$'000

Unquoted equity shares, at cost At start of the year Acquired during the year Disposed during the year

FY2011 S$'000

40 (40)

At end of the year

-

-

40

Group FY2012 S$'000 Represented by: Net tangible assets Disposed during the year Group's share of post-acquisition reserves (net of dividends received)

40

FY2011 S$'000

40 (40) -

40 (40)

-

-

The summarised financial information of the group's associated company not adjusted for the proportionate ownership interest by the Group is as follows: FY2012 FY2011 S$'000 S$'000 -

Assets Liabilities Revenue Net loss after tax

21 825 904

The following information relates to the associated company:

Name of associate

Country of incorporation and operation

Stratech Aeronautics Pte Ltd

Singapore

Proportion (%) of ownership interest and voting power held FY2012 FY2011 % % -

40

Principal activities

Design and development of information technology systems services

The Company had disposed off its investment in the associated company during the financial year.

71 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


NOTES TO THE FINANCIAL STATEMENTS for the financial year ended 31 March 2012 Notes to the Financial Statements for the financial year ended 31 March 2012 9.

Intangible assets

Group

Development expenditure S$'000

Patents and trademarks S$'000

Total S$'000

Cost: As at 1 April 2010 Addition

10,696 2,407

775 187

11,471 2,594

As at 31 March 2011 Addition Write-off

13,103 2,395 (186)

962 125 -

14,065 2,520 (186)

As at 31 March 2012

15,312

1,087

16,399

Accumulated amortisation: As at 1 April 2010 Amortisation

3,933 1,906

433 93

4,366 1,999

As at 31 March 2011 Amortisation Write-off

5,839 2,546 (29)

526 132 -

6,365 2,678 (29)

As at 31 March 2012

8,356

658

9,014

Carrying amount: As at 31 March 2011

7,264

436

7,700

As at 31 March 2012

6,956

429

7,385

The intangible assets included above have finite useful lives, over which the assets are amortised. Development expenditure and patents and trademarks incurred on the Group's advanced technology systems are amortised over their estimated useful lives of 3 to 5 years and 5 years respectively. The amortisation expense included in the statement of comprehensive income amounts to S$2,678,000 (FY2011: S$1,999,000).

72 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


NOTES TO THE FINANCIAL STATEMENTS for the financial year ended 31 March 2012 Notes to the Financial Statements for the financial year ended 31 March 2012 9.

Intangible assets (cont'd)

Company

Development expenditure S$'000

Patents and trademarks S$'000

Total S$'000

Cost: As at 1 April 2010 Addition

10,696 2,347

775 179

11,471 2,526

As at 31 March 2011 Addition

13,043 2,276

954 125

13,997 2,401

As at 31 March 2012

15,319

1,079

16,398

Accumulated amortisation: As at 1 April 2010 Amortisation

3,933 1,902

433 93

4,366 1,995

As at 31 March 2011 Amortisation

5,835 2,520

526 132

6,361 2,652

As at 31 March 2012

8,355

658

9,013

Carrying amount: As at 31 March 2011

7,208

428

7,636

As at 31 March 2012

6,964

421

7,385

The intangible assets included above have finite useful lives, over which the assets are amortised. Development expenditure and patents and trademarks incurred on the Company's advanced technology systems are amortised over their estimated useful lives of 3 to 5 years and 5 years respectively. The amortisation expense included in the comprehensive income amounts to S$2,652,000 (FY2011: S$1,995,000).

73 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


NOTES TO THE FINANCIAL STATEMENTS for the financial year ended 31 March 2012 Notes to the Financial Statements for the financial year ended 31 March 2012 10.

Trade and other receivables FY2012 S$'000 (i). Trade receivables a Less: allowance for doubtful debts At start of the year b Provisions Reverse in the year At end of the year

Group

FY2011 S$'000

Company FY2012 S$'000

FY2011 S$'000

2,461

994

1,668

135

(1,018) (1,018)

(838) 838 -

(1,018)

(838) 838 -

Net trade receivables

1,443

994

650

135

(ii). Accrued revenue Less: allowance for impairment At start of the year b Provisions At end of the year

2,473

5,434

2,473

5,434

Net accrued revenue

2,130

5,434

2,130

5,434

1,512

1,351

1,510

1,333

(iii). Other receivables c Outside parties Less: allowance for doubtful debts At start of the year b Provisions At end of the year Net other receivables

(343) (343)

(509) (509) 1,003 -

-

-

(1,018)

(343) (343)

(509) (509)

-

-

1,351

1,001

1,333

726

6,026 -

5,813 726

Subsidiaries Associated company Receivable in respect of a personal guarantee from director-cum-shareholder

1,564

1,564

-

-

Current

6,140

10,069

9,807

13,441

a.

Trade receivables Included in trade receivables of the Group was an amount of US$596,000 equivalent to S$749,000 (FY2011: S$752,000) due from an external party trade debtor, the recovery of which was and still is guaranteed by David K.M. Chew, a director-cum-shareholder of the Company. A subsidiary commenced legal proceedings in Singapore against the said debtor and judgement was awarded by the High Court of the Republic of Singapore in favour of the subsidiary on 9 December 2002. The amount awarded then was approximately US$1.6 million equivalent to S$2.0 million (FY2011: S$2.0 million), excluding interests. The subsidiary has registered the judgement in several jurisdictions. The management is continuing to make efforts to enforce the judgement by tracing the debtor's assets worldwide. The directors of the Company are therefore of the opinion that no allowance is necessary for the receivable at the year-end as the excess of the amount awarded over the carrying value of the receivable is estimated at S$1.2 million. The excess amount would only be recognised in the financial statements upon its receipt.

74 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


NOTES TO THE FINANCIAL STATEMENTS for the financial year ended 31 March 2012 Notes to the Financial Statements for the financial year ended 31 March 2012 10.

Trade and other receivables (cont'd) b.

