PART A: EXPLANATORY NOTES AS PER MASB 26

A1.	Basis of preparation of interim financial reports

These interim financial statements are prepared in accordance with the Malaysian Accounting Standards Board (“MASB”) Standard No.26 “Interim Financial Reporting” and paragraph 9.22 of the Bursa Malaysia Securities Berhad (“Bursa Malaysia”)’s Listing Requirements and should be read in conjunction with the Company’s annual financial statements for the year ended 31st December 2003.

The accounting policies and presentation adopted for the interim financial statements are consistent with those adopted in the annual financial statements for the year ended 31st December 2003.

A2.	Qualification of financial statements

The preceding year annual financial statements were not subject to any qualification.

A3.	Seasonal and cyclical factors 

The group’s results were not materially affected by any major seasonal or cyclical factors.
	
A4.	Unusual and extraordinary items 

There were no exceptional and/or extraordinary items affecting assets, liabilities, equity, net income or cash during the current quarter under review.

A5.	Material changes in estimates

There were no material changes in estimates of amount reported in the current quarter under review.

A6.	Issuance and repayment of debt and equity securities	

Save as disclosed below, there were no issuances, cancellations, share buy-backs, resale of shares bought back and repayment of debt and equity securities:

During the quarter ended 30th June 2004, the authorised share capital of the Company was subdivided from 200,000,000 ordinary shares of RM0.50 each to 1,000,000,000 ordinary shares of RM0.10 each.

Apart from that, the Company amended its By-Laws and Articles in relation to Employees’ Share Option Scheme (“ESOS”) to align with the amendments to the Listing Requirements of Bursa Malaysia.  With the amendment, the maximum percentage of shares that may be issued under ESOS had been increased from 10% to 15% of the issued share capital of the Company.

During the six-month ended 30th June 2004, the issued and paid-up share capital of the Company was increased from 100,000,000 ordinary shares of RM0.50 each to 889,501,400 ordinary shares of RM0.10 each by the issuance of:

(i)	10,000,000 new ordinary shares of RM0.50 each of the Company pursuant to the Private Placement on 19th January 2004; 

(ii)	1,099,800 new ordinary shares of RM0.50 each pursuant to the exercise of options granted under the ESOS at the option price of RM1.38 per share; 

A6.	Issuance and repayment of debt and equity securities (cont’d)

(iii)	66,659,880 new ordinary shares pursuant to the completion of the bonus issue, on the basis of 3 new ordinary shares for every 5 existing ordinary shares; 
 
(iv)	Subdivision of the enlarged issued and paid-up share capital of 177,759,680 ordinary shares of RM0.50 each into 888,798,400 ordinary shares of RM0.10 each on the basis of 5 new ordinary shares of RM0.10 each for every 1 ordinary share of RM0.50 each; and

(v)	703,000 new ordinary shares of RM0.10 each pursuant to the exercise of options granted under the ESOS at the option price of RM0.17 per share.
	
A7.	Dividends Paid	

No dividends were paid during the quarter under review.

A8.	Segmental information 

	2nd Quarter ended		Six-month ended	
	30 Jun 2004		30 Jun 2004	

	Division	
Revenue	Profit / (Loss) 
before tax		
	Revenue	Profit / (Loss) 
before tax	
	RM`000		RM`000		RM`000	RM`000	
	Oil & Gas	81,382	9,490		147,660	21,193	
	Transportation Engineering	11,140	452		18,404	(334)	
	Marine Transportation	393	121		393	121	
	Investment Holding	2,431	1,552		3,927	1,396	
	95,346	11,615		170,384	22,376	
	Inter-segment elimination	(2,685)	(293)		(4,283)	(531)	
	Total	92,661	11,322		166,101	21,845	

	2nd Quarter ended		Six-month ended	
	30 Jun 2003		30 Jun 2003	

	Division	
Revenue	Profit / (Loss) 
before tax		
	Revenue	Profit / (Loss) 
before tax	
	RM`000	RM`000		RM`000	RM`000	
	Oil & Gas	34,771	5,587	     	34,771	5,587	
	Transportation Engineering	15,571	185		15,571	185	
	Investment Holding	-   	(57) 		-   	(57) 	
	50,342	5,715		50,342	5,715	
	Inter-segment elimination	(20)	-   		(20)	-   	
	Total	50,322	5,715		50,322	5,715	

A9.	Valuation of property, plant and equipment

There is no revaluation of property, plant and equipment as the group does not adopt a revaluation policy on property, plant and equipment.

