annual report 2007 - ChartNexus

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annual report 2007 - ChartNexus

CORPORATE INFORMATION 2

BOARD OF DIRECTORS 3 - 4

CHAIRMAN'S STATEMENT 5 - 6

AUDIT COMMITTEE REPORTS 7 - 9

STATEMENT OF CORPORATE GOVERNANCE 10 - 13

STATEMENT OF INTERNAL CONTROL 14

ADDITIONAL COMPLIANCE INFORMATION 15

DIRECTORS' REPORT 16 - 18

STATEMENT BY DIRECTORS 19

STATUTORY DECLARATION 19

REPORT OF THE AUDITORS 20

FINANCIAL STATEMENTS

Income Statements 21

Balance Sheets 22

Statement of Changes in Equity 23

Cash Flow Statements 24

Notes to the Financial Statements 25 - 40

SHAREHOLDING STATISTICS 41 - 43

NOTICE OF THIRD ANNUAL GENERAL MEETING 44 - 46

FORM OF PROXY 47 - 48


C ORPORATE INFORMATION

Board Of Directors

Eg Kah Yee

Non-Independent Non-Executive Chairman

Jalaluddin bin Mohd Jarjis

Non-Independent Non-Executive Director

Benny T.Hu

Independent Non-Executive Director

Henry Choo Hon Fai

Non-Independent Non-Executive Director

Lai Yit Loong

Non-Independent Non-Executive Director

See Chin Lam

Independent Non-Executive Director

N.Chanthiran a/l Nagappan

Independent Non-Executive Director

Audit Committee

Benny T.Hu

Chairman / Independent Non-Executive Director

Lai Yit Loong

Non-Independent Non-Executive Director

N.Chanthiran a/l Nagappan

Independent Non-Executive Director

Company Secretaries

Ng Yen Hoong (LS 008016)

Joanne Toh Joo Ann (LS 0008574)

Registered Office

Level 14, Uptown 1

No.1, Jalan SS21/58

Damansara Uptown

47400 Petaling Jaya

Selangor Darul Ehsan

Tel : 03-7718 6188

Fax : 03-7725 7791

Share Registrar

PFA Registration Services Sdn Bhd

Level 13, Uptown 1

No. 1, Jalan SS21/58

Damansara Uptown

47400 Petaling Jaya

Selangor Darul Ehsan

Tel : 03-7718 6000

Fax : 03-7722 2311

Sponsor

CIMB Investment Bank Berhad

5th Floor, Bangunan CIMB

Jalan Semantan

Damansara Heights

50490 Kuala Lumpur

Tel : 03-2084 8888

Stock Exchange Listing

Bursa Malaysia Securities Berhad

(MESDAQ Market)

Stock Name : KEYASIC

Stock Code : 0143

Auditor

Tan Chin Huat & Co.

No. 232, 2nd Floor, Block A

Damansara Intan 1

Jalan SS20/27

47400 Petaling Jaya

Selangor Darul Ehsan

Tel : 03-7726 8992

Principal Banker

HSBC Bank Malaysia Berhad

No. 2, Leboh Ampang

50100 Kuala Lumpur

Tel : 1300-88-0181

Corporate Website

www.keyasic.com

2


B OARD OF DIRECTORS

Eg Kah Yee, a Malaysian, aged 48, was appointed to the Board of Directors of Key ASIC Berhad (“Key ASIC” or

“Company”) as a Non-Independent Non-Executive Chairman on 15 June 2006. He graduated with Bachelor of Computer

Science degree from West Virginia University, USA in 1983. He started his career as a research and development (“R&D”)

Engineer with Phoenix Data Systems Inc., Santa Clara, California, USA, before joining Daisy Systems Corporation

(“Daisy”), a company listed on the NASDAQ Market and a pioneer in computer aided engineering in electronic designs,

as R&D Project Manager.

While he was in Daisy, he assumed various positions such as Regional Technical Director, Country Manager (Taiwan) and

Director of North Asia Region. In 1990, he joined Synopsys Inc., a company listed on the NASDAQ Market, which

pioneered the high level design for Application Specific Integrated Circuit and Very-large-scale Integration, as Regional

Manager for South Asia Pacific Operations and was subsequently promoted as General Manager for Asia Pacific

Operations in 1992. He left Synopsys Inc. in 1996 and founded Palette Multimedia Berhad in 1997 and has been the

Chairman/Managing Director since then. Currently, he is the Chairman of Malaysia Integrated Circuit Design Association

and he also sits on the board of directors of Anchor Bay Technology Inc, Jaalaa Inc, Silterra Malaysia Sdn Bhd (“Silterra”),

Atlantic Quantum Sdn Bhd (“AQSB”) and various private limited companies. He is the Chairman of the Remuneration

Committee of Key ASIC.

Jalaluddin bin Mohd Jarjis, a Malaysian, aged 53, was appointed to the Board of Directors of Key ASIC as a Non-Independent

Non-Executive Director on 7 August 2006. He graduated with a Bachelor of Physics and Mathematics degree from Drew

University, New Jersey, USA in 1977. He spent over 15 years in research work in theoretical physics and mathematics in

USA, Europe, New Zealand and United Kingdom before joining Jardine Fleming, a British Hong Kong Investment Bank

in 1999 as an Investment Analyst and left the bank in the same year. In 2001, he formed Artisan Encipta Ltd, a venture

capital company in which he serves as Principal and Chairman. In July 2004, he was appointed by Khazanah Nasional

Berhad (“Khazanah”) as Chairman of Silterra. He currently also serves as a Technology Advisor to Khazanah. In

December 2005, he was made the Chairman of AQSB, a wholly-owned subsidiary of Khazanah, and heads the

Investment Executive Team in AQSB. He is the Chairman of the Nomination Committee of Key ASIC.

Benny T. Hu (also known as Ting Wu Hu), a Taiwanese, aged 59, was appointed to the Board of Directors of Key ASIC as

a Non-Executive Director on 4 November 2006 and subsequently re-designated as an Independent Non-Executive Director

on 4 October 2007. He graduated with a Master in Business Administration degree from Wharton School, University of

Pennsylvania in 1978. He started his career as a Manager in Bankers Trust Company. He has more than 25 years of

experience in finance and investment industry. He was the President and later Chairman of China Development Industrial

Bank, the largest venture capital firm in Taiwan with an investment portfolio over USD3 billion, from 1993 to 2004. The

investment portfolio consists of over 500 investee companies, in which 80% of them are IT related companies. He has

been actively involved in the semiconductor industry and was a former Vice Chairman and founder of World

Semiconductor Manufacturing Corporation from 1996 to 2001. He has been a member of Rand Corporation Asia Pacific

board and a board member of Stanford Institute for Economic Policy Research since 2000. Currently, he is the Chairman

of National Taiwan University Incubation Centre, which the main objective is to provide financial and operational

assistance to Taiwan’s ever-growing IT-related companies. In addition, he also chairs multiple integrated circuit or

semiconductor related companies or focused venture funds. He is the Chairman of the Audit Committee of Key ASIC.

Henry Choo Hon Fai, a Malaysian, aged 36, was appointed to the Board of Directors of Key ASIC as a Non-Independent

Non-Executive Director on 4 November 2006. He graduated with a Bachelor of Science degree in Computer Science

from La Trobe University, Melbourne, Australia in 1993. He started his career as an equity research analyst in Dao Heng

Securities Ltd, Hong Kong in 1994. He has more than 9 years of direct investment and operations experience within the

venture capital and securities industry in Hong Kong and Malaysia. He was appointed as Director in Fok Lee Sdn Bhd

from 1996 to 2000 and a senior analyst in Intelligent Capital Sdn Bhd from 2000 prior to joining Artisan Encipta Ltd in

2003. He also spent 3 years working in senior management and business development roles in the building industry from

1996 to 1999. Currently, he is an Independent Non-Executive Director at Mudajaya Group Berhad and Mulpha Land

Berhad. He is also the Chief Operating Officer and Vice-President for Investments of AQSB. He also serves as the

Executive Assistant to the Chairman of Silterra. He is a member of the Remuneration Committee of Key ASIC.

3


B OARD OF DIRECTORS

Lai Yit Loong, a Malaysian, aged 44, was appointed to the Board of Directors of Key ASIC as a Non-Executive Director

on 2 November 2006 and subsequently re-designated as our Independent Non-Executive Director on 4 October 2007.

He was re-designated as a Non-Independent Non-Executive Director of Key ASIC on 26 March 2008. He graduated with

a Bachelor of Science degree from the National University of Singapore in 1987. He started his career as a network and

systems integration consultant with Hewlett-Packard, Singapore in 1988. He was employed by Computer Associates

Malaysia as their Country Sales Manager in 1994. Subsequently, he joined Intel Malaysia and started the sales and

marketing office in 1996. Since then, he had assumed various senior positions at Intel Malaysia. He was a Technical

Assistant to Intel Asia Pacific’s Vice President and General Manager from 1998 to 1999. After that, he worked at the

company’s head office in Santa Clara, California as worldwide e-Business Program Manager from 1999 to 2000. His last

job was as a Country Manager for Intel China from 2004 to 2006, where he was responsible for the expansion of Intel

capabilities and businesses. He was awarded the Intel Achievers Award in 2005 for his innovation in driving computer

adoption in emerging markets. In 2006, he joined Nvidia as their Vice-President of Taiwan and South Asia Sales, where

he was responsible for graphics and core logic design, sales and business development in Taiwan, South East Asia,

Australia and New Zealand. He joined Silterra in 2007 as their Vice-President of worldwide sales and marketing. He is

currently based in Taiwan. He is a member of the Audit Committee of Key ASIC.

See Chin Lam, a Malaysian, aged 39, was appointed to the Board of Directors of Key ASIC as a Non-Independent Non-

Executive Director on 7 August 2006 and subsequently re-designated as an Independent Non-Executive Director on 26

November 2007. He graduated with a Bachelor of Engineering degree in Mechanical and Manufacturing Engineering

from the University of Melbourne, Australia. He started his career in the semiconductor products Sector of Motorola

Malaysia Sdn Bhd in 1992 and he last held the position of a Senior Engineer after 5 years of service. He then joined

Commerce Asset Ventures Sdn Bhd (“CAVSB”) in 1997 and had been involved in sourcing, evaluating, structuring,

investing, managing and exiting investments in the information and communication technology, advanced

manufacturing, life sciences and services sectors for over 10 years, primarily managing the Commerce Technology

Ventures Sdn Bhd (“CTVSB”) portfolio and serving as non-executive director on various investee companies of CTVSB.

He last held the position of Executive Director at CAV Private Equity Management Sdn Bhd (a subsidiary of CAVSB) until 23

November 2007. He is currently a Partner in Vida Partners Sdn Bhd. He is a member of the Nomination Committee of Key ASIC.

N. Chanthiran a/l Nagappan, a Malaysian, aged 44, was appointed to the Board of Directors of Key ASIC as an

Independent Non-Executive Director on 14 December 2007. He graduated with a Bachelor of Accounting (Honours)

degree from University of Malaya in 1988. He is also a Chartered Accountant, Certified Public Accountants, Certified Risk

Professional and Certified Financial Planner. He started his career as tax executive in Coopers & Lybrand in 1988. In

1994, he joined Arab Merchant Bank Berhad as Assistant Manager. In 1995, he worked as Corporate Finance Manager

with Sadec Group. He started his Audit practice in 2001. He has more than 17 years of corporate finance experience in

the areas of listing, financial and corporate restructuring, mergers and acquisition. Currently, he is a partner of Chanthiran

& Co. and CH & Associates. He is also an Executive Director of Lityan Holdings Berhad. He is a member of the Audit

Committee of Key ASIC.

Lai Kok Keong, a Malaysian, aged 39, was appointed as our Chief Executive Officer (“CEO”) of Key ASIC and acting

Director of R&D Department on 1 April 2007. He graduated with a Bachelor of Science degree in Engineering (Computer

System) from University of Western Michigan, USA in 1996. He started his career with Intel (M) Technology Sdn Bhd

(“Intel”) as a Design Automation Engineer in 1996. Since then he has led multiple integrated circuit design projects at

Intel including central processing unit design of latest IA32 multi-core processor, Pentium 4 and Pentium chipset design.

He joined the Key ASIC Group as the acting R&D Director and was promoted to his current position in 2007. He does

not hold directorship in any public company. As at 9 April 2008, he holds 656,256 ordinary shares of RM0.10 each in Key

ASIC, representing less than 1% of the issued and paid-up share capital of Key ASIC.