Provisions Subsequent to the financial year ended 31 March 2012, the Company had, on 7 June 2012, announced that it intends to pursue legal actions to protect its rights and to recover monies for work done, services rendered, goods delivered and damages suffered. As a result, the Company has decided that it would be necessary to make adjustments to its financial statements to provide impairment for the receivables pertaining to the project. The provision for doubtful debts against the trade and other receivables and the provision for impairment against the accrued revenue recognised in the current financial year were related to this project.

c.

Other receivables S$1.56 million (FY2011: S$1.56 million) related to a receivable in respect of a personal guarantee a director-cum-shareholder of the Company has given to the Group to make good any part of a debt owing by the Procurement Bureau of the Republic of China, Taiwan, Ministry of National Defence (“MOND”) (refer to note 10 a. above) and EDS Electronic Data Systems (HK) LTD (“EDS”). The amount due from subsidiaries were unsecured, interest-free and repayable on demand. The receivable in respect of a personal guarantee from a director-cum-shareholder was unsecured, interest-free and repayable on demand during the year. Other receivables include cash collateral of S$0.5 million (FY2011: S$0.3 million) as performance bonds and bankers' guarantee for certain other revenue projects.

11.

Fixed deposits and cash and bank balances FY2012 S$'000 Short-term bank fixed deposits Cash and bank balances

Group

FY2011 S$'000

Company FY2012 S$'000

FY2011 S$'000

11,103 43

9,388 98

11,103 21

9,388 90

11,146

9,486

11,124

9,478

The Company has short-term bank fixed deposit of S$8.8 million (FY2011: S$8.8 million) at the end of the reporting period that is pledged in relation to the security granted for certain bank borrowings (Note 12). It was readily available to reduce those bank borrowings. The Company also has short-term fixed deposit of S$2.3 million (FY2011: nil) pledged for the security of a banker's guarantee in respect of the legal suit with Atal Technologies Limited ("Atal"). As at the end of FY2011, the Company made a provision for litigation in respect of the judgement awarded by the High Court of the Hong Kong SAR on 30 June 2011. On 25 May 2012, the Company made an announcement relating to the decision of the Court of Appeal of the Hong Kong SAR of the appeal proceedings heard on 9 May 2012 with respect to the matter between the Company and Atal Technologies Limited ("Atal"). In summary, the judgment of 30 June 2011 resulting in a net award of HKD$8,720,000 (S$1.41 million equivalent) to Atal is reduced by HKD$4,700,000 (S$761,000 equivalent). The full judgment sum of HKD$8,720,000 has already been fully recognised in the FY2011. As there is a possibility of further appeal at the date of this report, the Company is not making any adjustment to the provision already made The short-term bank fixed deposits of S$8.8 million and S$2.3 million at the end of the reporting period had a maturity period of 4 months (FY2011: 1 month) from the end of the reporting period. The weighted average effective interest rate of the short-term bank fixed deposits at the end of the reporting period was 0.4% per annum (FY2011: 0.1% per annum).

75 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


NOTES TO THE FINANCIAL STATEMENTS for the financial year ended 31 March 2012 Notes to the Financial Statements for the financial year ended 31 March 2012 11.

Fixed deposits and cash and bank balances (cont'd) For the purpose of presenting the consolidated statement of cash flows, cash and cash equivalents comprised the following: Group FY2012 S$'000 Cash and bank balances (as above) Less: Fixed deposit pledged, excluding pledged for bank overdraft Bank overdraft (Note 12) Cash and cash equivalents per consolidated statement of cash flows

12.

11,146 (10,638) (465) 43

FY2011 S$'000 9,486 (9,388) 98

Borrowings Group and Company FY2012 FY2011 S$'000 S$'000

Current (a) Bank overdraft (Note 11) (a) Short-term loan Trade financing from a bank Loans from financial institutions Obligations under finance lease (note 14)

Non-current Obligations under finance lease (note 14) (a)

465 8,150 673 29

6,000 1,779 27

9,317

7,806

178

207

Bank overdraft and short-term loan facilities

The bank overdraft and short-term loan facilities were secured by the Company's short-term bank fixed deposits (Note 11). The repricing of short term loan is 6 months (FY2011: 1 month). The weighted average effective interest rate applicable to the bank overdraft and short-term loan facilities at the end of the reporting period were 4.65% and 3.57% per annum, respectively (FY2011: 5.30% and 4.84% per annum, respectively). 13a.

Trade and other payables FY2012 S$'000 Trade payables Accruals Amount due to a director-cumshareholder Due to a director on grant of remuneration shares Other payables Project receipt in advance Salaries, bonus and CPF payable

76 STRATECH SYSTEMS LIMITED annual report 2011 / 2012

Group

FY2011 S$'000

Company FY2012 S$'000

FY2011 S$'000

2,852 1,242

1,674 712

2,852 1,191

1,674 683

5,356

1,040

5,342

1,026

629 988

322 332 207 90

611 988

322 313 207 90

11,067

4,377

10,984

4,315


NOTES TO THE FINANCIAL STATEMENTS for the financial year ended 31 March 2012 Notes to the Financial Statements for the financial year ended 31 March 2012 13a.

Trade and other payables (cont'd) Included in the amount due to a director-cum-shareholder was a loan of S$3.7 million extended to the Company pursuant to a loan agreement dated 8 August 2011. The Loan bears interest at five percent (5%) per annum (but not exceeding S$100,000), is unsecured, and is repayable on the completion of the Rights Issue as mentioned in note 2.4 (ii). Save as disclosed, the remaining amount due to the director-cumshareholder is unsecured, interest-free and repayable on demand.

13b.