A10.	Material events subsequent to the balance sheet date    

There was no material event subsequent to the balance sheet date that has not been reflected in this condensed financial statement save for the completion of the acquisition of Oiltools International Limited (“Oil”) as disclosed in A11 (c).

A11.  	Changes in composition of the group

(a)	OilServe Marine Sdn Bhd (formerly known as Wira Kukuh Sdn Bhd)

On 2nd January 2004, the Company acquired a total of 60,000 ordinary shares of RM1.00 each representing 60% of the issued and paid-up share capital of OilServe Marine Sdn Bhd (“OilServe Marine”) as follows:-

(i)	acquisition by way of transfer of 2 ordinary shares of RM1.00 each at the price of RM1.00 per share; and

(ii)	subscription for 59,998 ordinary shares of RM1.00 each at an issue price of RM1.00 per share.

With the acquisition, OilServe Marine became a subsidiary of the Company.  The remaining 40,000 ordinary shares representing 40% of the issued and paid-up share capital of OilServe Marine was subscribed for by Crest Petroleum Berhad on 2nd January 2004.

OilServe Marine was incorporated on 3rd December 2003.  Its intended principal activity is to provide marine vessels transportation services to the oil and gas industry.  OilServe Marine commenced its operation on 8th June 2004.

(b)	OilServe (L) Berhad

The Company’s 60%-owned subsidiary, OilServe Marine, had, on 13th January 2004, incorporated OilServe (L) Berhad (“OilServe (L)”), an offshore company in Labuan. Therefore the group’s effective interest in OilServe (L) is 60%.  

OilServe (L)’s intended principal activity is leasing of marine vessels and it commenced its operation on 8th June 2004.

(c)	Oiltools International Limited	

The Company had, on 1st July 2004, acquired 70.9% equity interest of Oil via its wholly-owned subsidiary, Kota Minerals & Chemicals Sdn Bhd (“KMC”), for a total cash consideration of USD77,383,443 (approximately RM294 million).   On 4th August 2004, KMC acquired another 6.8% equity interest in Oil for a total cash consideration of USD5,769,259 (RM21.9 million).   

The group’s effective interest in Oil as of date of review is 77.7%.

Except for the above, there were no changes in the composition of the group during the quarter under review.

A12.   	Contingent liabilities

Details of contingent liabilities of the group as at 30th June 2004 are as follows: -

	RM`000	
	Guarantees and contingencies relating to borrowings of subsidiaries	431,948	
	Guarantee given to third party in respect of credit arrangement 			provided to a subsidiary	50	
	Total	431,998	

Subsequent to the quarter ended 30th June 2004, KMC had drawndown the syndicated term loan and syndicated bridging loan totalling RM316 million as explained in B9 to finance the acquisition of Oil.

A13.	Capital commitments 

Authorised capital commitments not provided for in the financial statements as at 30th June 2004.

	Approved and contracted for
RM`000		Approved but not contracted for
RM`000	
	Property	248		4,239	
	Plant and Machinery 	1,224		5,734	
	Office Equipment, Furniture and Fittings	232		1,058	
	Motor Vehicles	1,346		3,587	
	Total	3,050		14,618	

A14.	Significant related party transactions

There were no significant related party transactions entered into during the quarter under review. 

PART B:	ADDITIONAL INFORMATION REQUIRED BY THE BURSA MALAYSIA SECURITIES BERHAD’S LISTING REQUIREMENTS

B1.	Review of performance for the six months ended 30th June 2004
	
B1 should be read in conjunction with A8 above.

The group recorded revenue of RM166.1 million for the six months ended 30th June 2004 with approximately 89% of the revenue contributed by Oil & Gas Division.

The group achieved a pre and post tax profits of RM21.8 million and RM16.8 million, respectively, for the six months ended 30th June 2004 with approximately 97% of the profits contributed by Oil & Gas Division.

The Oil & Gas Division had benefited from the increase in exploration and production activities in oil and gas industry.   The division had secured new businesses during the period, namely the supply of drilling fluids to Murphy Oil Sarawak as well as international business activities.  The division had also seen an increase in its international operations, namely in Sudan and Myanmar.   The business of tank rental and mud treatment facilities services had also contributed positively to the group’s performance during the period under review. 

Transportation Engineering Division’s performance was generally affected by the eroding GP margin caused by the increase in Euro dollar and raw material costs, namely mild steel, stainless steel and aluminium.   These had affected the pricing structure of the division’s products and services. Furthermore, the inability to realise certain projected contracts had also led to the under-achievement of the business unit’s performance. 

