Business Overview

6. INFORMATION ON JCY GROUP 6. INFORMATION ON JCY GROUP History and Business We are the successor to PCA, the primary entity within the Predecessor Group. PCA was incorporated in 1994 by YK Yong as “Pre-Circuit (M) Sdn. Bhd.,” as a supplier of PCBAs to Western Digital. In 1996, PCA started manufacturing die-cast machined base plates with a single plant in Johor Bahru, Malaysia. PCA thereafter diversified the number of HDD mechanical components produced to include die-cast machined base plates, top cover assembly, APFA, antidiscs, stators and flex brackets, established various manufacturing facilities (Penang in 2001, Malacca in 2004 and Suzhou, PRC in 2005) as well as expanded existing capacity. In 2000, PCA changed its name to “PCA Hard.com Sdn. Bhd.” Another key entity within the Predecessor Group is PCA Mahlin (previously known as “Mahlin Min Aik Corporation Sdn Bhd”). PCA Mahlin was owned by Arif Shakeel and his wife in 1997 and thereafter the shares were transferred to Richard Michael McHone, Chua Eng Chew and Trois Holding SA (of which YK Yong is the sole beneficial owner) in 1999. PCA Mahlin was acquired by PCA in January 2000. In 2002, PCA sold the entire share capital of PCA Mahlin to Yong Jong Siah and Tan Guat Tin. Yong Jong Siah is a sibling of YK Yong and Yong Yong Chai, and Tan Guat Tin is the spouse of Yong Jong Siah. Our Company was incorporated as JCY International Sdn Bhd in Malaysia on 21 October 2005 and converted into a public company on 25 January 2006. Our Group completed a restructuring in March 2006, where JCY acquired all of the operating assets and inventories owned by the Predecessor Group, excluding all of their liabilities and certain of their specified assets (such as non-core assets, accounts receivable and cash) and entered into new agreements from 1 April 2006 with all of the Predecessor Group’s customers and suppliers. Our Group commenced our business using the operating assets and inventories we acquired pursuant to this restructuring. YK Yong, the founder of the Predecessor Group, relinquished all management control upon completion of the restructuring in March 2006. Since then, the management of our Group lies with our key management, as described in Section 9.4 of this Prospectus. Our current Group structure is set forth below: JCY (Design and Development of HDD Mechanical Components) 100%  100%  100%  JCY HDD Malaysia (HDD Mechanical Component Manufacturing)  JCY HDD Singapore (Marketing)  Minarex Holdings (Mauritius) (Investment Holding)  100% aB Technology (Malaysia) (Manufacturing ofMagnetic Coils to be used in the APFA)  99.999% JCY HDD Thailand (HDD Mechanical Component Manufacturing and Marketing)  100% Axius Investments (Mauritius) (Investment Holding)  100%
1100% PCABVI (Marketing and Procurement) YK Technology Suzhou (Manufacturing ofActuator Arms) I Company No.: 713422-X 6. INFORMATION ON JCY GROUP (cont’d) (a) JCY is the holding company for our Group and also undertakes design and development for our Group.
(b) JCY HDD Malaysia is responsible for our Group’s manufacturing activities. Currently, its primary production activities include casting of base plates, assembly of actuators, antidiscs, stamping for top covers and E-coating.
(c) JCY HDD Singapore serves as an intermediary for our Group’s marketing activities.
(d) Minarex Holdings (Mauritius) is an investment holding company and serves as the primary holding company for our operations in the PRC and Thailand.
(e) OB Technology (Malaysia) is responsible for the manufacturing of magnetic coils to be used in the APFA.
(f) JCY HDD Thailand serves as the machinery centre for base plates and is also directly responsibie formarketing and sales to its customers in Thailand.
(g) Axius Investment (Mauritius) is an investment holding company and serves as the primary holding company for our operation in Jiangsu, the PRC.
(h) PCA (BVI) mainly serves as an intermediary for our Group’s marketing and international procurement activities.
(i) YK Technology Suzhou will be primarily responsible for the manufacturing of actuator arms.

 

6.2 Share Capital There has been no change in the authorised or issued and paid-up share capital of our Company in the last three years up to the LPD. Our current authorised share capital is 2,000,000,000 comprising 8,000,000,000 ordinary shares of RMO.25 each. Our current issued and paid-up share capital is RM511 ,215,000 comprising 2,044,860,000 Shares. We do not have any outstanding warrant, options, convertibles and uncalled capital as at the LPD.