Provisions Group and Company FY2012 FY2011 S$'000 S$'000 Litigation Foreseeable project loss Project costs Unutilised leaves

2,393 1,275 154 340

2,329 805 255

At end of the year

4,162

3,389

Provision for litigation The provision for litigation in the previous financial year was derived based on the SGD equivalent amount for the damages (denominated in HK$8,720,000) plus interest and estimated legal costs awarded by the High Court of Hong Kong SAR after setting off against the Company's claims. The Company made a further provision of S$0.06 million for additional interest costs during the current financial year. Subsequent to the financial year ended 31 March 2012, the Company’s appeal and Atal’s Cross-appeals were heard on 9 May 2012 and an announcement was made on 25 May 2012 to update on the judgement issued by the Court of Appeal of the Hong Kong SAR. In summary, the judgment of 30 June 2011 resulting in a net award of HK$8.72 million (S$1.41 million equivalent) to Atal is reduced by HK$4.7 million (S$761,000 equivalent) (see note 13b). The full judgment sum of HK$8.7 million has already been fully recognised in the FY2011. As there is a possibility of further appeal, the Company is not making any adjustment to the provision already made. Provision for foreseeable project loss The provision for foreseeable project loss recognised during the year relates to the provision for liquidation damages of S$0.5 million (FY2011: S$0.8 million) for a project. Provision for project costs As mentioned in Notes 3.2.5 and 24(a), the Company made a provision for project costs in the current financial year pursuant to the Company's announcement made on 7 June 2012 in relation to the proposed legal actions that the Company intends to pursue to protect its rights and to recover monies for work done, services rendered, goods delivered and damages suffered. Movement in provision for unutilised leave:

At start of the year Addition in the year Reversal in the year At end of the year

Group and Company FY2012 FY2011 S$'000 S$'000 255 340 (255)

94 255 (94)

340

255

77 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


NOTES TO THE FINANCIAL STATEMENTS for the financial year ended 31 March 2012 Notes to the Financial Statements for the financial year ended 31 March 2012 14.

Finance leases The average effective borrowing rate for the finance lease of the Group and the Company was 6.41% (FY2011: 6.41%) per annum. The lease was on a fixed repayment basis and no arrangement was entered into for any contingent payment. The lease obligation was denominated in Singapore Dollars and the fair value of the Group's and the Company's lease obligation approximated the carrying amount at end of the reporting period. Future minimum lease payments under the hire purchase agreement together with the present value of the net minimum lease payments are as follows: Minimum lease payments FY2012 S$'000

FY2011 S$'000

Present value of net minimum lease payments FY2012 FY2011 S$'000 S$'000

Group and Company Obligation under finance leases: Current liabilities Within one year

40

40

29

27

162 44

162 84

135 43

127 80

206

246

178

207

Less: future finance charges

(39)

(52)

Present value of lease obligation

207

234

207

234

Non-current liabilities nd th Within 2 to 5 years inclusive After 5 years

15.

Deferred development grant The Enterprise Challenge (TEC) grant awarded by the Prime Minister’s Office of the Singapore for the iFerret™ pilot with CAAS that had completed during the previous financial year. The grant has a remaining useful life of 6 months. Group and Company FY2012 FY2011 S$'000 S$'000 At start of the year Grant received in the year Fair value adjustment Amortisation to other operating income (Note 20)

164 (109)

280 (4) (112)

55

164

55

-

At end of the year Current

Within one year

Non-current Within 2nd to 5th years inclusive

78 STRATECH SYSTEMS LIMITED annual report 2011 / 2012

-

164


NOTES TO THE FINANCIAL STATEMENTS for the financial year ended 31 March 2012 Notes to the Financial Statements for the financial year ended 31 March 2012 16.

Share-based payments (a)

Equity-settled share option scheme The Company has employee stock option scheme to reward contributions made by employees and directors to the success and development of the Group. The ESOS Scheme is administered by the Remuneration Committee. Options are exercisable at a price based on (a) the market price or (b) a price which is set at a discount to the market price, the quantum of such discount to be determined by the Committee in its absolute discretion, provided that the maximum discount which may be given in respect of any Option shall not exceed 20% of the market price of the shares of the Company listed on the Singapore Exchange Securities Trading Limited. Options granted at an Exercise Price which is at a discount to the market price may only be exercised after two (2) years from the date of grant. Options which are granted at market price may be exercised after one (1) year from the Date of Grant. The option is exercisable commencing after the first or second anniversary of the date of grant of the option (as may be prescribed under the Scheme) and expiring on the tenth anniversary of the date of grant of the option. The vesting period is one, two, three and/or four years. If the options remain unexercised after ten (10) years from the date of grant, the options expire. Options are forfeited if the employee leaves the Group. Employee Share Option Scheme 2000 In the prior financial year, the Company had a share option scheme for all employees of the Company (the "Employee Stock Option Scheme 2000" or the "ESOS 2000"). The ESOS 2000 had expired on 31 March 2010 and was terminated and replaced by the Employee Share Option Scheme 2011 (ESOS 2011) pursuant to the shareholders' approval obtained at the Company's extraordinary general meeting held on 29 July 2011 (the "AGM"). Details of the ESOS 2000 movements during and those outstanding as at the year-end were as follows: Group and Company FY2012 FY2011 No. of share Weighted No. of share Weighted options average options average exercise exercise price price S$ S$ Outstanding at start of the year Expired in the year Forfeited in the year

12,575,000 (1,917,000) (6,995,000)

0.08

25,792,000 (13,217,000)

0.09

Outstanding at end of the year

3,663,000

0.10

12,575,000

0.08

Exercisable at end of the year

3,663,000

0.10

12,575,000

0.08

Employee Share Option Scheme 2011 Pursuant to the ESOS 2011 scheme the Company had, during FY2012, granted to: (i)

David K.M. Chew, an Executive Director and Chairman of the Company, 9,182,830 share options exercisable for 9,182,830 shares. These share options are exercisable from 1 September 2012 to 31 August 2022 at an exercise price of S$0.0187 per share option.

(ii)

Lim Soon Hock 12,500,000 share options exercisable for 12,500,000 shares. These share options are exercisable from 1 September 2012 to 31 August 2022 at an exercise price of S$0.0187 per share option.

79 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


NOTES TO THE FINANCIAL STATEMENTS for the financial year ended 31 March 2012 Notes to the Financial Statements for the financial year ended 31 March 2012 16.