None of the Directors and CEO have any family relationship with any other Directors and/or major shareholders except

the followings:-

• Mr. Eg Kah Yee is also a major shareholder of Key ASIC Limited, which in turn is the major shareholder of Key ASIC;

• Encik Jalaluddin bin Mohd Jarjis and Mr. Henry Choo Hon Fai are appointed directors representing the interest

of Atlantic Quantum Sdn Bhd, a major shareholder of Key ASIC; and

• Mr. Lai Yit Loong and Mr. Lai Kok Keong are brothers.

None of the Directors and CEO have any conflict of interest with the Company and none of the Directors and CEO have

any convictions for offences other than traffic offences, if any, in the past 10 years.

4


C HAIRMAN’S STATEMENT

Financial Performance

The Key ASIC Group came into existence during the financial year ended 31 December 2007. The Group has posted

a profit after taxation of RM18.9 million for the financial year ended 31 December 2007 as compared with only RM5.6 million

recorded by the Company in the last corresponding financial year. The sound profit performance was largely attributed

to an increase in the gross margin in providing the Application Specific Integrated Circuit (“ASIC”) or System-on-Chip

(“SoC”) design services to our customers as the Group started to enjoy cost benefit through economies of scale.

On the other hand, the Group is experiencing a steady growth in its revenue, recording a total of RM56.3 million for

the financial year ended 31 December 2007 as compared to RM50.6 million recorded by the Company in the last

corresponding financial year. The increase of the revenue over the last corresponding financial year was partly

contributed by the increase in chip-in-production as a result of successful designs that were being commercialised

by our customers.

Industry Trends and Development

The fabless design service industry is pretty much driven by the development and sentiment happening in Taiwan as

the two biggest listed ASIC/SoC design companies, Global Unichip Corporation and Faraday Technology

Corporation and global foundries such as Taiwan Semiconductor Manufacturing Corporation and United

Mircoelectronics Corporation are located in Taiwan.

The Board of Directors are in the view that the semiconductor industry has not experienced a recession (i.e. negative

year on year revenue growth) since mid-2002. The magnitude of unit growth has continued to shrink since mid-2004

while revenue growth of the industry as a whole has not shown an obvious cyclical trend since mid-2005. Another

structural change in the semiconductor industry is the shift to the “Fabless” business model and “Fablite” models

from integrated device manufacturers (IDMs) such as LSI Logic and Texas Instruments that some believe to have led

to better efficiency which, in turn, has contributed to greater stability (a less cyclical nature) within the semiconductor

industry.

Trends in the global semiconductor industry also suggest that a sustained albeit modest recovery can be expected

as consurer electronics demand typically, strengthens in a year coinciding with the Olympics. This would support

electronics exports in several regional economies which are involved in this segment. The Beijing Olympics 2008 as

well as the expansion in mobile penetration in emerging markets are anticipated to generate strong demand for

semiconductors.

Utilisation of Initial Public Offering (“IPO”) Proceeds

Subsequent to 31 December 2007, Key ASIC undertook an IPO of 202,000,000 ordinary shares of RM0.10 each at

an issue price of RM0.40 per share, in conjunction with its listing on the MESDAQ Market of Bursa Malaysia Securities

Berhad (“Bursa Securities”). The Company was listed on the MESDAQ Market of Bursa Securities on 30 January

2008. The Prospectus of Key ASIC issued on 11 January 2008 sets out the proposed utilisation of proceeds raised

from the IPO as follows :-

Timeframe for Utilisation RM 000

R & D - Capital expenditure Within 24 months of Listing 36,000

R & D - Operating expenditure Within 24 months of Listing 8,200

Working capital Within 12 months of Listing 33,300

Estimated listing expenses Within 6 months of Listing 3,300

80,800

5


C HAIRMAN’S STATEMENT

Prospects

We are positive on the prospects of Key ASIC as a fabless ASIC/SoC design company for the next financial year

based on the following factors:-

• Accumulated design expertise – we have over the years accumulated our design expertise and capability and

has grown from a mere “outsourcing” of repetitive work to “value-added” activities for our customers such as

chip optimisation to increase performance and lower power consumption on the customer existing chips.

• Large Intellectual Properties (“IPs”) library – we have a large IPs library. Particularly, our IPs are silicon proven

primarily focusing on high growth semiconductor industry in the sector of communication, consumer electronics

and wireless connectivity.

• Strategic partnership – We continue to have close technological collaboration with our strategic foundry partner,

Silterra that enable the first time silicon success and technology advantages for our customers’ products.

Research & Development (R&D)

In aspect of R&D activities, the R&D team has been focusing on three major activities that include design service ASIC

flow, integrated circuit building blocks (also known as IP) development and products development.

The design service ASIC flow has been expanded to handle the front end SoC development such as generic SoC

integration, testing and validation methodology. In year 2007, the R&D team has grown their design service ASIC

capabilities to take in customers’ design starting from Register Transfer Level (“RTL”) optimisation which optimises

the flow of circuitry signals between hardware registers and the logical operation all the way to Graphic Design

Station (“GDS”) tape-out. The R&D team will continue to grow and is capable of delivering RTL development based

on customers’ micro-architecture specifications all the way to GDS tape-out in year 2008.

During the financial year ended 31 December 2007, the R&D team has been focusing on connectivity devices such

as Peripheral Component Interconnect (“PCI”)-Express 1.1, Double Data Rate 2 PHY, Voltage Regulator, Custom

SRAMs, Phase Locked Loop, general purpose Circuit Under Pad (“CUP”) Input/Output (“I/O”), High-speed

transceiver logic CUP I/O, Stub Series Terminated Logic CUP I/O and PCI CUP I/O IPs development. In 2008, all

these IPs will be tested and characterised using low cost testing and characterisation techniques and infrastructure.

PCI-Express 1.1 IP will be certified by PCI_SIG compliance workshop. In 2008, the team is also looking into PCI-

Express 2.0 development.

The R&D team has been working on complete SoC product development in the domain of wireless fidelity or more

popularly known as Wi-Fi and Voice over Internet Protocol in year 2007 for some customers. The team has tapedout

the test chip of these SoCs. Lots of focus will be given to complete system (software and hardware) design

including software driver development, field-programmable gate array prototyping (device containing programmable

logic components), printed circuit board testing, production testing, reliability testing, etc. The team has done the

software drivers, parametric and functional testing, and circuit board testing. In 2008, the Company will continue to

focus on perfecting its design methodology, continue to expand its IP portfolio, and complete system design including

software and hardware.

Appreciation

I wish to record my sincere appreciation to all the members of the Board of Directors, valuable employees, our indispensable

business partners and associates, for their efforts, contributions and continuous support to the Company.

Thank you.

EG KAH YEE

Chairman 6


A UDIT COMMITTEE REPORTS

The Audit Committee was established on 4 October 2007 with the primary objective to provide assistance to the

Board of Directors (“Board”) in fulfilling its fiduciary responsibilities relating to the corporate governance and practices

for the Group, to improve the business efficiency and enhance the independent role of external and internal auditors.

1. Composition of Audit Committee

The present members of the Audit Committee comprise of:-

Chairman

Benny T.Hu- Independent Non-Executive Director

Members

Lai Yit Loong - Non-Independent Non-Executive Director

N.Chanthiran a/l Nagappan - Independent Non-Executive Director

2. Terms of Reference

A. Composition

The Committee shall be appointed by the Board from amongst its members which fulfils the following requirements:-

(i) shall comprise not less than 3 members;

(ii) the majority shall be independent directors;

(iii) all members must be non-executive directors; and

(iv) at least one member:

(a) must be a member of the Malaysian Institute of Accountants; or

(b) if he is not a member of the Malaysian Institute of Accountants, he must have at least 3 years’ working

experience and:-

• he must have passed the examinations specified in Part I of the 1st Schedule of the Accountants

Act 1967; or

• he must be a member of one of the associations of accountants specified in Part II of the 1st Schedule

of the Accountants Act 1967; or

(c) fulfils such other requirements as prescribed or approved by the Exchange.

In the event of any vacancy in the audit committee resulting in the non-compliance of the above, the Board

shall within three (3) months appoint new members as required to make up the minimum numbers.

B. Authority

The Audit Committee is empowered by the Board to investigate, deliberate, discuss and review any activity

within its terms of reference and access to any resources within the Company which are required to perform

its duties without any restriction. The Committee is authorised to have direct communication channels with the

external auditors and person(s) carrying out the internal audit function or convene meetings with them

excluding the attendance of the executive members of the Company whenever is deemed necessary.

The Committee is also authorise to obtain independent/external professional or other advices and to secure

the attendance of outsiders with relevant experience and expertise if it considers this necessary.

7


A UDIT COMMITTEE REPORTS

C. Functions and Duties

The duties and responsibilities of the Audit Committee shall be:-

1) To review the following and report the same to the Board :-

(i) The audit plan before the audit commences, the evaluation of the system of internal controls and the

audit report with the external auditors.

(ii) The appointment of the external auditor, the audit fee and any question of resignation or dismissal.

(iii)The quarterly results and year end financial statements, prior to the approval by the Board of Directors,

focusing particularly on:-

• changes in or implementation of major accounting policy changes;

• significant and unusual events; and

• compliance with accounting standards and other legal requirements.

(iv)Problems and reservations arising from the interim and final audits, and any matter the auditor may wish

to discuss (in the absence of management where necessary).

(v) The external auditors’ management letter and management’s response.

2) To do the following, in relation to the internal audit function:-

(i) review the adequacy of the scope, functions, competency and resources of the internal audit function,

and that it has the necessary authority to carry out its work;

(ii) review the internal audit programme and results of the internal audit process and, where necessary,

ensure that appropriate actions are taken on the recommendations of the internal audit function.

3) To review any related party transaction and conflict of interest situation that may arise within the Company

and Group including any transaction, procedure or course of conduct that raises questions of management

integrity.

4) Monitor the Group’s compliance with relevant laws, regulations and code of conduct.

D. Retirement and Resignation

In the event of any vacancy in the Audit Committee, the Company shall fill in the vacancy within two (2) months,

but in any case not later than three (3) months.

E. Meetings

The members of the Committee shall select a Chairman from among their members who is an Independent

Non-Executive Director and majority of members present must be Independent Directors in order to form a

quorum in the audit committee meeting.

Any member may at any time, and the head of group finance and the Company Secretary shall on the

requisition of any of the members or the external auditors summon a meeting. The Committee shall meet on

at least four (4) occasions each year. The external auditors may request a meeting if they consider this

necessary.

Except in the case of any emergency, reasonable notice of every meeting shall be given in writing and the

notice of each meeting shall be served to any member entitled personally or by sending it via fax or through

post or by courier or by email to such member to his registered address as appearing in the Register of

Directors, as the case may be.

In addition to the Committee members, meetings would normally be attended by a representative of the

external auditors, the financial controller and head of internal audit at the invitation of the Committee. Other

Board members may also attend the Audit Committee meetings only at the Committee’s invitation.

8


A UDIT COMMITTEE REPORTS

The Committee should meet with the internal/external auditors without executive board members present at

least twice a year. A resolution put to the vote of the meeting shall be decided on a show of hands. In the

case of an equality of votes, the Chairman shall be entitled to a second or casting vote. The minutes of

meetings shall be signed by the Chairman of the meeting at which the proceedings were held or by the

Chairman of the next succeeding meeting and shall be circulated to the Committee and the Board.

The minutes of meetings shall be taken by the Company Secretary and be kept at the Company’s Registered

Office.

3. Summary of Meeting and Activities Undertaken

The audit committee did not convene any meeting nor undertake activity during the financial year ended

31 December 2007 as it was newly established on 4 October 2007.

4. Internal Audit Function

The Board is still in the process of establishing and identifying the suitable candidate for the internal audit

function to report directly to the Audit Committee. The internal audit function is to ensure a regular review of the

adequacy and integrity of its internal control system. They will also be required to assist the Group in enhancing

its existing risk management framework and adopting a risk-based approach.

They will also require to conduct regular and systematic reviews on all operating units and submit an independent

report to the Audit Committee for review and approval to ensure adequate coverage.

11


S TATEMENT OF CORPORATE GOVERNANCE

The Board recognises the importance of good corporate governance in discharging its responsibilities, protecting and

enhancing shareholders' value through promoting and practising high standards of corporate governance throughout

the Group. The Board adopts and applies the principles and best practices as governed by the Listing Requirements

of the MESDAQ Market of Bursa Securities and Malaysian Code on Corporate Governance (“Code”).

The following statements set out the Company's compliance with the principles of the Code.

A. Directors

(i) The Board

The Board is primarily responsible for the strategic directions of the Group and is scheduled to meet at least

four (4) times a year. However, additional meetings may be convened as and when deemed necessary as

determined by the members of the Board.