A new division of the group, namely the Marine Transportation Division, commenced operation in June 2004 with the purchase and chartering of one vessel.

B2.	Variation of results against preceding quarter 

B2 should be read in conjunction with A8 above.

The group’s turnover for the current quarter was RM92.7 million.   The group’s pre and post tax profits were RM11.3 million and RM9.3 million, respectively.

There is an increase of 26% in group turnover compared with the preceding quarter.   Generally, the turnover for the current quarter was contributed by Oil & Gas Division (88%) and Transportation Engineering Division (12%).

Profit after tax for the group had increased by 24% compared with the preceding quarter with Oil & Gas Division and Investment Holding Division contributing 82% and 17%, respectively, to the group’s profit after tax.

Oil & Gas Division continued to register good performance in its turnover with an increase of 23% compared with the preceding quarter due to the increase in the projects secured and international business activities.

Transportation Engineering Division managed to turnaround in the second quarter due to the increase in the number of projects delivered.   It registered an increase of 53% in turnover and an increase of 147% in profit after tax compared with the preceding quarter.

B3.	Current year prospects 

Oil & Gas Division
The acquisition of Oiltools International Limited (“Oil”) was completed on 1st July and 4th August 2004 for the first and second tranche, respectively.  As of date of review, the group has an effective interest of 77.7% in Oil.  

The principal activity of Oil is the supply and manufacture of equipment and provision of services to the oilfield industry.   One of the core business activities of Oil which is the provision of drilling waste management services complements the business activities of KMC, which is principally involved in the selling of drilling fluids, chemical products and the provision of drilling fluids engineering services.  

The integration of these two business areas enables not only the cross-selling of integrated products and services but also introducing new packaged services.  These shall provide the impetus for growth of the group.

Marine Transportation Division
With the formation of a joint venture with Crest Petroleum Berhad, the business unit plans to expand the fleet of vessels from the present two units to a target of seven units by end of 2004.   Currently the business unit is actively participating in various bids and tenders.  

Transportation Engineering Division
This division expects to deliver various projects amounting to RM30 million for the remaining of 2004, out of which 31% is targeted for overseas market.

The division is also actively participating in various bids and tenders to secure firm order book for the next few years.

B4.	Variance of actual and profit forecast / profit guarantee 

The group has not provided any quarterly profit forecast and there is no profit guarantee issued by the group or the Company. 

B5.	Taxation 
		
< --- Individual Quarter --- >		
< --- Cumulative Quarter ---- >	
	
Current Year Quarter	
Preceding Year Quarter	
	
Current Year To Date	Preceding Year Corresponding Period	
	30 Jun 2004
RM`000	30 Jun 2003
RM`000		30 Jun 2004
RM`000	30 Jun 2003
RM`000	
	Income Tax	1,993	1,740   	     	4,992	1,740 	

B5.	Taxation (cont’d)

A reconciliation of income tax expense applicable to profit before taxation at the statutory income tax rate to income tax expense at the effective income tax rate of the Group is as follows: -

< --- Individual Quarter --- >		
< --- Cumulative Quarter ---- >	
	
Current Year Quarter	
Preceding Year Quarter	
	
Current Year To Date	Preceding Year Corresponding Period	
	30 Jun 2004
%	30 Jun 2003
%		30 Jun 2004
%	30 Jun 2003
%	
	Malaysian statutory tax rate 	28.0	28.0		28.0	28.0	
	Tax effects of:						
	-	income not subject  to tax	(12.9)	-   		(6.4)	-   	
	-	expenses not deductible for 		tax purposes	2.5  	2.1		1.3 	2.4	
	Effective tax rate 	17.6	30.1		22.9	30.4	

B6.	Unquoted investments and/or properties 

The group has not made any investments in any unquoted investments and/or properties during the current quarter under review.

B7.	Quoted and marketable investments 

There were no investments in quoted and marketable securities made during the current quarter under review.

B8. 	Status of corporate proposal
  
a)	Private Placement

The Private Placement of 10,000,000 new ordinary shares of RM0.50 each of the Company was issued on 19th January 2004 and granted listing and quotation on the Second Board of the Bursa Malaysia with effect from 27th January 2004.