Share-based payments (cont'd) Employee Share Option Scheme 2011 (cont'd)

(b)

(iii)

Leong Sook Ching, an Executive Director and Chief Corporate Officer of the Company, 3,935,500 share options exercisable for 3,935,500. These share options are exercisable from 1 September 2012 to 31 August 2022 at an exercise price of S$0.0187 per share option.

(iv)

Lim Kim Choon, a Non-executive Director of the Company, 500,000 share options exercisable for 500,000 shares. These share options are exercisable from 11 November 2012 to 10 November 2022 at an exercise price of S$0.0166 per share option.

(v)

A management staff of the Company, 4,000,000 share options exercisable for 4,000,000 shares. These share options are exercisable from 11 November 2012 to 10 November 2022 at an exercise price of S$0.0166 per share option.

Equity-settled director's remuneration Pursuant to the shareholders' approval obtained at the AGM the Company had, on 29 July 2011, allotted and issued 28,818,443 shares to Lim Soon Hock, an Executive Director and Deputy Chairman of the Company for the purpose of satisfying part of the remuneration payable to him.

(c)

Equity-settled performance share scheme Paragraph 6 of the Directors' Report includes further disclosure on the equity-settled performance share scheme for employees and directors. On 27 March 2012, 4,324,114 (FY2011: nil) fully paid shares were awarded to certain employees who are eligible pursuant to the Stratech Performance Share Scheme approved by the shareholders at the AGM. Group and Company FY2012 FY2011 S$'000 S$'000 117 299 95

Expenses of equity-settled share options granted to employees Expenses of equity-settled remuneration shares issued to a director Expenses of equity-settled performance shares issued to staff Reversal of expenses of equity-settled share options granted to employees

17.

-

(213)

(197)

298

(197)

Share capital

Issued and fully paid: Ordinary shares At start of the year

FY2012 No. of shares

Group and Company S$'000

FY2011 No. of shares

874,555,359

S$'000

98,692

874,555,359

98,692

Remuneration shares issued to a director (Note 16 (b))

28,818,443

721

-

-

Employee performance shares (Note 16 (c))

4,324,114

95

-

-

907,697,916

99,508

At end of the year

80 STRATECH SYSTEMS LIMITED annual report 2011 / 2012

874,555,359

98,692


NOTES TO THE FINANCIAL STATEMENTS for the financial year ended 31 March 2012 Notes to the Financial Statements for the financial year ended 31 March 2012 17.

Share capital (cont'd) The holders of ordinary shares are entitled to receive dividends as and when declared by the Company. All issued ordinary shares which have no par value, are fully paid and carry one vote per share without restriction. Capital management The Company's objectives when managing capital are: •

to safeguard the Group's and the Company's ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders, and

•

to provide an adequate return to shareholders by pricing products and services commensurable with the level of risk.

The Company sets the amount of capital in proportion to risk. The Company manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt. The Company monitors capital based on a gearing ratio. The gearing ratio is calculated as 'net debt' divided by 'total capital'. Net debt is borrowings plus trade and other payables less cash and cash equivalents. 'Total capital' is equity plus net debt. FY2012 S$'000

Group

FY2011 S$'000

Company FY2012 S$'000

FY2011 S$'000

Net debt Equity

20,519 807

12,292 11,942

20,458 5,411

12,238 16,220

Total capital

21,326

24,234

25,869

28,458

Gearing ratio

0.962

0.507

0.791

0.430

Please refer to note 2.4 (i) & 2.4 (ii) on the proposed measures to improve the Group's & Company's financial position. 18.

Revenue FY2012 S$'000 Sale of goods Rendering of services Contract revenue

Group

FY2011 S$'000

385 3,303 2,099

182 4,995 9,904

5,787

15,081

81 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


NOTES TO THE FINANCIAL STATEMENTS

for thetofinancial year Statements ended 31 March 2012 Notes the Financial for the financial year ended 31 March 2012 19.

Business and geographical segments information The Group's operations are organised into two core business activities. The first is the e-Systems project and services division comprising: •

expertise and activities as a systems and technology developer in developing, hosting and operating IT e-business projects; and

expertise and activities in developing and providing e-business applications, services and infrastructure.

The second is the Technology-intensive IT division comprising: •

expertise and activities in computer vision systems; and

expertise and activities in intelligent transport systems.

Some e-Business projects and services incorporate or integrate with computer vision and intelligent transport systems. The Group's diversified business segments and related information are as follows: (a)

Business segments Segment revenue and expense: These are the operating revenue and expense reported in the Group's statement of comprehensive income that are directly attributable to a segment and the relevant portions of such revenue and expense, where applicable, are allocated to that segment on a reasonable and consistent basis. Segment assets and liabilities: Segment assets include all operating assets used by a segment and consist principally of receivables, inventories and plant and equipment, net of allowances and provisions. Capital expenditure includes the total cost incurred to acquire assets expected to have future benefits over more than one reporting period which are directly attributable to the segment, such as plant and equipment and intangible assets. Segment liabilities include all operating liabilities of the segment and consist principally of trade payables and accrued expenses.

82 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


NOTES TO THE FINANCIAL STATEMENTS for the financial year ended 31 March 2012 Notes to the Financial Statements for the financial year ended 31 March 2012 19.

Business and geographical segments information (cont'd) e-Systems FY2011 FY2012 S$'000 S$'000 Revenue External sales

Technology-intensive IT FY2012 FY2011 S$'000 S$'000

2,477

13,413

3,310

703

10,099

718

Consolidated FY2011 FY2012 S$'000 S$'000 5,787

15,081

1,421

9,637

413 (744) (6,775) (5,792) (594) -

733 (622) (5,496) (3,308) (3,956) (547) (40)

(12,071)

(3,599)

Income tax expense

-

-

Net loss for the year

(12,071)

(3,599)

10,915

14,520

Unallocated assets

14,671

13,365

Consolidated total assets

25,586

27,885

3,485

4,139

Unallocated liabilities

21,294

11,804

Consolidated total liabilities

24,779

15,943

507 507

3 1 4

Results Segment results

1,668 (462)

Other operating income Selling and distribution expenses Administrative expenses Other operating expenses Provision for litigation Finance costs Share of loss of an associated company Loss before income tax

Assets

Liabilities

434

537

3,591

1,697

10,481

2,948

10,929

2,442

Other information Capital expenditure Capital expenditure (unallocated)

-

3

-

-

Intangible assets

-

98

2,520

2,496

2,520

2,594

Depreciation Depreciation (unallocated)

12

126

6

5

18 90 108

131 92 223

Amortisation Amortisation (unallocated)

176

1,763

2,501

217

2,677 1 2,678

1,980 19 1,999

83 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


NOTES TO THE FINANCIAL STATEMENTS for the financial year ended 31 March 2012 Notes to the Financial Statements for the financial year ended 31 March 2012 19.