During the financial year ended 31 December 2007, three (3) board meetings were held and the details of each

Director’s attendance are set out as follows:-

Directors Meeting Attendance

Eg Kah Yee (Chairman)

Jalaluddin bin Mohd Jarjis

Benny T. Hu

Henry Choo Hon Fai

Lai Yit Loong

See Chin Lam

N. Chanthiran a/l Nagappan (appointed only on 14 December 2007,

hence he was not able to attend all the meetings held earlier.)

(ii) Board Balance & Composition

The current Board has seven (7) members comprising four (4) Non-Independent Non-Executive Directors and

three (3) Independent Non-Executive Directors. The Board is satisfied that the current composition fairly reflects the

investment of shareholders and balance in view of the Group’s business. Together, the Directors bring a wide

range of experience relevant to the direction and objectives of the Group as most of them are veteran in the

semiconductor industry. A brief description of the background of each Director is presented on pages 3 to 4 of

this Annual Report.

3/3

3/3

3/3

3/3

3/3

3/3

0/3

10


S TATEMENT OF CORPORATE GOVERNANCE

(iii) Supply of Information

The Board assumes the following responsibilities:-

• reviewing and adopting a strategic plan for the Group;

• identifying risks and assume active role in ensuring the implementation of appropriate systems to manage or

mitigate these risks;

• succession planning, including appointing, training, fixing the compensation of the key management;

• developing and implementing an investor relations programme or shareholder communications policy for the

Group; and

• reviewing the adequacy and integrity of the Group’s internal control systems and management information

systems, including system for compliance with applicable laws, regulations, rules, directives and guidelines.

All Directors including Independent Non-Executive Directors have full and timely access to information

concerning the Company or other external information as they may feel necessary. Board papers and reports

which include the Group’s performance and major operational, financial and corporate information are distributed

to the Directors with sufficient time prior to Board meetings to enable Directors to obtain further explanation,

where necessary, in order to be properly briefed before the meeting.

Directors also have direct access to the advice and services of the Group's Company Secretary. The Board

is advised and updated on statutory and regulatory requirements pertaining to their duties and responsibilities as

well as appropriate procedures for management of meetings.

(iv) Appointment to the Board and Re-election

In accordance to the Company’s Articles of Association, Directors appointed during the year is required to retire

and seek election by shareholders at the following Annual General Meeting ("AGM") immediately after their

appointment. The Articles also require one-third ( 1 /3) of the Directors to retire by rotation and seek re-election at

each AGM and that each Director shall submit himself for re-election every three (3) years.

The Board has adopted the best practice and the Nomination Committee, which was established on

4 October 2007, has been tasked with the responsibilities to recommend new appointment to the Board. The

present members of the Nomination Committee are Jalaluddin bin Mohd Jarjis and See Chin Lam.

The primary function of the Nomination Committee is to recommend to the Board, candidates for all directorships

to be filled by the shareholders or the board after taking into consideration the following criteria:

• skills, knowledge, expertise and experience;

• professionalism;

• integrity; and

• in the case of candidates for the position of independent non-executive directors, the nominating committee

should also evaluate the candidates’ ability to discharge such responsibilities/functions as expected from

independent non-executive directors;

In addition, the Nomination Committee assesses the effectiveness of the Board, Board Committees and

contributions of each individual Director on annual basis. The Nomination Committee reviews annually the

required mix of skills and experience including core competencies which Non-Executive Directors should bring to

the Board and other qualities for the Board to function effectively and efficiently.

(v) Directors’ Training

All Directors have attended conferences, seminar and training during the financial year ended 31 December 2007

in the area of financials, industry and technical update. For newly recruited Board member, the Company has in

place an orientation and education programme to acquaint the incumbent with the overall set-up of the Group.

All Board members are encouraged to attend any relevant training programme to further enhance their knowledge

that enable them to discharge their responsibilities more effectively.

11


S TATEMENT OF CORPORATE GOVERNANCE

B. Director Remuneration

Following the Code Remuneration Committee was established on 4 October 2007 and responsible to recommend the

remuneration packages for Executive Directors taking into consideration the individual performance, seniority,

experience and scope of responsibility that is sufficient to attract and retain the Director needed to run the Company

successfully. The present members of the Remuneration Committee are Eg Kah Yee and Henry Choo Hon Fai .

The determination of remuneration packages of Non-Executive Directors, including Non-Executive Chairman,

should be a matter for the Board as a whole. The individuals concerned should abstain from discussing their own

remuneration.

The aggregate Directors' remuneration paid or payable to all Directors of the Company categorised into

appropriate components for the financial year ended 31 December 2007 are as follows:-

Salaries and other emoluments

Fees

Benefit in kind

Total

None of the Directors of Key ASIC are Executive Directors.

Band of remuneration

C. Relationship with Shareholders

The Company maintains various methods of dissemination of information important to shareholders, stakeholders

and the public at large through timely announcement of events, quarterly announcement of financial results and

product information on the Company’s website.

The Company’s AGM also provides an effective mean of face-to-face communication with the shareholders where

they are encouraged to participate in the open question and answering session during the AGM. Shareholders

are notified of the meeting and provided with a copy of the Company's Annual Report at least 21 days before the

AGM in order for them to have sufficient time to read and understand the Company’s financial and non-financial

performance before the actual event takes place.

D. Accountability and Audit

Non-Executive

Directors (RM)

-

108,000

-

108,000

Non-Executive

Directors

RM 50,000 and below 6

(i) Financial Reporting

It is the Board’s responsibility to ensure that the financial statements are prepared in accordance with the

Companies Act, 1965 and the applicable approved accounting standards set by Malaysian Accounting Standard

Board so as to present a balanced and fair assessment of the Group's financial position and prospects. The

Directors are also responsible for keeping proper accounting records, safeguarding the assets of the Company

and taking reasonable steps to prevent and enable detection of fraud and other irregularities.

12


S TATEMENT OF CORPORATE GOVERNANCE

In preparing the financial statements, the Directors have taken the necessary steps and actions as follows:-

(a) selecting suitable accounting policies and then applying them consistently;

(b) stating whether applicable accounting standards have been followed;

(c) making judgments and estimates that are reasonable and prudent; and

(d) preparing the financial statements on a going concern basis, having made reasonable enquiries and assessment

on the resources of the Company on its ability to continue further business in foreseeable future.

(ii) Internal Control

The Board acknowledges its overall responsibility for maintaining a sound system of internal controls to safeguard

shareholders' investment and the Group's assets. However, the Board recognises that such system is structured

to manage rather than eliminate the possibility of encountering risk of failure to achieve corporate objectives.

The Statement of Internal Controls is set out on page 14 of the Annual Report providing an overview of the

state of internal controls within the Group.

(iii) Relationships With Auditors

The Board has established a transparent relationship with the external auditors through the Audit Committee,

which has been accorded the authority to communicate directly with the external auditors. The auditors in turn

are able to highlight matters which require the attention of the Board effectively to the Audit Committee in term of

compliance with the accounting standards and other related regulatory requirements.

E. Corporate Social Responsibilities

The Company currently is a committee member of Malaysian Integrated Circuit Design Association or MICDA

founded by Silterra that focuses in consolidating the fabless design houses within the integrated circuit industry in

Malaysia with the aim to identify and grow the integrated circuit companies in Malaysia to become world class

companies.

Apart from the above, the Company is also working closely with universities in Malaysia by providing internship

training and exposure for the undergraduates in integrated circuit design.

13


S TATEMENT OF INTERNAL CONTROL

1. Introduction

The Board is committed to maintaining a sound system of internal control of the Company and is pleased to provide

the following statement, which outlines the nature and scope of internal control of the Company during the year.

2. Board Responsibilities

The Board recognises the importance of sound internal controls and risk management in safeguarding

the assets of the Group. However, such systems are designed to manage rather than eliminate the business risk

totally. It should be noted that any system could provide only reasonable and not absolute assurance against

material misstatement or fraud.

The Group has in place an on-going process to identify, evaluate, monitor and manage any significant risks through

the internal controls set out in order to attain a reasonable assurance that business objectives have been met.

These controls are regularly reviewed by the Board and subject to continuous improvement.

3. Internal Control Framework

The Board has established an organisation with clearly defined lines of accountability and delegated authority.

A risk analysis of the Group is conducted on a regular basis including constantly reviewing the process in identifying,

evaluating and putting up necessary action to assess and monitor the impacts of the risk on the operation and

business. The process requires management to comprehensively identify and assess all types of risks in terms of

likelihood and magnitude of impact as well as to address the adequacy and application of mechanisms in place

to manage, mitigate, avoid or eliminate these risks.

The process encompasses assessments and evaluations at business unit process level before being examined

on a Group perspective.

The other key elements of the Group’s internal control systems are described below:

• Monthly monitoring of operational results against the budget for the Board’s review and discussion;

• Regular and comprehensive information provided to the Board, covering financial performance and key

business indicators;

• Regular updates of internal policies and procedures, to reflect changing risks or resolve operational

deficiencies; and

• Regular management meeting with all key personnel of respective department to address weaknesses and

improve efficiency.

The Board is of the view that there is no significant breakdown or weaknesses in the system of internal control of

the Group that may have material impact against the operations of the Group for the financial year ended

31 December 2007.

4. Conclusion

Although the Board is of the view that the present internal control is adequately in place to safeguard the

Company’s assets and sufficient to detect any fraud or irregularities, the Board is on a constant watch for any

improvement that may strengthen its current system from time to time.

14


A DDITIONAL COMPLIANCE INFORMATION

1. Non-Statutory Audit Fees

The amount of non-statutory audit fees paid and remains payable to the external auditor by the Group for the

financial year ended 31 December 2007 are as follows:-

Tan Chin Huat & Co. RM40,000

Total RM40,000

2. Option, Warrant and Convertible Securities

There were no issuance of option, warrant and convertible securities by the Company and its subsidiary during

the financial year ended 31 December 2007 save as disclosed in the note 21 in the financial statements.

3. Material Contracts

Neither the Company nor its subsidiary have entered into any contracts which are or may be material (not being

contracts entered into in the ordinary course of business) involving Directors’ and major shareholders’ interests

since the end of the previous financial year.

4. Recurrent Related Party Transactions (“RRPT”)

Key ASIC was listed on 30 January 2008 and had obtained Bursa Malaysia Securities Berhad’s approval on

18 January 2008 and 14 April 2008 for the extension of time for the Company to seek ratification from its

shareholders for the RRPT of a revenue or trading nature for those transactions entered into from the listing date

to the forthcoming AGM or extraordinary general meeting (“EGM”) whichever is held earlier. The Company

intends to seek the ratification and new mandate for recurrent related party at the forthcoming AGM of the Company.

Details of related party transactions are disclosed in Note 15 to 16 in the financial statements and additional

RRPT entered into between the Company and its subsidiary with its major shareholders during the financial year

ended 31 December 2007 are as follows:-

Related Party Relationship Nature of Transaction RM

JMicron Technology

Corporation

(“JMicron”)

Atlantic Quantum Sdn Bhd

is a major shareholder of

Key ASIC and also a major

shareholder of JMicron

Design service for Intellectual

Property building block for a

chip and wafer fabrication

related services

912,088

5. Sanctions or Penalties

There were no sanctions or material penalties imposed by any regulatory body to the Company and its subsidiary,

Directors or management.

6. Variance in Result

There was no material variation between the audited results for the financial year ended 31 December 2007 and

the unaudited results previously announced for the similar period.

7. Profit Guarantee

There is no profit guarantee committed by the Company to any party.

8. Revaluation Policy

The Company and its subsidiary do not own any landed property and therefore, there is no revaluation policy

being adopted or put in place.

9. American Depository Receipt (“ADR”) or Global Depository Receipt (“GDR”) Programme

During the financial year, the Company did not sponsor any ADR or GDR programme

10. Share Buy-Back

The Company is not eligible under the current Listing Requirements of Bursa Securities for the MESDAQ Market

to implement any share buy-back.

15


D IRECTORS’ REPORT

The directors have pleasure in submitting their report together with the audited financial statements of the Group and

of the Company for the financial year ended 31 December 2007.

Change of Name and Conversion to Public Limited Company

As approved by the shareholders at the Extraordinary General Meeting held on 28 May 2007, the Company was

converted from a private limited company to a public limited company and assumed the name Key ASIC Berhad.

Principal Activities

The Company is principally engaged in the turnkey ASIC (application - specific integrated circuit) design services,

providing data processing, data management, disk-based back-up solutions, telecommunications, office automation,

network infrastructure and intelligent storage networking support.