6.3 Details on Subsidiaries The subsidiaries of our Company as at the LPD are as follows: Date & country of Issued & paid-up Par value Equity Name incorporation share capital per share interest Principal activities % JCYHDD 16 November RM451 ,751 ,000 RM1.00 100 Manufacturing and Malaysia 20051 Malaysia trading of HOD components JCYHDD 15 September SGD1,000,000 *n.a. 100 Trading of HOD Singapore 20051 components Singapore Mlnarex 25 April 20061 USD2 USD1.00 100 Investment holding Holdings Mauritius (Mauritius) I Company No.: 713422-X 6. INFORMATION ON JCY GROUP (cont’d) Name Date & country of incorporation Issued & paid-up share capital Subsidiary ofJCY HDD Malaysia  Par value per share  Equity interest %  Principal activities  QB Technology (Malaysia)  5 January 20011 Malaysia  RM1,800,000  RM1.00  100  Manufacturing magnetic coils HOD  of for  Subsidiaries ofMimirex Holdings (Mauritius)  Axius Investments (Mauritius)  25 April 20061 Mauritius  USD2  USD1.00  100  Investment holding  JCY HOD Thailand  21 September 2004/Thailand  Thai Baht 399,000,000 (partially paid’:’up)  Thai Baht 100  99.999  Manufacturing and distribution of HOD components  PCA BVI  2 December 20041 BVI  USD1,000  USD1.00  100  International marketing support and procurement services  Subsidiary ofAxius Investments (Mauritius)  YK 31 August USD52,OOO,501 *n.a. 100 Manufacturing and Technology 20041 PRC has been paid-up trading of HOD Suzhou and verified components

Note: Not applicable. Set out below is further information on the subsidiaries of our Company: 6.3.1 JCY HDD Malaysia (Company No. 715017-A) (i) History and Business JCY HOD Malaysia was incorporated in Malaysia under the Act on 16 November 2005 as a private company limited by shares. JCY HOD Malaysia commenced business on 1 April 2006 and is involved in manufacturing and trading of HOD components. (ii) Share Capital As at the LPD, the authorised share capital of JCY HOD Malaysia is RM500,000,000 comprising 500,000,000 ordinary shares of RM1.00 each, of which 451-,751,000 ordinary shares of RM1.00 each are issued and fully paid­up. (iii) Substantial Shareholder JCY HOD Malaysia is a wholly-owned subsidiary of our Company. (iv) Subsidiary and Associated Company As at the LPD, the subsidiary of JCY HOD Malaysia is QS Technology (Malaysia). 57 I Company No.: 713422-X 6. INFORMATION ON JCY GROUP (cont’d)
6.3.2 JCY HOD Singapore (Company No. 200512885-Z) (i) History and Business JCY HOD Singapore was incorporated in Singapore under the Companies Act (Cap. 50) on 15 September 2005 as a private company limited by shares. JCY HOD Singapore commenced business on 1 April 2006 and is involved in trading of HOD components. (ii) Share Capital As at the LPD, the issued and paid up share capital of JCY HOD Singapore is SGD1 ,000,000 comprising 1,000,000 ordinary shares. (iii) Substantial Shareholder JCY HOD Singapore is a wholly-owned subsidiary of our Company. (iv) Subsidiary and Associated Company As at the LPD, JCY HOD Singapore does not have any subsidiary or associated company.