Business and geographical segments information (cont'd) (b)

Geographical segments The following table provides an analysis of the Group's revenue by geographical market, irrespective of the origin of the goods/services: Group FY2012 FY2011 S$'000 S$'000 Singapore Asia South East Asia United States of America Africa Europe

3,870 1,482 259 73 46 57

14,590 107 177 207 -

5,787

15,081

The following is an analysis of the carrying amounts of segment assets and additions to capital expenditure analysed by the geographical area in which the assets were located. Carrying amounts of segment assets FY2012 S$'000 Singapore United States of America

20.

FY2011 S$'000

Additions to plant and equipment and intangible assets FY2012 FY2011 S$'000 S$'000

25,531 55

27,760 125

3,027 -

2,598 -

25,586

27,885

3,027

2,598

Other operating income FY2012 S$'000 Development grant income (Note 15) Government subsidies - Job Credit scheme Government grant - project subsidies Interest income from bank fixed deposits Management fee income Reversal of employees' share option expenses, net Write-back of trade and other payables Write-back of impairment of plant and equipment Others

84 STRATECH SYSTEMS LIMITED annual report 2011 / 2012

Group

FY2011 S$'000

109 128 34 118 24

112 15 10 170 197 140 67 22

413

733


NOTES TO THE FINANCIAL STATEMENTS for the financial year ended 31 March 2012 Notes to the Financial Statements for the financial year ended 31 March 2012 21.

Salaries and related costs FY2012 S$'000 Salaries and CPF Share-based compensation Other staff related expenses

FY2011 S$'000

3,690 512 575

3,421 322 384

4,777

4,127

FY2012 S$'000 Directors' remuneration

Group

Group

1,343

FY2011 S$'000 1,229

The directors' remuneration above includes remuneration of S$0.31 million (FY2011: S$0.25 million) capitalised as development expenditures in the intangible assets of the Group and Company. 22.

Finance costs FY2012 S$'000 Interest on borrowings Interest on obligations under finance lease (Note 14) Other interest charges

23.

Group

FY2011 S$'000

354 44 196

498 32 17

594

547

Income tax expense FY2012 S$'000 Income tax expense

Group

-

FY2011 S$'000 -

Domestic income tax is calculated at 17% (FY2011: 17%) of the estimated assessable profit for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the relevant jurisdictions. FY2012 S$'000 Loss before income tax Tax at the domestic rates applicable to losses in the countries where the Group operates (FY2011: 17%) Expenses not deductible for income tax purposes Capitalised expenses deductible for tax purposes Deferred tax assets not recognised Others Income tax expense

Group

FY2011 S$'000

(12,071)

(3,599)

(2,052) 15 (387) 2,410 14 -

(612) 14 (397) 968 27 -

85 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


NOTES TO THE FINANCIAL STATEMENTS for the financial year ended 31 March 2012 Notes to the Financial Statements for the financial year ended 31 March 2012 23.

Income tax expense (cont'd) As of the end of the reporting period, the Group has unutilised tax losses of approximately S$70.99 million (FY2011: S$57.59 million) available for offset against future taxable profits subject to compliance with certain provisions of the Singapore Income Tax Act and agreement with the Inland Revenue Authority of Singapore. No deferred tax asset has been recognised in respect of the above tax losses and unabsorbed capital allowances due to the unpredictability of future profit streams.

24.

Loss before income tax FY2012 S$'000 Amortisation of intangible assets Auditor's remuneration Audit fees Non audit fees Bad debts written off Depreciation expense Directors' fee Loss on disposal of plant and equipment Legal and professional expenses Cost of inventories charged to cost of goods and services sold a Provision for doubtful trade and other receivables a Provision for impairment of accrued revenue a Provision for project costs Provision for foreseeable project loss b Provision for litigation Salaries and related costs (Note 21) Rental of office premises

Group

FY2011 S$'000

2,678

1,999

150 233 108 261 88 1,966 26 1,527 343 154 470 4,777 546

150 52 1 223 198 1,388 411 805 3,956 4,127 559

a. The allowance for doubtful trade and other receivables, provision for impairment of accrued revenue and provision for project costs in the current financial year was made pursuant to the Company's announcement made on 7 June 2012 in relation to the proposed legal actions that the Company intends to pursue to protect its rights and to recover monies for work done, services rendered, goods delivered and damages suffered as mentioned in note 13b. b. The provision in the previous financial year was derived based on (i) the SGD equivalent amount estimated for the damages awarded by the High Court of Hong Kong SAR (dominated in HK$8,720,000) after setting off against the Company's claims as mentioned in note 13b and (ii) the set-off of the trade receivables in respect of the amount due from Atal.

86 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


NOTES TO THE FINANCIAL STATEMENTS for the financial year ended 31 March 2012 Notes to the Financial Statements for the financial year ended 31 March 2012 25.

Loss per share (cents) Basic and diluted (loss)/earnings per share is based on: FY2012 S$'000 Loss before income tax Weighted average number of ordinary shares Basic and diluted loss per share (cents)

Group

(12,071) 882,407,739

FY2011 S$'000 (3,599)

878,157,663

(1.37)

(0.41)

The denominators used are the same as those detailed above for both basic and diluted loss per share as the options and warrants do not have dilutive effect. 26.