During the financial year, the Company acquired 100% equity interest in Key ASIC Semiconductor Sdn. Bhd., a

company incorporated in Malaysia, for a cash consideration of RM2. The principal activities of the subsidiary are as

disclosed in Note 11 to the Financial Statements.

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

Financial Results

The results of the operations of the Group and of the Company for the financial year are as follows:-

Group Company

RM RM

Profit before tax 19,026,182 19,080,563

Income tax expense ( 174,661) ( 185,307)

Net profit for the financial year 18,851,521 18,895,256

Dividends

No dividend has been paid or declared by the Company since the end of the previous financial year. The directors

also do not recommend the payment of any dividend in respect of the current financial year.

Reserves and Provisions

There were no material transfers to or from reserves or provisions during the financial year other than those as

disclosed in the financial statements.

Issue of Shares and Debentures

As approved by the shareholders at the Board Meeting held on 4 October 2007, the issued and paid-up share capital

of the Company was increased from RM32,300,000 to RM51,300,000 through the issuance of 19,000,000 new

ordinary shares of RM1 each via the conversion of the existing 19,000,000 Irredeemable Convertible preference

shares of RM1 each into 19,000,000 new ordinary shares of RM1 each. Also, the Company’s issued and paid-up

share capital was further increased from RM51,300,000 to RM60,300,000 by the allotment of 9,000,000 new ordinary

shares of RM1 each at par through rights issue for cash for the purposes of increasing the working capital of the

Company.

These new ordinary shares rank pari passu with the then existing ordinary shares of the Company.

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

16


D IRECTORS’ REPORT

Share Options

No options have been granted by the Company to any parties during the financial year to take up unissued shares

of the Company.

No shares have been issued during the financial year by virtue of the exercise of any option to take up unissued

shares of the Company. As of the end of the financial year, there were no unissued shares of the Company under

options.

Directors

The directors who served since the date of the last report are :

Eg Kah Yee

Lai Yit Loong

Jalaluddin bin Mohd Jarjis

Henry Choo Hon Fai

Benny Ting Wu Hu

See Chin Lam

N. Chanthiran a/l Nagappan (appointed on 14.12.2007)

Directors’ Benefits

Since the end of the previous financial year, no director of the Company has received or become entitled to receive

any benefit (other than the benefit included in the aggregate amount of emoluments received or due and receivable

by directors as disclosed in the financial statements or the fixed salary of full-time employees of the Company or its

related corporation) by reason of a contract made by the Company or a related corporation with the director or with

a firm of which the director is a member, or with a company in which the director has a substantial financial interest.

Neither during nor at the end of the financial year, was the Company a party to any arrangements whose object is to

enable the directors to acquire benefits by means of the acquisition of shares in or debentures of the Company or

any other body corporate.

Directors’ Interests

The shareholdings in the Company of those who were directors at the end of the financial year, as recorded in the

Register of Directors’ Shareholdings kept by the Company under Section 134 of the Companies Act, 1965, are as

follows :

Number of ordinary shares of RM1 each

Balance as of Balance as of

1.1.2007 Bought Conversion 31.12.2007

Shares in the Company

Deemed Interest

Eg Kah Yee 32,300,000 9,000,000 (41,300,000) -

Number of ordinary shares of RM0.10 each

Balance as of Balance as of

1.1.2007 Bought Conversion 31.12.2007

Shares in the Company

Deemed Interest

Eg Kah Yee - - 413,000,000 413,000,000

None of the other directors in office at the end of the financial year had any beneficial interest in the shares of the

Company during the financial year.

17


D IRECTORS’ REPORT

Statutory Information on the Financial Statements

a) Before the income statements and balance sheets of the Group and of the Company were made out, the directors

took reasonable steps :

(i) to ascertain that proper action had been taken in relation to the writing off of bad debts and the making of

allowance for doubtful debts and satisfied themselves that no known bad debts need to be written off and that

no allowance for doubtful debts is necessary; and

(ii) to ensure that any current assets which were unlikely to realise in the ordinary course of business their values

as shown in the financial statements of the Group and of the Company have been written down to an amount

which they might be expected to realise.

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

(i) which would require the writing off of bad debts or the making of allowance for doubtful debts in the financial

statements of the Group and of the Company; or

(ii) which would render the values attributable to current assets in the financial statements of the Group and of the

Company misleading; or

(iii) which have arisen which render adherence to the existing method of valuation of assets or liabilities of the

Group and of the Company misleading or inappropriate.

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

(i) any charge on the assets of the Group and of the Company which has arisen since the end of the financial year

which secures the liability of any other person; or

(ii) any contingent liability of the Group and of the Company which has arisen since the end of the financial year.

d) No contingent liability or other liability of the Group and of the Company has become enforceable, or is likely to

become enforceable within the period of twelve months after the end of the financial year which in the opinion of

the directors, will or may substantially affect the ability of the Group and of the Company to meet their obligations

as and when they fall due.

Other Statutory Information

a) At the date of this report, the directors are not aware of any circumstances not otherwise dealt with in this report

or the financial statements of the Group and of the Company which would render any amount stated in the

financial statements misleading.

b) In the opinion of the directors,

(i) the results of the operations of the Group and of the Company during the financial year were not substantially

affected by any item, transaction or event of a material and unusual nature; and

(ii) there has not arisen in the interval between the end of the financial year and the date of this report any item,

transaction or event of a material and unusual nature likely to affect substantially the results of the operations

of the Group and of the Company for the financial year in which this report is made.

Holding Company

The immediate and ultimate holding company is Key ASIC Limited, a company incorporated in British Virgin Islands.

Auditors

The auditors, Messrs Tan Chin Huat & Co., have indicated their willingness to continue in office.

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

Eg Kah Yee Henry Choo Hon Fai

Director Director

Petaling Jaya

Date : 10 April 2008

18


S TATEMENT BY DIRECTORS

We, Eg Kah Yee and Henry Choo Hon Fai, being two of the directors of Key ASIC Berhad, do hereby state

that, in the opinion of the directors, the accompanying balance sheet and statements of income, cash flows

and changes in equity, together with the notes thereto, are drawn up in accordance with the provisions of the

Companies Act, 1965 and the applicable MASB Approved Accounting Standards in Malaysia for Entities

Other Than Private Entities so as to give a true and fair view of the state of affairs of the Group and of the

Company as of 31 December 2007 and of the results and cash flows of the Group and of the Company for

the year then ended.

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

EG KAH YEE HENRY CHOO HON FAI

Director Director

Petaling Jaya

Date: 10 April 2008

S TATUTORY DECLARATION

I, Thong Kooi Pin, being the Officer primarily responsible for the financial management of

Key ASIC Berhad, do solemnly and sincerely declare that the accompanying balance sheet and

statements of income, cash flows and changes in equity, together with the notes thereto, are to the best

of my knowledge and belief, correct and I make this solemn declaration conscientiously believing the

same to be true and by virtue of the provisions of the Statutory Declarations Act, 1960.

Subscribed and solemnly declared by the

abovenamed THONG KOOI PIN, THONG KOOI PIN

at Petaling Jaya,

on 10 April 2008

Before me,

19


R EPORT OF THE AUDITORS

TAN CHIN HUAT & CO

Firm No : AF - 1395

Chartered Accountants

232, 2nd Floor, Block A, Damansara Intan 1, Jalan SS 20/27, 47400 Petaling Jaya, Selangor Darul Ehsan.

REPORT OF THE AUDITORS TO THE MEMBERS OF

KEY ASIC BERHAD

(Formerly known as Key ASIC Sdn. Bhd.)

(Incorporated in Malaysia)

We have audited the accompanying balance sheets as of 31 December 2007 and the related statements of income,

cash flows and changes in equity, together with the notes thereto, for the year then ended. These financial

statements are the responsibility of the Company’s directors. Our responsibility is to express an opinion on these

financial statements based on our audit. It is our responsibility to form an independent opinion, based on our audit,

on the financial statements and to report our opinion to you, as a body, in accordance with Section 174 of the

Companies Act, 1965 and for no other purpose. We do not assume responsibility to any other person for the content

of this report.

We conducted our audit in accordance with approved standards on auditing in Malaysia. These standards require

that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free

of material misstatement. An audit includes examining, on a test basis, evidence relevant to the amounts and

disclosures in the financial statements. An audit also includes assessing the accounting principles used and

significant estimates made by the directors, as well as evaluating the overall financial statements presentation. We

believe that our audit provides a reasonable basis for our opinion.

In our opinion:

(a) the abovementioned financial statements are properly drawn up in accordance with the provisions of the

Companies Act, 1965 and the applicable MASB Approved Accounting Standards in Malaysia for Entities

Other Than Private Entities so as to give a true and fair view of :

(i) the matters required by Section 169 of the Companies Act, 1965 to be dealt with in the financial

statements and consolidated financial statements; and

(ii) the state of affairs of the Group and of the Company as of 31 December 2007 and of the results and

cash flows of the Group and of the Company for the year then ended; and

(b) the accounting and other records and the registers required by the Companies Act, 1965 to be kept by the

Company and its subsidiary have been properly kept in accordance with the provisions of the said Act.

We are satisfied that the financial statements of the subsidiary that have been consolidated with the Company's

financial statements are in form and content appropriate and proper for the purposes of the preparation of the

consolidated financial statements and we have received satisfactory information and explanations required by

us for these purposes.

Our auditors’ report on the financial statements of the subsidiary was not subject to any qualification and did not

include any comment made under Subsection (3) of Section 174 of the Act.

TAN CHIN HUAT & CO. TAN CHIN HUAT

Firm No. AF-1395 Approval No. 2037/06/08(J)

Chartered Accountants Proprietor

Petaling Jaya

Date : 10 April 2008

20


I NCOME STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2007

Group Company

2007 2007 2006

Note RM RM RM

Revenue 56,318,845 48,043,190 50,644,477

Other operating income 693,523 693,523 351,665

Purchases and other direct costs (33,650,155) (25,473,415) (43,967,600)

Depreciation of property, plant and equipment (92,468) (92,468) (38,819)

Amortisation of intangible assets 10 (637,500) (637,500) -

Directors’ fee 6 (108,000) (108,000) -

Staff costs (1,445,334) (1,304,023) (29,158)

Other operating expenses (2,052,729) (2,040,744) (1,306,658)

Profit before tax 19,026,182 19,080,563 5,653,907

Profit before tax is stated after charging/(crediting) :-

Audit fee :

- statutory 13,500 10,000 10,000

- special 10,400 10,000 -

Amortisation of intangible assets 637,500 637,500 -

Deposits written off - - 2,125

Depreciation of property, plant and equipment 92,468 92,468 38,819

Directors’ fee 108,000 108,000 -

(Gain)/Loss on foreign exchange 942,179 937,845 (270,475)

Interest income from fixed deposits (686,323 ) (686,323) (81,190)

Rental of equipment 2,580 2,580 -

Rental of premises 115,703 115,703 38,000

Income tax expense 7 (174,661) (185,307) (12,574)

Net profit for the financial year 18,851,521 18,895,256 5,641,333

Earnings per share attributable to equity holders of the Company :

Basic 8 RM0.05

Diluted 8 N/A

The above income statements are to be read in conjunction with the accompanying notes to the financial statements.

21


B ALANCE SHEETS

AS OF 31 DECEMBER 2007

Group Company

2007 2007 2006

Note RM RM RM

Property, plant and equipment 9 1,201,612 1,201,612 678,366

Intangible assets 10 43,897,931 43,897,931 24,989,830

Investment in subsidiary 11 - 2 -

Deferred tax assets 12 10,646 - -

CURRENT ASSETS

Trade receivables 13 21 ,981,826 14,169,288 7,109,068

Other receivables and prepaid expenses 13 1,760,214 1,760,214 68,112

Fixed deposit with licensed banks 12,114,981 12,114,981 19,492,075

Cash and bank balances 10,727,675 10,727,675 6,190

46,584,696 38,772,158 26,675,445

Less:

CURRENT LIABILITIES

Trade payables 14 11,382,312 3,328,560 -

Other payables and accrued expenses 14 303,333 243,483 128,561

Amount owing to holding company 15 35,890 35,890 69,840

Amount owing to related company 16 3,261,536 3,261,536 3,454,016

Amount owing to subsidiary 11 - 246,685 -

Tax liabilities 185,307 185,307 16,238

15,168,378 7,301,461 3,668,655

NET CURRENT ASSETS 31,416,318 31,470,697 23,006,790

76,526,507 76,570,242 48,674,986

Financed by:

Issued capital 17 60,300,000 60,300,000 51,300,000

Unappropriated profit/(Accumulated loss) 16,226,507 16,270,242 (2,625,014)

SHAREHOLDERS’ EQUITY 76,526,507 76,570,242 48,674,986

The above balance sheets are to be read in conjunction with the accompanying notes to the financial statements.