6.3.3 JCY HOD Thailand (Company No. 0105547129126) (i) History and Business JCY HOD Thailand was incorporated in Thailand as a private limited company under the Civil and Commercial Code of Thailand on 21 September 2004 under the name PCA Technology Co., Ltd. and on 10 March 2008 we changed to our present name. JCY HOD Thailand commenced business on 6 December 2007 and is involved in manufacturing and distribution of HOD components. (ii) Share Capital As at the LPD, the registered share capital of JCY HOD Thailand is Thai Baht 399,000,000, comprising 2,340,000 ordinary shares of Thai Baht 100 each which are issued and fully paid-up and 1,650,000 ordinary shares of Thai Baht 100 each which are issued and partially paid up. Details of the changes of the registered share capital in JCY HOD Thailand for the last three years up to the LPD are as set out below: Total No. of Par Value Consideration registered Date of increase shares Thai Baht Thai Baht share capital 1 August 2007 2,320,000 100 58,000,000* 234,000,000 4 December 2009 1,650,000 100 41,250,000 399,000,000 Note: The remaining subscription price has been paid and the 2,320,000 issued shares are fu/lypaid up I Company No.: 713422-X 6. INFORMATION ON JCY GROUP (cont’d) (iii) Substantial Shareholder JCY HDD Thailand is a 99.999% subsidiary of Minarex Holdings (Mauritius). (iv) Subsidiary and Associated Company As at the LPD, JCY HDD Thailand does not have any subsidiary or associated company.
6.3.4 PCA BVI (Company No. 627837) (i) History and Business
PCA BVI was incorporated in the BVI under the International Business Companies Act (CAP 291) of BVI on 2 December 2004 as a private company limited by shares under the name of Machspeed International Limited. PCA BVI changed its name to PCA Hard.Com Sdn Bhd Ltd on 2 November 2005. PCA BVI commenced business in December 2005 and the principal activities of PCA BVI are international marketing support and procurement services.
(ii) Share Capital

As at the LPD, the authorised share capital of PCA BVI is USD50,000 comprising 50,000 shares of USD1.00 each, of which 1,000 shares of USD1.00 each are issued and fUlly paid-up. (iii) Substantial Shareholder PCA BVI is a wholly-owned subsidiary of Minarex Holdings (Mauritius). (iv) Subsidiary and Associated Company As at the LPD, PCA BVI does not have any sUbsidiary or associated company.
6.3.5 YK Technology Suzhou (Company Registration No. 320500400021606) (i) History and Business
YK Technology Suzhou was incorporated in the PRC under the laws of the PRC on 31 August 2004 as a WFOE with limited liability. YK Technology Suzhou commenced business on 31 August 2004 and the principal activities of YK Technology Suzhou are manufacturing and trading of HDD components.
(ii) Capital

As at the LPD, the registered capital of YK Technology Suzhou is USD1 00,000,000 of which USD52,000,501 has been paid-up and verified. 6. INFORMATION ON JCY GROUP (cont’d) Details of the capital contribution in YK Technology Suzhou in the last three years are set out below: Increase in Date of registered Method of Total registered registration capital contribution capital 17 November USD60,000,000 In cash and equipment USD100,000,000 of 2008 and conversion of the which USD52,000,501 registered foreign-debt has been verified into equity (iii) Substantial Shareholder YK Technology Suzhou is a wholly-owned subsidiary of Axius Investments (Mauritius). (iv) Subsidiary and Associated Company As at the LPD, YK Technology Suzhoudoes not have any subsidiary or associated company.
6.3.6 Minarex Holdings (Mauritius) (Company No. 62303) (i) History and Business Minarex Holdings (Mauritius) was incorporated in Mauritius under the laws of Mauritius on 25 April 2006 as a private company limited by shares. Minarex Holdings commenced business on 26 April 2006 and the principal activities of Minarex Holdings (Mauritius) are investment holding. (ii) Share Capital The authorised share capital of Minarex Holdings (Mauritius) is USD2 comprising 2 ordinary shares of USD1 each, of which 2 ordinary shares of USD1 each are issued and fully paid-up. (iii) Substantial Shareholder Minarex Holdings (Mauritius) is a wholly-owned subsidiary of our Company. (iv) Subsidiary and Associated Company As at the LPD, subsidiaries of Minarex Holdings (Mauritius) are JCY HDD Thailand, PCA BVI, Axius Investments (Mauritius), and YK Technology Suzhou, the wholly-owned subsidiary of Axius Investments (Mauritius).