Operating lease commitments Group and Company FY2012 FY2011 S$'000 S$'000 Minimum lease payments under operating leases in respect of office premises and equipment recognised as an expense in the year

1,178

1,488

At the end of the reporting period, the Group and the Company have outstanding commitments under noncancellable operating leases, which fall due as follows: Group and Company FY2011 FY2012 S$'000 S$'000 553 1,118 Within one year 649 303 Two to three years 1,202

1,421

Operating lease payments represent rental payable by the Group and Company for its office premises and certain equipment. The office rental lease was negotiated for a lease term of 3 years and is not subject to repricing during these 3 years. The lease will end on 19 January 2015. 27.

Related party disclosures Some of the Group's and Company's transactions and arrangements are between entities of the Group and with related parties, the effects of which, on basis determined between the parties, are reflected in these consolidated financial statements. The balances with these parties are unsecured, interest-free and repayable on demand unless except for note 27 (a) below. In addition to the information disclosed elsewhere in the financial statements, the following related party transactions took place between the Group and related parties during the financial year on terms agreed by the parties concerned.

87 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


NOTES TO THE FINANCIAL STATEMENTS for the financial year ended 31 March 2012 Notes to the Financial Statements for the financial year ended 31 March 2012 27.

Related party disclosures (cont'd)

Directors: David K.M. Chew - (a) Interest on loan

FY2012 S$'000 100

Group

FY2011 S$'000 -

Lim Kim Choon - (b) Provision of consultancy service Director's fee of a subsidiary

120 36

60 18

Related parties other than the directors (c)

206

251

462

329

Transactions with directors (a)

During FY2011 Dr. Chew had extended a loan amounting to S$3.7 million to the Company pursuant to a loan agreement dated 8 Aug 2011 (the "Loan"). Dr. Chew has also undertaken to partially offset the repayment amount due to him under the Loan against the full satisfaction of the consideration payable by him pursuant to the proposed Rights Issue as mentioned in the foregoing section 8 Review of Financial Position. The Loan bears interest at five percent (5%) per annum (but not exceeding S$100,000), is unsecured, and is repayable on the completion of the Rights Issue. During FY2012, the Company has accrued S$100,000 in interest payable to Dr. Chew.

(b)

During the financial year, Mr. Lim Kim Choon who was appointed as director of the Company since 19 May 2011, was also a director of a subsidiary and at the same time he also provided consultancy services to the Group.

Transactions with other related parties other than the directors (c)

Transaction with close family members During the year, staff costs of $206,405 (FY2011: $251,100) were paid to the Company's Technical Fellow who is a close family member of certain directors. He is no longer a full time staff of the Company effective from 4Q2012 and is on part-time engagement with the Company.

Saved as disclosed in this note and the related party information disclosed elsewhere in the financial statements, in particular in (i) note 5 - compensation of directors and key management personnel and (ii) note 21 - salaries and related costs there are no other significant transactions. 28.

Subsequent events Other than those disclosed in note 3.2.3, note 4.2, note 10b, note 13b and note 24a to the financial statements, there are no other significant events occurring after the end of the reporting period.

88 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


SHAREHOLDERS’ INFORMATION

SHAREHOLDERS’ as at 18 June 2012 INFORMATION AS AT 18 JUNE 2012

Issued and fully paid-up capital

:

S$102,788,028.14

No. of shares issued

:

1,067,697,916 shares

Class of shares

:

Ordinary share

Voting rights

:

One vote per share

STATISTICS OF SHAREHOLDINGS Number of Shareholders

Size of Shareholding

Number of Shares

%

%

1

-

999

111

1.79

30,551

0.00

1,000

-

10,000

3,012

48.50

10,440,612

0.98

10,001

-

1,000,000

2,999

48.29

389,574,497

36.49

and above

88

1.42

667,652,256

62.53

6,210

100.00

1,067,697,916

100.00

1,000,001

89 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


SHAREHOLDERS’ INFORMATION as at 18 June 2012 SHAREHOLDERS’ INFORMATION (CONT’D) TWENTY LARGEST SHAREHOLDERS No.

Name of Shareholders

1.

Chew Khien Meow David

156,713,602

14.68

2.

DB Nominees (S) Pte Ltd

100,020,000

9.37

3.

Leong Sook Ching

48,673,464

4.56

4.

DBS Nominees Pte Ltd

36,762,797

3.44

5.

Lim Kai Chi Patricia Mrs Patricia Chia

32,500,000

3.04

6.

Lim Soon Hock

29,459,823

2.76

7.

United Overseas Bank Nominees Pte Ltd

16,930,246

1.59

8.

Ang Chin San

16,541,000

1.55

9.

Chechatwala Rumana Akbar Mrs Rumana Kaedjohare

15,000,000

1.40

10.

Tan Thiam Chye

15,000,000

1.40

11.

Maybank Kim Eng Securities Pte Ltd

12,546,153

1.18

12.

OCBC Securities Private Ltd

10,785,625

1.01

13.

Lim Chye Huat @ Bobby Lim Chye Huat

10,000,000

0.94

14.

OCBC Nominees Singapore Pte Ltd

9,095,678

0.85

15.

Kwek Guan Khian

6,500,000

0.61

16.

Phooi Bok Lan (Bei Mulan)

5,000,000

0.47

17.

DBS Vickers Securities (S) Pte Ltd

4,887,000

0.46

18.

Phillip Securities Pte Ltd

4,835,326

0.45

19.

Teo Khim Soon

4,820,000

0.45

20.

Chua Hung Peng

4,430,000

0.41

540,500,714

50.62

Total

Number of Shares

%

PERCENTAGE OF SHAREHOLDING IN PUBLIC’S HANDS 66.6% of the Company’s shares are held in the hands of public. Accordingly, the Company has complied with Rule 723 of the Listing Manual of the SGX-ST.