22


S TATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2007

Unappropriated

Share Capital Profit /

Ordinary Financial (Accumulated

Shares Instruments* Loss) Total

RM RM RM RM

Group

Balance as at 1 January 2007 32,300,000 19,000,000 ( 2,625,014 ) 48,674,986

Issuance of shares 9,000,000 - - 9,000,000

Converted during the year 19,000,000 (19,000,000 ) - -

Net profit for the financial year - - 18,851,521 18,851,521

Balance as at 31 December 2007 60,300,000 - 16,226,507 76,526,507

Unappropriated

Share Capital Profit /

Ordinary Financial (Accumulated

Shares Instruments* Loss) Total

RM RM RM RM

Company

Balance as at 1 January 2006 2 - ( 8,266,347 ) ( 8,266,345 )

Issuance of shares 32,299,998 19,000,000 - 51,299,998

Net profit for the financial year - - 5,641,333 5,641,333

Balance as at 31 December 2006 32,300,000 19,000,000 ( 2,625,014 ) 48,674,986

Issuance of shares 9,000,000 - - 9,000,000

Converted during the year 19,000,000 ( 19,000,000 ) - -

Net profit for the financial year - - 18,895,256 18,895,256

Balance as at 31 December 2007 60,300,000 - 16,270,242 76,570,242

* Par value of Irredeemable Convertible Preference shares

The above statements of changes in equity are to be read in conjunction with the accompanying notes to the financial

statements.

23


C ASH FLOW STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2007

Group Company

2007 2007 2006

RM RM RM

CASH FLOWS FROM OPERATING ACTIVITIES

Profit before tax 19,026,182 19,080,563 5,653,907

Adjustments for :

Amortisation of intangible assets 637,500 637,500 -

Depreciation of property, plant and equipment 92,468 92,468 38,819

Deposits written off - - 2,125

Interest income ( 686,323) ( 686,323) ( 81,190)

Operating profit before working capital changes 19,069,827 19,124,208 5,613,661

Changes in working capital :

Increase in trade receivables ( 14,872,758) ( 7,060,220) ( 7,109,068)

(Increase) / Decrease in other receivables and prepaid expenses ( 1,692,102) ( 1,692,102) 9,121,354

Increase in trade payables 11,382,312 3,328,560 -

Increase / (Decrease) in other payables and accrued expenses 174,772 114,922 ( 9,378,284)

Increase / (Decrease) in amount owing to holding company ( 33,950) ( 33,950) 69,840

Increase / (Decrease) in amount owing to related company ( 192,480) ( 192,480) 3,454,016

Increase in amount owing to subsidiary - 246,685 -

Cash Generated From Operations 13,835,621 13,835,623 1,771,519

Interest income received 686,323 686,323 81,190

Development costs incurred ( 1,068,132) ( 1,068,132) ( 829,473)

Tax paid ( 16,238) ( 16,238) -

Net cash from operating activities 13,437,574 13,437,576 1,023,236

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of property, plant and equipment ( 708,183) ( 708,183) ( 755,484)

Purchase of intangible assets ( 18,385,000) ( 18,385,000) -

Purchase of investment in subsidiary (Note.11) - ( 2) -

Net cash used in investing activities ( 19,093,183) ( 19,093,185) ( 755,484)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from issuance of shares 9,000,000 9,000,000 -

Proceeds from issuance of preference shares - - 19,000,000

Net cash from financing activities 9,000,000 9,000,000 19,000,000

Net increase in cash and cash equivalents 3,344,391 3,344,391 19,267,752

Cash and cash equivalents brought forward 19,498,265 19,498,265 230,513

Cash and cash equivalents carried forward 22,842,656 22,842,656 19,498,265

Cash and cash equivalents carried forward cosist of :

Fixed deposits with licensed banks 12,114,981 12,114,981 19,492,075

Cash and bank balances 10,727,675 10,727,675 6,190

22,842,656 22,842,656 19,498,265

Note : In 2006, the issued and paid-up ordinary share capital of the Company was increased from RM2 to

RM32,300,000 by the allotment of 32,299,998 new ordinary shares of RM1 each at par through capitalisation of

amount owing to holding company of RM32,299,998.

The above cash flow statements are to be read in conjunction with the accompanying notes to the financial statements.

24


N OTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2007

1. GENERAL INFORMATION

The Company is principally engaged in the turnkey ASIC (application - specific integrated circuit) design services,

providing data processing, data management, disk-based back-up solutions, telecommunications, office

automation, network infrastructure and intelligent storage networking support.

During the financial year, the Company acquired 100% equity interest in Key ASIC Semiconductor Sdn. Bhd., a

company incorporated in Malaysia, for a cash consideration of RM2. The principal activities of the subsidiary

are as disclosed in Note 11 to the Financial Statements.

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

The immediate and ultimate holding company is Key ASIC Limited, a company incorporated in British Virgin

Islands.

The registered office of the Company is located at Level 14, Uptown 1, No.1, Jalan SS21/58, Damansara Uptown,

47400 Petaling Jaya, Selangor Darul Ehsan.

The principal place of business of the Company is located at 6th Floor, Unit 3, No.8, First Avenue, Bandar Utama,

47800 Petaling Jaya, Selangor Darul Ehsan.

The financial statements are presented in Ringgit Malaysia (RM).

The financial statements have been authorised by the Board of Directors for issuance on 10 April 2008.

2. BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS

The financial statements of the Group and of the Company have been prepared in accordance with the

provisions of the Companies Act, 1965 and the applicable MASB Approved Accounting Standards in Malaysia

for Entities Other Than Private Entities.

At the beginning of the current financial year, the Group adopted new/revised Financial Reporting Standards

(FRSs) which are mandatory for financial periods beginning on or after 1 October 2006:

FRS 117 Leases

FRS 124 Related Party Disclosures

The adoption of the above FRSs did not have any significant impact on the financial statements of the Group.

The Group has not early adopt the deferred FRS 139 Financial Instruments - Recognition and Measurement.

The preparation of financial statements in conformity with the Financial Reporting Standards requires the use of

certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities,

and the reported results during the reported period. It also requires directors to exercise their judgement in the

process of applying the Group’s accounting policies. Although these estimates and judgement are based on the

director’s best knowledge of current events and actions, actual results may differ.

The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates

are significant to the financial statements, are disclosed in Note 5 to the Financial statements.

25


N OTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2007

3. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The operations of the Group are subject to a variety of financial risks, including foreign currency exchange risk,

market risk, interest rate risk, credit risk, liquidity risk and cash flow risk. The Group has formulated a financial

risk management framework whose principal objective is to minimise the Group’s exposure to risks and/or

costs associated with the financing, investing and operating activities of the Group.

Foreign currency exchange risk

The Group’s foreign currency exposure arise mainly from trade transactions denominated in foreign currency.

Management believes that the Group’s foreign currency exchange risk is minimal and accordingly, no hedging

is performed.

Market risk

The Group has in place policies to manage its competitive risks from its competitors in providing better services.

The Group regularly takes part in various roadshows and advertisement to promote its products.

Interest rate risk

The Group enters into various interest rate risk management transactions for the purpose of reducing net interest

costs and to achieve interest rates within predictable, desired ranges.

Credit risk

The Group is exposed to credit risk mainly from trade receivables. The Group extends credit to its customers

based upon careful evaluation of the customer’s financial condition and credit history.

Liquidity risk

The Group practises prudent liquidity risk management to minimise the mismatch of financial assets and liabilities

and to maintain sufficient funds for contingent funding requirement of working capital.

Cash flow risk

The Group reviews its cash flow position regularly to manage its exposure to fluctuations in future cash flows

associated with its monetary financial instruments.

Fair values

The fair values of the financial assets and financial liabilities reported in the balance sheet as of 31 December 2007

approximate the carrying amounts of these assets and liabilities because of the immediate or short-term maturity of

these financial instruments.

4. SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Accounting

The financial statements are prepared under the historical cost convention.

(b) Revenue Recognition

Revenue is recognised when it is probable that the economic benefits associated with the transaction will flow

to the enterprise and the amount of the revenue can be measured reliably.

Revenue from goods sold and services rendered are recognised when the goods are delivered and when the

risks and rewards of ownership have passed. Revenue represents the invoiced value of goods sold and services

rendered net of discounts and allowances.

26


N OTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2007

(c) Employee Benefits

(i) Short term benefits

Wages, salaries, bonuses and social security contributions are recognised as an expense in the year in which

associated services are rendered by employees of the Group. Short term accumulating compensated

absences such as paid annual leave are recognised when services are rendered by employees that increase

their entitlement to future compensated absences, and short term non-accumulating compensated absences

such as sick leave are recognised when the absences occur.

(ii) Defined contributions plans

As required by law, companies in Malaysia make contributions to the state pension scheme, Employees

Provident Fund (“EPF”). Such contributions are recognised as an expense in the income statements

as incurred.

(d) Income Tax

Income tax on the profit or loss for the year comprises current and deferred tax. Current tax is the expected

amount of income taxes payable in respect of the taxable profit for the year and is measured using the tax

rates that have been enacted at the balance sheet date.

Deferred tax is provided for, using the liability method, on temporary differences at the balance sheet date

between the tax bases of assets and liabilities and their carrying amounts in the financial statements. In

principle, deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are

recognised for all deductible temporary differences, unused tax losses and unused tax credits to the extent that

it is probable that taxable profit will be available against which the deductible temporary differences, unused tax

losses and unused tax credits can be utilised.

Deferred tax is measured at the tax rates that are expected to apply in the period when the asset is realised or

the liability is settled, based on tax rates that have been enacted or substantively enacted at the balance sheet

date. Deferred tax is recognised in the income statement, except when is arises from a transaction which is

recognised directly in equity, in which case the deferred tax is also charged or credited directly in equity.

(e) Basis of Consolidation

Subsidiaries

The consolidated financial statements include the financial statements of the Company and its subsidiary made

up to the end of the financial year. Subsidiaries are those entities in which the Group has power to exercise

control over the financial and operating policies so as to obtain benefits from their activities.

Subsidiaries are consolidated using the purchase method of accounting. Under the purchase method of

accounting, subsidiaries are fully consolidated from the date on which control is transferred to the Group and

are no longer consolidated from the date that control ceases. The cost of acquisition is measured as fair value

of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus

costs directly attributable to the acquisition.

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are

measured initially at their fair values at the acquisition dates, irrespective of the extent of any minority interest.

Any excess of the cost of acquisition over the Group’s interest in the net fair value of the identifiable assets,

liabilities and contingent liabilities represents goodwill. Any excess of the Group’s interest in the net fair value of

the identifiable assets, liabilities and contingent liabilities over the cost of acquisition is recognised immediately

in the income statements.

27


N OTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2007

(f) Property, Plant and Equipment

All items of property, plant and equipment are initially recorded at cost. Subsequent costs are included in the

asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future

economic benefits associated with the item will flow to the Group and the cost of the item can be measured

reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are

charged to the income statements during the financial year in which they are incurred.

Subsequent to recognition, property, plant and equipment are stated at cost less accumulated depreciation and

any accumulated impairment losses.

At each balance sheet date, the Group assesses whether there is any indication of impairment. If such

indications exist, and analysis is performed to assess whether the carrying amount of the asset is fully

recoverable. A write down is made if the carrying amount exceeds the recoverable amount. See accounting

policy Note 4(j) on impairment of assets.

Depreciation of property, plant and equipment is calculated to write off the cost of the property, plant and

equipment on a straight-line basis over the expected useful lives of the property, plant and equipment

concerned. The annual depreciation rates used are :-

Computers - 20%

Furniture and fittings - 10%

Office equipment - 10%

Renovation - 10%

Gain or loss arising from the disposal of an asset is determined as the difference between the estimated net

disposal proceed and the carrying amount of the asset, and is recognised in the income statements.

(g) Intangible Assets

(i) Research and Development Costs

All research costs are recognised in the income statements as incurred.

Expenditure incurred on projects to develop new products is capitalised and deferred only when the Group

can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use

or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future

economic benefits, the availability of resources to complete the project and the ability to measure reliably the

expenditure during the development. Product development expenditures which do not meet these criteria

are expensed when incurred.

Development costs, considered to have finite useful lives, are stated at cost less any impairment losses and

are amortised using the straight-line basis over the commercial lives of the underlying products. Impairment

is assessed whenever there is an indication of impairment and the amortisation period and method are also

reviewed at least at each balance sheet date.