6.3.7 Axius Investments (Mauritius) (Company No. 62320) (i) History and Business Axius Investments (Mauritius) was incorporated in Mauritius under the laws of Mauritius on 25 April 2006 as a private company limited by shares. Axius Investments commenced business on 26 April 2006 and the principal activity of Axius Investments (Mauritius) is investment holding. I Company No.: 713422-X

6. INFORMATION ON JCY GROUP (cont’d) (ii) Share Capital The authorised share capital of Axius Investments (Mauritius) is USD2 comprising 2 ordinary shares of USD1 each, of which 2 ordinary shares of USD1 each are issued and fully paid-up. (iii) Substantial Shareholder Axius Investments (Mauritius) is a wholly-owned subsidiary of Minarex Holdings (Mauritius). (iv) Subsidiary and Associated Company As at the LPD, Axius Investments (Mauritius) does not have any subsidiary or associated company other than YK Technology Suzhou, its wholly-owned subsidiary. 6.3.8 QB Technology (Malaysia) (Company No. 535997-K) (i) History and Business as Technology (Malaysia) was incorporated in Malaysia under the Act on 5 January 2001 as a private company limited by shares. as Technology commenced business on 5 January 2001 and is involved in manufacturing of magnetic coils for HDD. (ii) Share Capital As at the LPD, the authorised share capital of as Technology (Malaysia) is RM5,000,OOO comprising 5,000,000 ordinary shares of RM1.00 each, of which 1,800,000 ordinary shares of RM1.00 each are issued and fully paid­up. (iii) Substantial Shareholder as Technology (Malaysia) is a wholly-owned subsidiary of JCY HDD Malaysia. (iv) Subsidiary and Associated Company As at the LPD. as Technology (Malaysia) does not have any subsidiary or associated company. Save as disclosed above, there were no changes to the authorised and issued and paid-up share capital of our subsidiary companies for the past three years up to the LPD. Our subsidiary companies also do not have any outstanding warrant, options. convertible securities and uncalled capital as at the LPD. As at LPD. we and our subsidiary companies are also not involved in any bankruptcy, receivership or proceedings of similar nature. I Company No.: 713422-X 6. INFORMATION ON JCY GROUP (conf’d) 6.4 Material Capital Expenditures and Divestures Save as disclosed in Section 13.6 of this Prospectus, JCY has not undertaken any material acquisition or divestment of interests for the three years ended 30 September 2009, and up to the date of this Prospectus.
6.5 Summary of Landed Properties Details of the landed properties owned, leased or occupied by our Group are set out in Annexure A of this Prospectus. rrhe rest of this page has been intentionally left blank] 7. BUSINESS

 

7.1 Overview Based on TRENDFOCUS’ report contained in Section 8 of this Prospectus, we are one of the largest global precision engineering manufacturers of HDD mechanical components based on revenue and unit production for base plates, top cover assembly, APFA and antidiscs in 2009. Our manufacturing facilities are located in the states of Johor, Penang and Ma/acca, in Malaysia, and in Saraburi, Thailand. We are in the process of establishing new manufacturing facilities in the PRC. We primarily manufacture base plates, top cover assembly, APFA and antidiscs, which are key mechanical components of HDDs. We jointly develop these components with and manufacture them for our customers, which then assemble these components into completed HDDs, primarily 3.5 inch and 2.5 inch HDDs. Our revenue and net profit for the three financial years ended 30 September 2009 are set forth in the table below: Financial year ended 30 September 2007 2008 2009 (RM millions) (RM millions) (RM millions) (Audited) (Audited) (Audited) Revenue 1,657.8 1,834.9 1,758.0 Net profit 173.9 202.8 207.3 Based on direct sales, we derived 64.9% and 21.5% of our total consolidated revenue for the financial year ended 30 September 2009 from Western Digital and Nidec, respectively. Nidec is a MBA supplier to our Key Customers and our sales to Nidec are at the direction of Western Digital and Seagate. We also sell components to five other MBA suppliers (including Nidec) at the direction of Western Digital or Seagate. As HDD vendors, Western Digital and Seagate direct their other component suppliers to buy certain of our products and direct us to deliver such products to their suppliers. As a result of our direct and indirect sales (through the MBAs) to Western Digital and Seagate, we consider them our Key Customers. According to TRENDFOCUS, Western Digital and Seagate held approximately 26.8% and 31.5% market share of HDD sales worldwide in 2008 in terms of unit shipment respectively. Western Digital has been a customer of JCY since 1994 and Seagate since 2006. As of 30 September 2009, we had total assets of RM1 ,461.1 million. 7.2 Key Achievements/Milestones/Awards of the Business of Our Group Our Company was incorporated in Malaysia on 21 October 2005. Our Group completed a restructuring in March 2006, where JCY acquired all of the operating assets and inventories owned by the Predecessor Group, excluding all of their liabilities and certain of their specified assets (such as non-core assets, accounts receivable and cash) and entered into new agreements from 1 April 2006 with all of the Predecessor Group’s customers and suppliers. Our Group commenced our business using the operating assets and inventories we acquired pursuant to this restructuring. The following diagram sets forth the milestones of the JCY Group including those of the Predecessor Group:
7. BUSINESS (cont’d) 7.3.2 Cost competitive producer of high quality HDD mechanical components We believe that we are a leading producer of high quality and cost competitive HDD mechanical components. We operate a vertically integrated, manufacturing platform that is capable of delivering multi-component solutions to meet the needs of our customers. Our low costs are predominantly driven by our scale and efficiency of operations, vertically integrated processes and strategic low cost locations. Due to the scale of our operations and because we are a mUlti-component manufacturer, we believe that we benefit from significant economies of scale as compared tcr our competitors. We believe that our large-scale operations· enaQle us to improve production efficiency through better assembly line co­ordination and specialization of skills. We believe that our scale of operations also helps to secure priority relationships with suppliers of our manufacturing equipment and other machinery, which ~esult in priority delivery, greater bulk discounts; better credit terms and reliability in terms of the· quantity and­quality of supply. Our vertically integrated manufacturing process and utilisation of modern equipment streamline our operations, resulting in lower costs while also enabling us to maintain control over the design, production and quality of the components we manufacture. Our manufacturing facilities also share common material planning and management systems· and have integrated processes. This allows us to adapt qUickly to any changes in our customers’ designs and products. Our vertically integrated manufacturing process also reduces reliance on outsourcing, thus improving quality control methods, leading to higher production yields and lower rejection rates. We have established certain of our manufacturing facilities in strategic low cost locations and in close proximity to our customers. This reduces the overall response time to our customers’ requests and lowers logistics costs. For example, our facilities in Johor, Malacca and Penang in Malaysia are able to support Western Digital’s operations in Petaling Jaya. We also have an inventory hub located in Bangkok and a manufacturing facility in Saraburi to support Western Digital’s operations in Thailand. Once our new PRC manufacturing facilities are completed and fUlly operational, we will be able to efficiently service our existing and potential customers’ operations. We select specific locations for manufacturing in order to achieve the lowest possible cost. For example, certain labour intensive production activities are being undertaken in the PRC. Energy intensive processes such as casting and machining of base plates are undertaken in Malaysia, where energy costs are typically lower. . We believe that our consistently high level of product quality also differentiates us from other manufacturers and creates a barrier to entry for potential new entrants, given the stringent qualification process enforced on component manufacturers by the HDD vendors. As such, we take care to purchase and maintain advanced equipment and processes used in the manufacture of our products. For instance, we continually invest in specialized tools and equipment used in the manufacture of our products. Our Kulai plant in Johor, Malaysia has received the ISO 9001 quality management system· certification and the ISO 14001 environmental management system certification. 65 7. BUSINESS (cont’d) 7.3.3 We are a multi-component producer focused on our core competencies Our products are essential components in HODs. We are a mUlti-component manufacturer with a large scale of operations. According to TRENDFOCUS, most of our competitors either focus on a single component or have diversified to supply components to other non-HOD sectors (see Section 8 of this Prospectus). Our manufacturing platform is suited to meet the changing needs of our customers. Global HOD manufacturers have been streamlining their supplier base and may prefer mUlti-component suppliers because they reduce administrative costs and optimize investment costs from a supplier’s perspective. As a multi-component manufacturer, we are able to optimise our resources (equipment and engineering know-how). As the manufacturing and regulation of the specifications and quality of such components can be done by us, our customers minimise the risk of any complementary components not being able to operate in tandem with each other. Our customers are also assured of a similar level of quality of each HOD mechanical component obtained from us, given the identical level of quality control processes we adopt. Our multi-component capabilities also create opportunities for bundling and cross-selling which help strengthen existing customer relationships and interdependence. A significant advantage of haVing a multi-component business is that we will be able to start producing new products in large quantities to existing customers to drive growth. For example, in 2008, we successfully introduced the antidisc as one of our main products. 