90 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


NOTICE OF ANNUAL GENERAL MEETING STRATECH SYSTEMS LIMITED (Incorporated in Singapore) (Co. Reg. No: 199608251Z)

NOTICE OF ANNUAL GENERAL MEETING NOTICE IS HEREBY GIVEN that the Annual General Meeting of STRATECH SYSTEMS LIMITED (the “Company”) will be held at the Boardroom, Stratech Systems Limited, 31 International Business Park #02-02, Creative Resource, Singapore 609921 on Friday, 27 July 2012 at 9.00 am for the following purposes: AS ORDINARY BUSINESS 1.

To receive and adopt the Directors’ Report and the Audited Accounts of the Company for the year ended 31 March 2012 together with the Auditors’ Report thereon. (Resolution 1)

2.

To re-elect the following Directors retiring pursuant to Article 104 of the Company’s Articles of Association: David K.M. Chew Chew Hai Chwee

(Retiring under Article 104) (Retiring under Article 104)

(Resolution 2) (Resolution 3)

Mr. Chew Hai Chwee will, upon re-election as Director of the Company, remain the Chairman of the Nominating and Remuneration Committees and a member of the Audit and Risk Management Committee. He will be considered independent for the purposes of Rule 704(8) of the Listing Manual of the Singapore Exchange Securities Trading Limited. 3.

To approve Directors’ fees of S$121,725 payable by the Company for the financial year ended 31 March 2012 (FY2011: S$90,381). [See Explanatory Note (i)] (Resolution 4)

4.

To approve the payment of Directors’ fees of S$108,000 for the financial year ending 31 March 2013 payable at S$36,000 to each Non-Executive Director monthly in arrears (FY2011: S$108,000). (Resolution 5)

5.

To re-appoint LTC LLP as the Company’s Auditors and to authorise the Directors to fix their remuneration. (Resolution 6)

6.

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

AS SPECIAL BUSINESS To consider and if thought fit, to pass the following resolutions as Ordinary Resolutions: 7.

SHARE ISSUE MANDATE That pursuant to Section 161 of the Companies Act, Cap. 50 and Rule 806 of the Listing Manual of the Singapore Exchange Securities Trading Limited (“SGX-ST”), authority be given to the Directors of the Company to (a) (i) issue shares in the capital of the Company (“Shares”) whether by way of rights, bonus or otherwise, and/or (ii) make or grant offers, agreements or options (collectively, “Instruments”) that might or would require Shares to be issued, including but not limited to the creation and issue of (as well as adjustments to) warrants, debentures or other instruments convertible into Shares 91 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


NOTICE OF ANNUAL GENERAL MEETING at any time and upon such terms and conditions and to such persons as the Directors may, in their absolute discretion, deem fit; and (b) issue Shares in pursuance of any Instrument made or granted by the Directors of the Company while this Resolution was in force, provided that: (a) the aggregate number of Shares (including Shares to be issued in pursuance of Instruments made or granted pursuant to this Resolution) does not exceed fifty percent (50%) of the total number of issued shares (excluding treasury shares) in the capital of the Company at the time of the passing of this Resolution, of which the aggregate number of Shares and convertible securities to be issued other than on a pro rata basis to all shareholders of the Company shall not exceed twenty percent (20%) of the total number of issued shares (excluding treasury shares) in the capital of the Company; (b) for the purpose of determining the aggregate number of shares that may be issued under sub-paragraph (a) above, the total number of issued shares (excluding treasury shares) shall be based on the total number of issued shares (excluding treasury shares) of the Company as at the date of the passing of this Resolution, after adjusting for: (i) (ii) (iii)

new shares arising from the conversion or exercise of convertible securities; new shares arising from exercising share options or vesting of share awards outstanding or subsisting at the time this Resolution is passed; and any subsequent bonus issue, consolidation or subdivision of shares;

(c) and that such authority shall, unless revoked or varied by the Company in general meeting, continue in force (i) until the conclusion of the Company’s next Annual General Meeting or the date by which the next Annual General Meeting of the Company is required by law to be held, whichever is earlier or (ii) in the case of Shares to be issued in accordance with the terms of convertible securities issued, made or granted pursuant to this Resolution, until the issuance of such Shares in accordance with the terms of such convertible securities. [See Explanatory Note (ii)] (Resolution 7) 8.

AUTHORITY TO ALLOT AND ISSUE SHARES UNDER THE STRATECH SHARE OPTION SCHEME 2011 AND THE STRATECH PERFORMANCE SHARE SCHEME That pursuant to Section 161 of the Companies Act, Cap. 50, the Directors be authorised and empowered to allot and issue shares in the capital of the Company: (a) to all the holders of options granted by the Company, where granted during the subsistence of this authority or otherwise, under the Stratech Share Option Scheme 2011 (“2011 Scheme”) upon the exercise of such options and in accordance with the terms and conditions of the 2011 Scheme; and (b) as may be required to be issued pursuant to the vesting of the share awards under the Stratech Performance Share Scheme (the “Stratech PSS”); provided always that the aggregate number of additional ordinary shares to be allotted and issued pursuant to the 2011 Scheme and Stratech PSS shall not exceed fifteen percent (15%) of the total number of issued shares (excluding treasury shares) in the capital of the Company from time to time. [See Explanatory Note (iii)] (Resolution 8)

92 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


NOTICE OF ANNUAL GENERAL MEETING By Order of the Board Leong Sook Ching Company Secretary Singapore, 12 July 2012 Explanatory Notes: (i)

The Ordinary Resolution 4 proposed in item 3 above, is to approve the additional payment of Directors’ fees of S$121,725 for the financial year ended 31 March 2012 pursuant to the fee structure approved and adopted by the Remuneration Committee. The framework of the fee structure is disclosed under the Corporate Governance Report. Subject to shareholders’ approval, the additional fees will be paid to the non-executive Directors for their participation in the Board and Board Committees meetings for the financial year ended 31 March 2012.