The status of utilisation of the proceeds raised from the Private Placement exercise is as follows:

	RM ‘000
Gross proceeds	125,000
Share issue expenses		(1,910)
Working capital		(97,484)
Advances given to OilServe Marine		(6,360)	**
			_______
		19,246
			=====

** 	Pending capitalisation into share capital as approved by Securities Commission on 10th May 2004 for a change in the utilisation of proceeds arising from the Private Placement. 

B8. 	Status of corporate proposal (cont’d)

b)	Bonus Issue and Share Split

The shares issued pursuant to the Bonus Issue were allotted on 30th April 2004 and the Share Split was implemented immediately thereafter.  

The issuance of up to 66,659,880 new ordinary shares of RM0.50 each in the Company pursuant to the Bonus Issue was credited as fully paid-up by the Company on the basis of 3 new ordinary shares for every 5 existing ordinary shares.

Subsequently, the enlarged issued and paid-up share capital of 177,759,680 ordinary shares of RM0.50 each was sub-divided into 888,798,400 ordinary shares of RM0.10 each on the basis of 5 new ordinary shares of RM0.10 each for every 1 ordinary share of RM0.50 each.

c)	Transfer of Listing Status

The Company had, on 13th May 2004, transferred the listing of and quotation for its entire enlarged issued and paid-up share capital comprising 888,798,400 ordinary shares of RM0.10 each from the Second Board to the Main Board of Bursa Malaysia after the completion of the Bonus Issue and Share Split.

d)	Acquisition of Oiltools International Limited 

On 5th November 2003, the Company entered into the Sale and Purchase Agreements for the acquisition of Oil from 3i Group PLC, 3i Parallel Venture LP, 3i UKIP II LP (“collectively known as 3i Vendors”), Parallel Ventures Managers Limited, Pall Corporation, Pall Netherlands B.V. (“collectively known as Pall Vendors”).  These acquisitions are collectively known as the 3i and Pall Acquisitions.

On 20th January 2004, the Bermuda Monetary Authority approved the transfer of shares in Oil to KMC, a wholly owned subsidiary of the Company, the granting to the Company of options over the shares in Oil and subsequent transfer to KMC, upon the exercise of the options of shares in Oil. 

On 30th January 2004, the Company entered into conditional put and call option agreements with Derrick Corporation and Mr Christopher Pianca, respectively, to acquire the entire shareholdings of Derrick (“Derrick Acquisition”) and Mr Christopher Pianca (“Pianca Acquisition”) in Oil.

Apart from that, the Company also entered into a conditional sale and purchase agreement with Lazerich International Holdings Limited on 30th January 2004 (“Lazerich Acquisition”) to acquire Lazerich’s entire shareholdings in Oil.

On 30th January 2004, the Company, KMC, Mr Christopher Pianca and Derrick Corporation also entered into a conditional Shareholders’ Agreement for the purpose of outlining the rights of the respective shareholders and the management of Oil.

The expiry date for the 3i and Pall Acquisitions was on 1st April 2004, whereas the completion date for the Derrick Acquisition, Pianca Acquisition and Lazerich Acquisition is on 1st September 2004.   The Company had obtained agreement from 3i Vendors and Pall Vendors to extend the time to complete the 3i and Pall Acquisitions.

B8. 	Status of corporate proposal (cont’d)

The Company had, on 6th April 2004, entered into the following agreements:

(i) 	3i Extension Agreement with the 3i Vendors;
(ii) 	Pall Extension Agreement with the Pall Vendors; and
(iii) 	Put and Call Option Amendment Agreement with Derrick.
The time required to fulfil all conditions precedent to completion of the 3i and Pall Acquisitions had been extended from 1st April 2004 to 1st July 2004 and the time required by Derrick to fulfill the conditions precedent to completion of the Derrick Acquisition had been extended from 1st September 2004 to 1st July 2007.

The 3i and Pall Acquisitions were approved by Securities Commission on 5th May 2004 and the acquisition was completed on 1st July 2004 as mentioned in A11 (c).

Whereas the Derrick Acquisition, Pianca Acquisition and Lazerich Acquisition were approved by Securities Commission on 20th July 2004.  On 4th August 2004, KMC had completed the Lazerich Acquisition with Derrick Acquisition and Pianca Acquisition being partially completed as mentioned in A11 (c).