7.3.4 Strategic ‘two-way’ relationships with Western Digital and Seagate We have established a long-term strategic relationship with Western Digital since 1994. As one of Western Digital’s key suppliers and preferred contract manufacturers, we have benefited and grown together with Western Digital. In addition to Western Digital, we have been working with and have established a strategic relationship with Seagate since 2006. We have been supplying Seagate with base plates since 2006 and antidiscs since 2008. According to TRENDFOCUS, from 2005 to 2008, Western Digital and Seagate have increased their market share in terms of shipments and for 2008, Western Digital and Seagate had a combined market share of 58.3%. As a preferred strategic supplier, we jointly develop the components with our customers to ensure efficient design for both cost and manufacturing. We believe we are able to do so because our manufacturing processes are highly efficient and the precision components are of high quality. Our strategic long-term relationships with our Key Customers also provide us with visibility into the latest industry trends. This allows us to plan our capital investment and process improvements ahead of our competitors. 7. BUSINESS (cont’d) 7.3.5 High barriers to entry to the HOD mechanical component manufacturing industry The high investment costs and long lead time required to establish a new manufacturing operation as well as the uncertainty of securing customers and production volume are major deterrents to new entrants to this industry. HDD vendors also typically require all of their new third party component manufacturers to undergo stringent qualification processes which take approximately six to 10 months. There is no significant cash inflow to the supplier during the qualification period. The high level of technical expertise required to produce high quality products makes it difficult for new entrants as we believe that vendors generally prefer working with manufacturers with an established track record. We have gone through long and stringent qualification processes with our Key Customers and are currently undergoing the process with Alphana on base plates for Hitachi and Samsung MBAs. We are also continuously working with both Western D:dital and Seagate on their new programmes. Most HDD vendors use JIT inventory management processes, which require them to work closely with their suppliers to ensure timely delivery of supplies. JIT delivery enables these HDD vendors to maintain low inventory levels, hence the strong reliance on incumbent suppliers, like us, to ensure smooth operations and supply. This makes it costly for vendors such as our Key Customers to switch suppliers and difficult for new entrants to enter the industry. 7.3.6 Strong growth opportunities in the near future Our growth opportunities are underpinned by the following key factors: growth in the overall HDD market; growth in our Key Customers’ share of the HDD market; growth in our Key Customers’ procurement needs; expansion of the number of products that we provide to our customers; and expansion of our customer base.
According to TRENDFOCUS, worldwide HDD shipments are expected to increase at a CAGR of 11.6% from 2009 to 2012. This growth is expected to be supported by the growth in the desktop segment and as well as in the mobile and CE segments. In particular, the advent of netbooks and the increased usage of external drives are expected to also contribute to growth in the overall HDD market (see Section 8 of this Prospectus). According to TRENDFOCUS, as of 30 September 2009, in terms of shipment units, the five largest companies in the HDD market accounted for a total of 100.0% of the total HDD market share (assuming that Toshiba and FUjitsu, which was acquired by Toshiba in 2009, are considered as a single entity). We currently supply our products to Western Digital and Seagate, who in the aggregate are expected to account for about 60.3% of the total HDD market share in 2009. Western Digital is estimated to ship a total of 161.8 million units in 2009 representing a growth of 11.9% year-on-year, while its market share is estimated to increase by 2.4% in 2009 to 29.1 %. In the same year, Seagate is estimated to ship a total 173.4 million units, representing year-on­year growth of 1.7%, while its market share is estimated to remain almost the same in 2009 at 31.2%. According to TRENDFOCUS, as the two largest players in the HDD market, our Key Customers continue to benefit from their 7. BUSINESS (cant’d) large-scale operations which enable them to offer comparatively low HOD prices. With our continued expansion of our production capacity and active involvement in the ongoing design and development programs with both Western Digital and Seagate and more recently with Alphana (on base plates for Hitachi and Samsung IVIBAs), we believe we are well positioned to increase our share of our Key Custom~rs’ and as well as other HOD manufacturers’ HOD mechanical component procurement needs. This may include expanding the number of mechanical products (such as disk clamps) that we provide. Japanese and Korean HOD manufacturers have typically sourced components from captive or domestic vendors. Most recently in October/November 2009, we have started working with Alphana on base plates for Hitachi and Samsung MBAs. Currently, we are in the midst of the design and qualification period for these companies. Our future manufacturing facilities in the PRC, together with our current operations in Thailand and Malaysia, will allow us to be in close proximity to potential customers such as the Japanese and Korean HOD manufacturers and potentially enable us to develop a relationship with these manufacturers. 7.3.7 Experienced management team We have an experienced senior management team with an average of over 22 years of management experience and over 16 years of experience in the HOD industry. Our senior management team has played a significant role in the achievement of our Group’s growth and in establishing our Company as a leading HOD mechanical component manufacturer (see Section 9.4 of this Prospectus).