(ii) Other Intangible Assets

Intangible assets, which comprise intellectual property and licence rights, are measured on initial recognition

at cost. The useful lives of the intangible assets are assessed to be finite or indefinite. Intangible assets with

indefinite useful lives are not amortised but are tested for impairment annually or more frequently if the

events or changes in circumstances indicate that the carrying value may be impaired either individually or at

the cash-generating unit level. The useful lives of intangible assets with indefinite lives are also reviewed

annually to determine whether the useful life assessment continues to be supportable.

28


N OTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2007

(h) Investment

Investment in subsidiary is shown at cost. Where there is an indication of impairment exists, the carrying

amount of the investment is assessed and written down immediately to its recoverable amount. The policy for

recognition and measurement of impairment losses is in accordance with Note 4(j).

(i) Financial Instruments

Financial instruments are recognised in the balance sheet when the Group has become a party to the

contractual provisions of the instrument.

Financial instruments are classified as liabilities or equity in accordance with the substance of the contractual

agreement. Interest, dividends and gains and losses relating to a financial instrument classified as a liability, are

reported as expense or income. Distributions to holders of financial instruments classified as equity are charged

directly to equity. Financial instruments are offset when the Group has a legally enforceable right to offset and

intends to settle either on a net basis or to realise the asset and settle the liability simultaneously.

(i) Receivables

Trade and other receivables are stated at nominal values as reduced by the appropriate allowance for

estimated irrecoverable amounts. Allowance for doubtful debts is made based on estimates of possible

losses which may arise from non-collection of certain receivable accounts.

(ii) Payables

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

received.

(iii) Equity Instruments

Ordinary and irredeemable preference shares are classified as equity. Dividends are recognised in equity in

the year in which they are declared.

(j) Impairment of Assets

At each balance sheet date, the Group reviews the carrying amounts of its assets to determine whether there is

any indication of impairment. If any such indication exists, impairment is measured by comparing the carrying

values of the assets with their recoverable amounts. Recoverable amount is the higher of net selling price and

value in use, which is measured by reference to discounted future cash flows.

An impairment losses is recognised as an expense in the income statements immediately, unless the asset is

carried at a revalued amount. Any impairment loss of a revalued asset is treated as a revaluation decrease to

the extent of any unutilised previously recognised revaluation surplus for the same asset.

(k) Provisions

Provisions are recognised when the Group has a present legal and constructive obligation as a result of past

events, when it is probable that an outflow of resources embodying economic benefits will be required to settle

the obligation, and when a reliable estimate can be made of the amount of the obligation.

(l) Foreign Currency Conversion

Transactions in foreign currencies are recorded in Ringgit Malaysia at the rates of exchange which approximate

rates ruling at the dates of the transactions. Assets and liabilities in foreign currencies at the balance sheet date

are reported in Ringgit Malaysia at rates ruling at that date. Exchange differences are dealt with through the

income statements.

29


N OTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2007

The principal closing rate used in the translation of foreign currency amounts is as follows :

2007 2006

RM RM

1 US Dollar 3.35 3.60

(m) Cash Flow Statement

The Group and the Company adopt the indirect method in the preparation of the cash flow statement.

Cash equivalents are short-term, highly liquid investments with maturities of three months or less from the date

of acquisition and are readily convertible to cash with insignificant risks of changes in value.

(n) Segment Reporting

Segment reporting is presented for enhanced assessment of the Group’s risks and returns. Business segments

provide products or services that are subject to risks and returns that are different from those of other business

segments. Geographical segments provide products or services within a particular economic environment that

is subject to risks and returns that are different from those components operating in other economic

environments.

Segment revenue, expense, assets and segment liabilities are those amounts resulting from the operating

activities of a segment that are directly attributable to the segment and the relevant portion that can be

allocated on a reasonable basis to the segment. Segment revenue, expense, assets and segment liabilities are

determined before intragroup balances and intragroup transactions are eliminated as part of the consolidation

process, except to the extent that such intragroup balances and transactions are between group enterprises

within a single segment.

5. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION

UNCERTAINTY

Critical judgements in applying the Group’s and the Company’s accounting policies

In the process of applying the Group’s and the Company’s accounting policies, which are described in Note 4

above, management is of the opinion that there are no instances of application of judgement which are

expected to have significant effect on the amounts recognised in the financial statements.

Key sources of estimation uncertainty

Management believes that there are no key assumptions made concerning the future, and other key sources of

estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to

the carrying amounts of assets and liabilities within the next financial year (apart from those involving

estimations which are dealt with below).

(i) Impairment of Intangible Assets

The Group determines whether the intangible assets are impaired at least on an annual basis. This requires

an estimation of the value in use of the cash-generating units to which the intangible assets are allocated.

Estimating the value in use amount requires management to make an estimate of the expected future cash

flows from the cash-generating units and also to choose a suitable discount rate in order to calculate the

present value of those cash flows.

30


N OTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2007

(ii) Depreciation of Property, Plant and Equipment

Property, plant and equipment are depreciated on a straight-line basis over their estimated useful lives.

Management estimates the useful lives of these property, plant and equipment to be within 5 to 10 years.

Changes in the expected level of usage and technological development could impact the economic useful

lives and the residual values of these assets, therefore future depreciation charges could be revised.

(iii)Capitalisation of Development Expenditure

The Group follows the guidance of FRS 138 : Intangible Assets in determining the amount and nature of

development expenditure to be capitalised as development costs. This determination requires significant

judgement. The Group makes an assessment, among other factors, if the product or process is technically

feasible and if the Group has sufficient technical, financial and other resources to use or market the product

or process. In addition, the Group also applies its judgement to assess the probability of expected future

economic benefits, that are attributable to the use of these capitalised development expenditure that will flow

to the Group. Expenditure capitalised includes cost of labour, depreciation of property, plant and equipment

and an appropriate portion of overheads.

6. DIRECTORS’ FEE

Group and Company Company

2007 2006

RM RM

Non-executive directors :

Fees 108,000 -

The number of directors of the Company whose total remuneration during the financial year fell within the

following bands is analysed below:

Numbers of director

2007 2006

Non-executive directors :

RM1 - 50,000 6 -

7. INCOME TAX EXPENSE

Group Company

2007 2007 2006

RM RM RM

Estimated current tax payable 185,307 185,307 16,238

Over provision of income tax in prior year - - ( 3,664)

Deferred tax assets (Note 12) ( 10,646 ) - -

174,661 185,307 12,574

31


N OTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2007

A numerical reconciliation between the income tax expense and the product of accounting profit multiplied by

the applicable statutory income tax rate, is as follows :

Group Company

2007 2007 2006

RM RM RM

Accounting profit 19,026,182 19,080,563 5,653,907

Tax at the applicable statutory income

tax rate of 28% / 27% / 20% 5,140,876 5,151,752 1,543,094

Tax effects in respect of :

Expenses that are not deductible for tax purposes 219,405 219,175 49,699

Development costs capitalised ( 313,362) ( 313,362 ) ( 232,252 )

Income exempted from tax ( 4,791,581) ( 4,791,581 ) ( 353,665 )

Utilisation of deferred tax asset not recognised in prior year - - ( 990,638 )

Deferred tax liabilities not recognised due to pioneer status ( 80,677) ( 80,677 ) -

Over provision of income tax in prior year - - ( 3,664 )

Income tax expense 174,661 185,307 12,574

The Company has been awarded Multimedia Super Corridor (“MSC”) status by the Government of Malaysia and

was granted pioneer status under the Promotion of Investments (Amendment) Act, 1997, which exempts 100% of

the statutory business income from taxation for a period of 5 years commencing from its effective date.

As at 31 December 2007, the Group and the Company has pre-pioneer unutilised business loss and unabsorbed

capital allowances totalling approximately RM4,552,000 (2006: RM4,552,000), which subject to the agreement by

the tax authority.

8. EARNINGS PER SHARE

Basic

The basic earnings per share of the Group is calculated based on the profit attributable to equity holders of the

Company for the year of RM18,851,521 and on the weighted average number of ordinary shares of RM0.10 each

in issue during the financial year of 379,931,507.

Diluted

The diluted earnings per share of the Group has not been presented as there are no dilutive potential ordinary

shares during the financial year.

32


N OTES TO THE FINANCIAL STATEMENTS

9. PROPERTY, PLANT AND EQUIPMENT

FOR THE YEAR ENDED 31 DECEMBER 2007

Furnitures Office

Computers and fittings equipment Renovation Total

RM RM RM RM RM

Group and Company

2007

Cost

As at 1 January 2007 733,652 4,547 11,285 6,000 755,484

Additions 296,507 1,350 150 410,176 708,183

As at 31 December 2007 1,030,159 5,897 11,435 416,176 1,463,667

Accumulated depreciation

As at 1 January 2007 76,275 164 529 150 77,118

Charge for the year 172,960 489 1,144 10,344 184,937

As at 31 December 2007 249,235 653 1,673 10,494 262,055

Net book value

as at 31 December 2007 780,924 5,244 9,762 405,682 1,201,612

Company

2006

Cost

As at 1 January 2006 - - - - -

Additions 733,652 4,547 11,285 6,000 755,484

As at 31 December 2006 733,652 4,547 11,285 6,000 755,484

Accumulated depreciation

As at 1 January 2006 - - - - -

Charge for the year 76,275 164 529 150 77,118

As at 31 December 2006 76,275 164 529 150 77,118

Net book value

as at 31 December 2006 657,377 4,383 10,756 5,850 678,366

33


N OTES TO THE FINANCIAL STATEMENTS

10. INTANGIBLE ASSETS

FOR THE YEAR ENDED 31 DECEMBER 2007

Intellectual property Development

and licence rights costs Total

RM RM RM

Group and Company

2007

Cost

As at 1 January 2007 24,700,000 867,772 25,567,772

Additions 18,385,000 - 18,385,000

Additions - internal development - 1,160,601 1,160,601

As at 31 December 2007 43,085,000 2,028,373 45,113,373

Accumulated amortisation

As at 1 January 2007 577,942 - 577,942

Amortisation 637,500 - 637,500

As at 31 December 2007 1,215,442 - 1,215,442

Net carrying amount as at 31 December 2007 41,869,558 2,028,373 43,897,931

Company

2006

Cost

As at 1 January 2006 24,700,000 - 24,700,000

Additions - internal development - 867,772 867,772

As at 31 December 2006 24,700,000 867,772 25,567,772

Accumulated amortisation

As at 1 January 2006 577,942 - 577,942

Amortisation - - -

As at 31 December 2006 577,942 - 577,942

Net carrying amount as at 31 December 2006 24,122,058 867,772 24,989,830

Included in development costs during the financial year is depreciation of property, plant and equipment of

RM92,469 (2006: RM38,299).

34


N OTES TO THE FINANCIAL STATEMENTS

11. INVESTMENT IN SUBSIDIARY

FOR THE YEAR ENDED 31 DECEMBER 2007

Company

2007 2006

RM RM

Unquoted shares - at cost 2 -

During the financial year, the Group acquired 100% equity interest in Key ASIC Semiconductor Sdn. Bhd., a

company incorporated in Malaysia, for a total cash consideration of RM2. The principal activities of the subsidiary

is in the business of providing manufacturing service to fabless design company, provide design for

manufacturing (“DFM”) and design for test (“DFT”) consultation and the sale of chips.

The effect of the acquisition on the financial results of the Group for the financial year is as follows :

Post-acquisition results of the subsidiary acquired:

2007

RM

Revenue 8,275,655

Other operating expenses ( 8,330,036)

Loss before tax ( 54,381)

Income tax credit 10,646

Decrease in Group’s profit attributable to shareholders ( 43,735)

The effect of this acquisition on the financial position of the Group as of end of year is as follows :

2007

Net assets acquired: RM

Cash on hand 2

Net assets acquired 2

Less : Cash and bank balances ( 2)

Cash flow on acquisition, net of cash and cash equivalents acquired -

The amount owing to subsidiary, which arose mainly from expenses paid on behalf and interest-free advances

given, is unsecured and bears no fixed terms of repayment.

12. DEFERRED TAX ASSETS

Group Company

2007 2007 2006

RM RM RM

At beginning of year - - -

Recognised in income statements (Note 7) 10,646 - -

At end of year 10,646 - -

The deferred tax asset is in respect of unutilised tax losses.

35


N OTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2007

13. TRADE RECEIVABLES, OTHER RECEIVABLES AND PREPAID EXPENSES

Trade receivables comprise amounts receivable for services rendered. The normal credit period granted on

services rendered ranges from 60 to 90 days. Other credit terms are assessed and approved on a case by

case basis.