Therefore, the group’s effective interest in Oil is 77.7% as of date of review.

e)	Proposed Disposal of Subsidiaries

On 22nd March 2004, the Company entered into a conditional share sale agreement with Prestar to dispose of its entire equity interest in Scomi Sdn Bhd (“SSB”) comprising 9,281,762 ordinary shares of RM1.00 each in SSB to Prestar and its entire equity interest in Scomi Transportation Solutions Sdn Bhd (“SCOTS”) comprising 500,000 ordinary shares of RM1.00 each in SCOTS to Prestar for a total consideration of RM42,500,000 to be satisfied by way of issuance of 28,333,333 new ordinary shares of RM1.00 each in Prestar (“Prestar Shares”) at an issue price of RM1.50 per share (“the Proposed Disposal”).

The Company is proposing to offer the Prestar Shares to the shareholders of the Company after the completion of the Proposed Disposal at a proposed offer price of RM1.35 per share. 

The Proposed Disposal is subject to Prestar securing the necessary approvals.  The submission by Prestar to the relevant authorities is currently pending.

B9.	Group borrowings

The group borrowings as at the end of the reporting period are as follows:

	RM`000	
	Short term borrowings	17,468	
	Long term borrowings	13,360	
	Total	30,828	

The group borrowings are denominated in the following currencies:

	RM`000	
	Ringgit Malaysia	20,910	
	US Dollar	9,918	
	Total	30,828	

B9.	Group borrowings (cont’d)

Subsequent to the quarter ended 30th June 2004, KMC had drawdown syndicated term loan and syndicated bridging loan amounting to USD83,152702 or RM315,980,268 to finance the acquisition of Oil: -

	USD`000	RM`000	
	Syndicated term loan	66,522	252,784	
	Syndicated bridging loan	16,631	63,196	
	Total	83,153	315,980	

B10.	Off balance sheet financial instrument 

There was no off balance sheet financial instruments as at the date of this report.

B11.	Changes in material litigation 

Neither the Company nor any of its subsidiaries is engaged in any litigation or arbitration, either as plaintiff or defendant, which has a material effect on the financial position of the Company or any of its subsidiaries and the Board does not know of any proceedings pending or threatened, or of any fact likely to give rise to any proceedings, which might materially and adversely affect the position or business of the Company or any of its subsidiaries. 

B12.	Dividends 

The directors recommended the payment of a final dividend of 3%, less income tax of 28%, in respect of the financial year ended 31st December 2003 to the shareholders of the Company who were on the Record of Depositors at the entitlement date, i.e. 2nd August 2004.  The final dividend was approved by the shareholders at the 2nd Annual General Meeting.

The directors also recommended the payment of an interim dividend of 3%, less income tax of 28%, (2003: 3% less income tax of 28%) in respect of the financial year ending 31 December 2004 to the shareholders of the Company who are on the Record of Depositors at the entitlement date to be determined.  

B13.	Earnings per share 

					< ---- Individual Quarter ----- >		< -- Cumulative Quarter -- > 	
	30 Jun 2004	30 Jun 2003		30 Jun 2004                                 	30 Jun 2003                                 	
	Basic earnings per share						
	Net profit attributable to 			shareholders (RM`000)		9,252	4,037			16,734	3,975 	
						
	Number of shares at the beginning 		of the period (‘000)		100,000 	87,671			100,000	-   	
	Effects of shares issued during the 		period (‘000)		-    	6,639			-   	47,415	
	Effects of private placement (‘000)		10,000	-   			8,956	-   	
	Effects of share options exercised 		before bonus issue and share 		split (‘000)	1,053	-      		578	-   	
	Effects of bonus issue (‘000)		66,632	56,586			65,720	28,449	
	Effects of share split (‘000)		710,741	603,582			701,018	303,458	
	Effects of share options exercised 		after bonus issue and share split 		(‘000)	52	-    		26	-    	
	Weighted average number of  		shares (‘000)		888,478		754,478			876,298		379,322	
	Basic earnings per share (sen)		1.04		0.54			1.91		1.05   	
	Diluted earnings per share						
	Net profit attributable to 			shareholders (RM`000)		9,252	4,037			16,734	3,975	
						
	Weighted average number of  		shares as per above (‘000)		888,478	754,478			876,298	379,322	
	Number of shares under ESOS 		(‘000)		57,627	72,000			57,627	72,000	
	Number of ESOS that would have 		been issued at fair value (‘000) 		(7,311)	(22,179)			(7,311)	(22,179)  	
	Weighted average number of  		shares - diluted (‘000)		938,794	804,299      			926,614	429,143     	
	Fully diluted earnings per share 		(sen)		0.99		0.50			1.81		0.93 	

The comparative basic and diluted earnings per share have been restated to take into account the effect of bonus issue and share split.