(ii)

The Ordinary Resolution 7 proposed in item 7 above, if passed, will empower the Directors from the date of the above Meeting until the date of the next Annual General Meeting, to allot and issue Shares and convertible securities in the Company up to an amount not exceeding fifty percent (50%) of the total number of issued shares (excluding treasury shares) in the capital of the Company, of which up to twenty percent (20%) may be issued other than on a pro rata basis. For the purpose of this resolution, the total number of issued shares (excluding treasury shares) is based on the Company’s total number of issued shares (excluding treasury shares) at the time this proposed Ordinary Resolution is passed after adjusting for new shares arising from the conversion or exercise of convertible securities, the exercise of share options or the vesting of share awards outstanding or subsisting at the time when this proposed Ordinary Resolution is passed and any subsequent bonus issue, consolidation or subdivision of shares.

(iii)

The Ordinary Resolution 8 proposed in item 8 above, if passed, will empower the Directors of the Company, to allot and issue shares in the Company of up to a number not exceeding in total fifteen percent (15%) of the total number of issued shares (excluding treasury shares) in the capital of the Company from time to time pursuant to the exercise of the options under the 2011 Scheme and vesting of the share awards under the Stratech PSS.

Notes: 1.

A Member entitled to attend and vote at the Annual General Meeting (the “Meeting”) is entitled to appoint a proxy to attend and vote in his/her stead. A proxy need not be a Member of the Company.

2.

If the appointor is a corporation, the instrument appointing a proxy must be executed under seal or the hand of its duly authorised officer or attorney.

3.

The instrument appointing a proxy must be deposited at the Registered Office of the Company at 31 International Business Park #02-02, Creative Resource, Singapore 609921 not less than forty-eight (48) hours before the time appointed for holding the Meeting.

93 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


This page is intentionally left blank.


STRATECH SYSTEMS LIMITED

IMPORTANT: 1. For investors who have used their CPF monies to buy Stratech Systems Limited’s shares, this Report is forwarded to them at the request of the CPF Approved Nominees and is sent solely FOR INFORMATION ONLY.

(Incorporated in Singapore) (Co. Reg. No: 199608251Z)

PROXY FORM (Please see notes overleaf before completing this Form)

2.

This Proxy Form is not valid for use by CPF investors and shall be ineffective for all intents and purposes if used or purported to be used by them.

3.

CPF investors who wish to vote should contact their CPF Approved Nominees.

*I/We, of

being a member/members of STRATECH SYSTEMS LIMITED (the “Company”), hereby appoint: Name

NRIC/Passport No.

Proportion of Shareholdings

No. of Shares

Address

%

and/or (delete as appropriate) Name

NRIC/Passport No.

Proportion of Shareholdings No. of Shares

Address

%

or failing *him/her, the Chairman of the Meeting as *my/our *proxy/proxies to vote for *me/us on *my/our behalf at the Annual General Meeting (the “Meeting”) of the Company to be held at the Boardroom, Stratech Systems Limited, 31 International Business Park #02-02, Creative Resource, Singapore 609921 on Friday, 27 July 2012 at 9.00 am and at any adjournment thereof. *I/We direct *my/our *proxy/proxies to vote for or against the Resolutions proposed at the Meeting as indicated hereunder. If no specific direction as to voting is given or in the event of any other matter arising at the Meeting and at any adjournment thereof, the *proxy/proxies will vote or abstain from voting at *his/her discretion. The authority herein includes the right to demand or to join in demanding a poll and to vote on a poll. (Please indicate your vote “For” or “Against” with a tick [√] within the box provided.) No. 1 2 3 4 5 6 7

Resolutions relating to: Directors’ Report and Audited Accounts for the year ended 31 March 2012 Re-election of Dr David K.M Chew as a Director Re-election of Mr Chew Hai Chwee as a Director Approval of Directors’ fees amounting to S$121,725 for the year ended 31 March 2012 Approval of Directors’ fees amounting to S$108,000 for the year ending 31 March 2013 Re-appointment of LTC LLP as Auditors Share Issue Mandate

8

Authority to allot and issue shares under the Stratech Share Option Scheme 2011 and Stratech Performance Share Scheme

For

Against

*Delete where inapplicable Dated this

day of

2012 Total number of Shares in: (a) CDP Register (b) Register of Members

Signature of Shareholder(s)/ and, Common Seal of Corporate Shareholder

No. of Shares


Notes: 1.

Please insert the total number of Shares held by you. If you have Shares entered against your name in the Depository Register (as defined in Section 130A of the Companies Act, Chapter 50 of Singapore), you should insert that number of Shares. If you have Shares registered in your name in the Register of Members, you should insert that number of Shares. If you have Shares entered against your name in the Depository Register and Shares registered in your name in the Register of Members, you should insert the aggregate number of Shares entered against your name in the Depository Register and registered in your name in the Register of Members. If no number is inserted, the instrument appointing a proxy or proxies shall be deemed to relate to all the Shares held by you.

2.

A member of the Company entitled to attend and vote at a meeting of the Company is entitled to appoint one or two proxies to attend and vote in his/her stead. A proxy need not be a member of the Company.

3.

Where a member appoints two proxies, the appointments shall be invalid unless he/she specifies the proportion of his/her shareholding (expressed as a percentage of the whole) to be represented by each proxy.

4.

The instrument appointing a proxy or proxies must be deposited at the registered office of the Company at 31 International Business Park #02-02, Creative Resource, Singapore 609921 not less than 48 hours before the time appointed for the Meeting.

5.

The instrument appointing a proxy or proxies must be under the hand of the appointor or of his attorney duly authorised in writing. Where the instrument appointing a proxy or proxies is executed by a corporation, it must be executed either under its seal or under the hand of an officer or attorney duly authorised. Where the instrument appointing a proxy or proxies is executed by an attorney on behalf of the appointor, the letter or power of attorney or a duly certified copy thereof must be lodged with the instrument.

6.

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

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


21 STRATECH SYSTEMS LIMITED annual report 2011 / 2012


Stratech Systems Limited Co. Reg. No.: 199608251Z

31 International Business Park #02-02 Creative Resource Singapore 609921 Tel: +65 6323 2188 Fax: +65 6323 2177 Email: stratech@stratechsystems.com www.stratechsystems.com

Stratech Annual Report 2012  

Annual report for the Financial Year 2011-2012

Read more
Read more
Similar to
Popular now
Just for you