Included in trade receivables of the Group and of the Company in 2007 is an amount RM8,276,044 owing by a

company in which a director is also a director of the Company. This balance which arose out of normal trade

transaction, is unsecured, interest-free and bears no fixed terms of repayment.

Other receivables and prepaid expenses consist of :-

Group and Company Company

2007 2006

RM RM

Refundable deposits 113,012 -

Prepaid expenses 1,647,202 68,112

1,760,214 68,112

14. TRADE PAYABLES, OTHER PAYABLES AND ACCRUED EXPENSES

Trade and other payables comprise amounts outstanding for trade and ongoing costs. The average credit

period granted to the Group and the Company for trade purchases is 60 days.

Included in trade payables of the Group in 2007 is an amount of RM8,053,752 owing to a company in which a

director is also a director of the Company. This balance which arose out of normal trade transactions, is

unsecured and has no fixed terms of repayment.

Other payables and accrued expenses consist of :-

Group Company

2007 2007 2006

RM RM RM

Other payables 4,683 4,683 6,040

Accrued expenses 298,650 238,800 122,521

303,333 243,483 128,561

15. AMOUNT OWING TO HOLDING COMPANY

The amount owing to holding company comprises principally trade transactions, which is unsecured, interest-free

and bears no fixed terms of repayment. Purchases from the holding company amounted to RM14,224,000

(2006: RM14,928,300) during the financial year.

16. AMOUNT OWING TO RELATED COMPANY

The amount owing to related company comprises principally trade transactions, advances given and expenses

paid on behalf which is unsecured, interest-free and bears no fixed terms of repayment. Purchases from this

related company amounted to RM17,896,175 (2006: RM29,039,300) during the financial year.

36


N OTES TO THE FINANCIAL STATEMENTS

17. SHARE CAPITAL

(a) Authorised :

FOR THE YEAR ENDED 31 DECEMBER 2007

No. of ordinary shares

of RM1 each 2007 2006

2007 2006 RM RM

Balance as at beginning of the year 81,000,000 100,000 81,000,000 100,000

Created during the year - 99,900,000 - 99,900,000

Converted during the year 19,000,000 ( 19,000,000 ) 19,000,000 ( 19,000,000)

Subdivision of par value into RM0.10 each ( 100,000,000) - ( 100,000,000 ) -

Balance as at end of the year - 81,000,000 - 81,000,000

No. of ordinary shares

of RM0.10 each 2007 2006

2007 2006 RM RM

Balance as at beginning of the year - - - -

Subdivision of par value into RM0.10 each 1,000,000,000 - 100,000,000 -

Balance as at end of the year 1,000,000,000 - 100,000,000 -

No. of Irredeemable Convertible

preference shares of RM1 each 2007 2006

2007 2006 RM RM

Balance as at beginning of the year 19,000,000 - 19,000,000 -

Converted during the year ( 19,000,000) 19,000,000 ( 19,000,000 ) 19,000,000

Balance as at end of the year - 19,000,000 - 19,000,000

TOTAL 100,000,000 100,000,000

(b) Issued and fully paid :

No. of ordinary shares

of RM1 each 2007 2006

2007 2006 RM RM

Balance as at beginning of the year 32,300,000 2 32,300,000 2

Issued during the year 9,000,000 32,299,998 9,000,000 32,299,998

Converted during the year 19,000,000 - 19,000,000 -

Subdivision of par value into RM0.10 each ( 60,300,000) - ( 60,300,000 ) -

Balance as at end of the year - 32,300,000 - 32,300,000

37


N OTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2007

No. of ordinary shares

of RM0.10 each 2007 2006

2007 2006 RM RM

Balance as at beginning of the year - - - -

Subdivision of par value into RM0.10 each 603,000,000 - 60,300,000 -

Balance as at end of the year 603,000,000 - 60,300,000 -

No. of Irredeemable Convertible

preference shares of RM1 each 2007 2006

2007 2006 RM RM

Balance as at beginning of the year 19,000,000 - 19,000,000 -

Issued during the year - 19,000,000 - 19,000,000

Converted during the year ( 19,000,000) - ( 19,000,000 ) -

Balance as at end of the year - 19,000,000 - 19,000,000

TOTAL 60,300,000 51,300,000

As approved by the shareholders at the Board Meeting held on 4 October 2007, the issued and paid-up share

capital of the Company was increased from RM32,300,000 to RM51,300,000 through the issuance of 19,000,000

new ordinary shares of RM1 each via the conversion of the existing 19,000,000 Irredeemable Convertible

preference shares of RM1 each into 19,000,000 new ordinary shares of RM1 each. Also, the

Company’s issued and paid-up share capital was further increased from RM51,300,000 to RM60,300,000 by the

allotment of 9,000,000 new ordinary shares of RM1 each at par through rights issue for cash for the purposes of

increasing the working capital of the Company.

As approved by the shareholder at the Extraordinary General Meeting held on 5 April 2006, the authorised share

capital of the Company in 2006 was increased from RM100,000 to RM100,000,000 by the creation of additional

99,900,000 new ordinary shares of RM1 each. Also, the issued and paid-up share capital of the Company was

increased from RM2 to RM32,300,000 by the allotment of 32,299,998 new ordinary shares of RM1 each at par

through capitalisation of amount owing to holding company for the purposes of increasing the working capital of the

Company. These new shares rank pari passu with the then existing ordinary shares of the Company.

IRREDEEMABLE CONVERTIBLE PREFERENCE SHARES OF RM1 EACH

Pursuant to the Shareholder’s Resolution dated 14 July 2006, the authorised share capital of the Company in 2006

of RM100,000,000 comprising 100,000,000 ordinary shares of RM1 each was changed to RM100,000,000

comprising 81,000,000 ordinary shares of RM1 each and 19,000,000 preference shares of RM1 each. The

Company also issued 19,000,000 Irredeemable Convertible Preference shares of RM1 each at par for cash.

38


N OTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2007

The salient features of the Irredeemable Convertible Preference shares issued by the Company are as follows :-

(a) convertible to ordinary shares on the basis of one ordinary share of RM1 each at par for every one preference

share of RM1 each;

(b) are not redeemable;

(c) shall have the right to receive notices of or to attend or vote at any general meeting except in certain circumstances;

(d) shall be entitled to receive non-cumulative dividends if declared by the Board;

(e) the return of paid-up capital on winding-up in priority to the ordinary shares; and

(f) shall participate pari passu with ordinary shares for the residue of surplus assets and undeclared residual

profits as shall remain after paying off the capital paid up in the event of liquidation.

18. SEGMENTAL INFORMATION

Non-recurring Recurring

engineering engineering

services services Eliminations Consolidated

RM RM RM RM

2007

Revenue

Sales 48,043,190 8,275,655 - 56,318,845

Results

Profit/(Loss) before tax 19,080,563 ( 54,381 ) - 19,026,182

Income tax expense ( 174,661)

Profit after tax 18,851,521

Other Information

Segment assets 83,871,701 8,069,869 ( 246,685 ) 91,694,885

Segment liabilities 7,301,461 8,113,602 ( 246,685 ) 15,168,378

Capital expenditure 20,161,315 - - 20,161,315

Depreciation 184,937 - - 184,937

The Group operates predominantly in Malaysia and as such, no geographical segment is presented.

19. SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES

In the normal course of business, the Group and the Company undertake on agreed terms and prices, transactions

with its related companies and other related parties.

(a) In addition to related party disclosures mentioned elsewhere in the financial statements, set out below are other

significant related party transactions and balances. The related party transactions listed below were carried out

on terms and conditions obtainable in transactions with unrelated parties unless otherwise stated.

Group Company

2007 2007 2006

RM RM RM

(i) Services rendered to Silterra Malaysia Sdn. Bhd., a

company in which Mr. Eg Kah Yee, a director and a

substantial shareholder of the Company, is also a

director. 23,279,100 23,279,100 48,544,677

39


N OTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2007

Group Company

2007 2007 2006

RM RM RM

(ii) Purchases from Silterra Malaysia Sdn. Bhd., a company

in which Mr. Eg Kah Yee, a director and a substantial

shareholder of the Company, is also a director. 8,176,740 - -

(iii) Renovation works carried out by a firm in which a person

connected to Mr. Eg Kah Yee, a director and shareholder

of the Company, is the owner. 363,976 363,976 -

(b) Compensation of key management personnel

The remuneration of directors and other members of key management during the year was as follows :

Group Company

2007 2007 2006

RM RM RM

Short-term employee benefits 944,984 869,408 -

Included in the total key management personnel are :

Group Company

2007 2007 2006

RM RM RM

Directors’ fee 108,000 108,000 -

20. CHANGE OF NAME AND CONVERSION TO PUBLIC LIMITED COMPANY

As approved by the shareholders at the Extraordinary General Meeting held on 28 May 2007, the Company was

converted from a private limited company to a public limited company and assumed the name Key ASIC Berhad.

21. LISTING ON THE MESDAQ MARKET OF THE BURSA MALAYSIA SECURITIES BERHAD

On 9 July 2007, the shareholders of the Company made its submission to the Securities Commission and the

relevant authorities relating to the listing of the Company on the MESDAQ Market of the Bursa Malaysia Securities

Berhad (“Bursa Securities”) which involves inter alia the following :

(a) Conversion of 19,000,000 Irredeemable Convertible preference shares (“ICPS”) of RM1 each held by Atlantic

Quantum Sdn. Bhd. and Commerce Technology Ventures Sdn. Bhd. into 19,000,000 new ordinary shares of

RM1 each in the Company on the basis of 1 new ordinary share of RM1 each in the Company for every 1

existing ICPS of RM1 each held in the Company (“Conversion”). The Conversion was completed on 4 October 2007;

(b) Renounceable rights issue of 9,000,000 new ordinary shares of RM1 each at an issue price of RM1 per share

on the basis of approximately 175 new ordinary shares of RM1 each for every 1,000 existing ordinary shares of

RM1 each held after the Conversion (“Rights Issue”). The Rights Issue was completed on 19 November 2007.

(c) Share split of every 1 existing ordinary share of RM1 each in the Company into 10 ordinary shares of RM0.10

each after the Rights Issue (“Share Split”); The share split exercise was completed on 21 November 2007.

(d) Public issue of 202,000,000 shares at an issue price of RM0.40 per share to the Malaysian public, identified

investors, eligible directors, employees and business associates of the Company (“Public Issue”); and

(e) Listing of and quotation for the Company’s entire enlarged issued and paid-up share capital comprising of

RM80,500,000 comprising 805,000,000 shares upon completion of the Public Issue on the MESDAQ Market of

Bursa Securities (“Listing”).

The Company was listed on the MESDAQ Market of Bursa Securities on 30 January 2008.

40


S HAREHOLDING STATISTICS

Shareholding Statistics as at 9 April 2008

Authorised Share Capital : RM100,000,000

Issued and fully paid-up Share Capital : RM 80,500,000

Class of Shares : Ordinary shares of RM0.10 each

Voting Rights : 1 vote per ordinary share

Size of Shareholdings

Analysis of Shareholders by Range Group

As at 9 April 2008

No. of

Shareholders

% of

Shareholders

No. of

Shares Held

% of

Shares Held

1 to 99 Shares 0 0.000 0 0.000

100 to 1,000 Shares 794 55.837 545,700 0.068

1,001 to 10,000 Shares 409 28.762 1,751,800 0.218

10,001 to 100,000 Shares 146 10.267 5,312,356 0.660

100,001 to 40,249,999 Shares 70 4.923 242,546,744 30.130

40,250,000 to and above 3 0.211 554,843,400 68.924

Total 1,422 100.000 805,000,000 100.000

30 Largest Shareholders

As at 9 April 2008

No. Shareholders No. of Shares %

1. Key ASIC Limited 270,541,666 33.608

2. Atlantic Quantum Sdn Bhd 148,197,200 18.410

3. Commerce Technology Ventures Sdn Bhd 57,000,000 7.081

4. Key ASIC Limited 45,327,834 5.631

5. Ng Geok Lui 35,718,238 4.437

CIMSEC Nominees (Asing) Sdn Bhd -

6. 31,668,100 3.934

Pledged securities account for Powerful Properties Limited

CIMSEC Nominees (Asing) Sdn Bhd -

7. 30,760,000 3.821

Pledged securities account for One Objective Limited

41


S HAREHOLDING STATISTICS

8. Ng Hock Seng 30,000,000 3.727

CIMSEC Nominees (Asing) Sdn Bhd -

9. 24,000,000 2.981

Pledged securities account for Wu Chen, Tsai-Mei

10. Atlantic Quantum Sdn Bhd 23,776,700 2.954

CIMSEC Nominees (Asing) Sdn Bhd -

11.

Pledged securities account for Wang, Hsu-Ying

23,155,200 2.876

CIMSEC Nominees (Asing) Sdn Bhd -

12. 16,000,000 1.988

Pledged securities account for Hsieh, Hung-Ming

13. Key ASIC Limited 10,000,000 1.242

CIMSEC Nominees (Asing) Sdn Bhd -

14. Pledged securities account for Liu, Lien-Chun

4,675,000 0.581

15.

CIMSEC Nominees (Asing) Sdn Bhd -

Pledged securities account for Hong, Chia-Lin

4,400,000 0.547

16.

CIMSEC Nominees (Asing) Sdn Bhd -

Pledged securities account for Chen, Mei-Chen

4,400,000 0.547

17. Lim Lae Yong 3,890,000 0.483

18. Chia Wei-Kong 3,780,000 0.470

19. Lung, Shun-Tai Wenson 2,469,000 0.307

20. Nam Chanwoo 2,201,000 0.273

21. Newfields Capital Sdn Bhd 2,000,000 0.248

22. Aronoff Alan Paul 1,703,300 0.212

23. Lee Kin Hin 1,114,200 0.138

24. Lang James Harry 1,051,900 0.131

25. OSK Nominees (Tempatan) Sdn Bhd -

1,025,200 0.127

OSK Capital Sdn Bhd for Loo Kok Weng

26. Eg Kah Yee 1,000,000 0.124

27. See Lee Ming 923,500 0.114

28. CIMSEC Nominees (Asing) Sdn Bhd -

Pledged securities account for Sinomark Management Limited

920,000 0.114

29. CIMSEC Nominees (Tempatan) Sdn Bhd -

Pledged securities account for Lai Yit Loong

800,000 0.099

30. Yong Siew Mee 753,500 0.093

Total 783,251,538 97.298

42


S HAREHOLDING STATISTICS

No. Shareholders

Substantial Shareholders

As at 9 April 2008 (As per the Register of Substantial Shareholders)

Direct Interest

Indirect Interest

(excluding bare trustees)

No. of Shares % No. of Shares %

1. Key ASIC Limited (“KAL”) 325,869,500 40.48 - -

2. Atlantic Quantum Sdn Bhd 171,973,900 21.36 - -

3. Commerce Technology Ventures Sdn Bhd 57,000,000 7.08 - -

4. Key Aim Group Limited 325,869,500 (1) 40.48

5. Principles Securities Limited 325,869,500 (1) 40.48

6. Top China Production Limited 325,869,500 (1) 40.48

7. Chang Tao-Chun 325,869,500 (2) 40.48

8. Chang Li-Ping 325,869,500 (3) 40.48

9. Fang Chun-Jung 325,869,500 (3) 40.48

10. Khazanah Nasional Berhad 228,973,900 (4) 28.44

11. Commerce Asset Ventures Sdn Bhd 57,000,000 (5) 7.08

12. CIMB Group Sdn Bhd 57,000,000 (6) 7.08

13. Bumiputra-Commerce Holdings Berhad 57,000,000 (7) 7.08

Notes:

(1) Deemed interested by virtue of its interest in KAL pursuant to Section 6A of the Company Act, 1965 (“the Act”).

(2) Deemed interested by virtue of his interest in Principles Securities Limited (“PSL”) pursuant to Section 6A of the

Act and PSL is deemed interested by virtue of its interest in KAL pursuant to Section 6A of the Act.

(3) Deemed interested by virtue of its interest in Top China Production (“TCP”) Limited pursuant to Section 6A of

the Act and TCP is deemed interested by virtue of its interest in KAL pursuant to Section 6A of the Act.

(4) Khazanah Nasional Berhad is deemed to have interest pursuant to Section 6A of the Act through Atlantic

Quantum Sdn Bhd and through its direct substantial shareholding in Bumiputra-Commerce Holdings Berhad.

(5) Deemed interested by virtue of Section 6A of the Act through its direct substantial shareholding in Commerce

Technology Ventures Sdn Bhd (“CTVSB”).

(6) Deemed interested by virtue of Section 6A of the Act through its direct substantial shareholding in

Commerce Asset Ventures Sdn Bhd (“CAV”). CTVSB is a subsidiary of CAV.

(7) Deemed interested by virtue of Section 6A of the Act through its direct substantial shareholding in CIMB Group Sdn Bhd.

No. Director

Directors’ Shareholdings

As at 9 April 2008 (As per the Register of Directors’ Shareholding)

Direct Interest

No. of Shares % No. of Shares %

1. Eg Kah Yee 1,000,000 0.12 325,869,500 (1) 40.48

2. Jalaluddin bin Mohd Jarjis - - - -

3. Benny T. Hu - - - -

4. Henry Choo Hon Fai - - - -

5. Lai Yit Loong 800,000 0.099 - -

6. See Chin Lam - - - -

7. N. Chanthiran a/l Nagappan - - - -

Note:

(1) Deemed interested by virtue of his interest in KAL pursuant to Section 6A of the Act.

Indirect Interest

(excluding bare trustees)

43


N OTICE OF THIRD ANNUAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that the Third Annual General Meeting of Key ASIC Berhad will be held at

One World Hotel at First Avenue, Bandar Utama City Centre, 47800 Petaling Jaya, Selangor Darul Ehsan on

Tuesday, 10 June 2008 at 2:30 p.m. to transact the following business :-

ORDINARY BUSINESS

1) To receive the Audited Financial Statements for the financial year ended

31 December 2007 together with the Directors’ and Auditors’ Reports thereon.

2) To approve the payment of Directors' fees for the financial year ended

31 December 2007.

3) To re-elect Benny Ting Wu Hu who retires under Article 84 of the Company’s

Articles of Association.

4) To re-elect Lai Yit Loong who retires under Article 84 of the Company’s

Articles of Association.

5) To re-elect N. Chanthiran a/l Nagappan who retires under Article 90 of the

Company’s Articles of Association.

6) To re-appoint Messrs Tan Chin Huat & Co. as Auditors of the Company and to

authorise the Directors to fix their remuneration.

SPECIAL BUSINESS

To consider and if thought fit, to pass the following resolutions, with or without

modifications, as Ordinary / Special Resolutions of the Company :-

7) ORDINARY RESOLUTION I

AUTHORITY UNDER SECTION 132D OF THE COMPANIES ACT,

1965 FOR THE DIRECTORS TO ISSUE SHARES

“THAT pursuant to Section 132D of the Companies Act, 1965, and subject to

the approval of the relevant authorities, the Directors be and are hereby

empowered to issue and allot not more than ten percent (10%) of the issued

capital of the Company at any time upon such terms and conditions and for such

purposes as the Directors may in their absolute discretion deem fit AND THAT

such authority shall continue in force until the conclusion of the next Annual

General Meeting of the Company.”

8) ORDINARY RESOLUTION II

PROPOSED RATIFICATION AND PROPOSED SHAREHOLDERS’

MANDATE FOR RECURRENT RELATED PARTY TRANSACTIONS

OF A REVENUE OR TRADING NATURE

“THAT all the recurrent related party transactions of a revenue or trading nature

(“Recurrent Transactions”) entered into prior to the date of this resolution by the

Company and/or its subsidiary (“the Group”) with its related parties (“Related

Parties”) as stated in Section 2.4 of the Circular to Shareholders dated 16 May 2008,

which is necessary for its day-to-day operations, be and is hereby approved and

ratified on the basis that this transaction is entered into on terms

which are not more favourable to the Related Parties involved than generally

available to the public and are not detrimental to the minority shareholders of

the Company (“Proposed Ratification”).

(Resolution 1)

(Resolution 2)

(Resolution 3)

(Resolution 4)

(Resolution 5)

(Resolution 6)

(Resolution 7)

(Resolution 8)

44


N OTICE OF THIRD ANNUAL GENERAL MEETING

THAT pursuant to Rule 10.09 of the Listing Requirements of Bursa Malaysia

Securities Berhad for the MESDAQ Market (“MMLR”), the Group be and are

hereby authorised to enter into and give effect to the Recurrent Transactions with

the Related Parties as set out in Section 2.4 of the Circular to Shareholders dated

16 May 2008 provided that such transactions and/or arrangements are:-

(a) necessary for the day-to-day operations;

(b) are undertaken in the ordinary course of business at arm’s length basis and are

on normal commercial terms which are not more favourable to the Related

Parties than those generally available to the public; and

(c) are not detrimental to the minority shareholders of the Company

(collectively known as “Shareholders’ Mandate”)

AND THAT such approval, shall continue to be in force until :-

(a) the conclusion of the next Annual General Meeting (“AGM”) of the Company, at

which time it will lapse, unless by a resolution passed at such AGM, the

authority is renewed; or

(b) the expiration of the period within the next AGM of the Company after that date

is required to be held pursuant to Section143(1) of the Companies Act, 1965

(“the Act”) (but shall not extend to such extension as may be allowed pursuant

to Section 143(2) of the Act); or

(c) revoked or varied by ordinary resolution passed by the shareholders of the

Company in general meeting;

whichever is earlier;

AND THAT the estimated aggregate value of the transactions conducted pursuant to

the Shareholders’ Mandate during a financial year will be disclosed in accordance

with the MMLR in the annual report of the Company for the said financial year;

AND THAT the Directors of the Company be and are hereby authorised to complete

and do all such acts and things (including executing all such documents as may be

required) as they may consider expedient or necessary to give effect to the

Shareholders’ Mandate.”

By Order of the Board

NG YEN HOONG (LS 008016)

JOANNE TOH JOO ANN (LS 0008574)

Company Secretaries

Petaling Jaya

Date : 16 May 2008

45


N OTICE OF THIRD ANNUAL GENERAL MEETING

i NOTES ON APPOINTMENT OF PROXY

(a) A member of the Company entitled to attend and vote at the Meeting is entitled to appoint a

proxy/proxies to attend and vote in his stead. A proxy need not be a member of the Company and the

provisions of Section 149(1)(b) of the Companies Act, 1965 shall not apply to the Company. A member

shall be entitled to appoint not more than two (2) proxies to attend and vote at the same meeting and

the appointment shall be invalid unless he specifies the proportions of his holdings to be represented by

each proxy.

(b) Where a member is an authorised nominee as defined under the Central Depositories Act, it may

appoint at least one (1) proxy in respect of each securities account it holds with ordinary shares of the

Company standing to the credit of the said securities account.

(c) The instrument appointing a proxy shall be in writing under the hand of the appointer or of his attorney

duly authorised in writing or, if the appointer is a corporation, either under Seal or under the hand of an

officer or an attorney duly authorised. The instrument appointing a proxy shall be deemed to confer

authority to demand or join in demanding a poll.

(d) The instrument appointing a proxy must be deposited at the Registered Office of the Company situated

at Level 14, Uptown 1, No. 1, Jalan SS21/58, Damansara Uptown, 47400 Petaling Jaya, Selangor

Darul Ehsan not less than forty-eight (48) hours before the time appointed for the meeting or any

adjournment thereof, and in default, the instrument of proxy shall not be treated as valid.

ii EXPLANATORY NOTES ON SPECIAL BUSINESS

ORDINARY RESOLUTION I

Resolution Pursuant To Section 132D Of The Companies Act, 1965

The Ordinary Resolution proposed under Resolution 7, if passed, will empower the Directors of the

Company to allot and issue not more than 10% of the issued share capital of the Company at any time

upon such terms and conditions and for such purposes as the Directors may in their absolute discretion

deed fit. This authority will expire at the conclusion of the next Annual General Meeting.

ORDINARY RESOLUTION II

Proposed Ratification And Proposed Shareholders’ Mandate For Recurrent Related

Party Transactions Of A Revenue Or Trading Nature

The Ordinary Resolution proposed under Resolution 8, if passed, will allow the Group to enter into recurrent

related party transactions made on an arm’s length basis and on normal commercial terms and which are

not detrimental to the interests of the minority shareholders.

STATEMENT ACCOMPANYING NOTICE OF THIRD ANNUAL GENERAL MEETING

Details of Directors who are standing for re-election under Agenda 3 to 5 of the Notice of the Third Annual

General Meeting are set out in the Profile of Directors appearing on pages 3 to 4 of this Annual Report.

46


Fold Here

Company Secretary

Level 14, Uptown 1,

No. 1, Jalan SS21/58, Damansara Uptown,

47400 Petaling Jaya,

Selangor Darul Ehsan.

Tel : 03-7718 6188 Fax : 03-7725 7791

STAMP

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