7.4 Our Strategy Our strategy is to continue to build on our strengths as a low cost, high quality, reliable manufacturer of selected HOD mechanical components and to capture a significant share of our customers’ requirements. The key elements of our strategy are as follows: expanding strategic customer relationships and support; investing in capacity expansion; continuously improving production efficiency and lowering costs; and focusing on higher value-add products. 7.4.1 Expanding strategic customer relationships and support We intend to build on our existing strategic relationships with our Key Customers and will continue to focus our attention on our Key Customers to seek new opportunities while continuing to provide them with high. quality precision components. Central to our growth strategy is the expansion of our relationship with Seagate and going forward, Alphana who have recently approached us to manufacture their HOD mechanical components. In 2008, we were qualified and started producing antidiscs for Seagate. 7. BUSINESS (cont’d) 7.4.2 Investing in capacity expansion Capacity is one of the limiting factors to our growth and the expansion of our business with our Key Customers. As such, we have been investing and will continue to invest in capacity expansion to meet an increase in demand for our products by: building new production facilities; and maximising the productivity of existing facilities. We have incurred a total of RM465.5 million on capital expenditure in the last three financial years ended 30 September 2009. We have already invested in a significant expansion of our production facilities in Malaysia and Thailand, which is expected to be completed in 2010. We are also in the process of establishing manufacturing facilities in the PRC to efficiently service our existing and potential customers’ operations. The financing for the expansion will be through internal funds and external borrowings from financial institutions. In addition to building new facilities, we also intend to better utilise our existing factory space to allow for increases in our production capacity. We can increase our base plate production capabilities by modifying the layout of our existing factories. We also have the flexibility to convert some of our existing warehouse/storage spaces, such as the warehouse hub in Thailand, into production areas. Besides redesigning the layout of our existing factories, we also intend to upgrade our existing equipment, which will increase our production capability very quickly. We are in the process of increasing our machine/equipment output capacity by further improving our designs with respect to additional stations and cavities output per machine/equipment. 7.4.3 Continuously improving production efficiency and lowering costs We continue to place an emphasis on the enhancement of production efficiencies through seeking to optimise our production and manufacturing processes, on-going training of our employees, investment in equipment and technology and the location of our manufacturing facilities in low cost centres, such as the PRC. We intend to leverage on our technical expertise through on-going investment in design and development to enhance our current product offerings and develop more efficient manufacturing processes. Currently JCY outsources certain tooling and manufacturing processes such as plating, FIPG, casting, machining, deburring and toolings.We will seek to develop both products and processes in-house, thereby reducing reliance on outsourcing, through the use of sub-components developed and manufactured in-house. We will also engage in joint development projects where necessary, to enhance our ability to focus our design and development investment in areas of strategiC importance. This will enable us to lower unit costs of production and to increase our market share of the HDD mechanical component market.
7. BUSINESS (cont’d) We design, develop and manufacture a variety of base plates for our customers, according to their specifications. This allows our customers to subsequently affix various other components to a base plate, such as the spindle motor, pivot and media, in order to complete the assembly of a HDD. While the basic specifications of each of the products are provided by our customers for their specific end products, we provide input on our customers’ designs to assist with improving the efficiency of such design from a manufacturing and component cost perspective (DFM and DFC inputs). Our manufacturing operations for base plates are fUlly vertically integrated except for certain purchased components. Top Cover Assembly Top covers, which are typically made of stainless steel, are used to protect the HDDs from external contaminants, such as dust. Top covers commonly come with a cover damper for sound attenuation to achieve near-zero operating noise. An FIPG is applied to the top cover to ensure a tight seal between the top cover and the base. We stamp the cover damper, the top cover and apply the FIPG gasket. These parts are then assembled by us to form the top cover assembly. We develop and manufacture a variety of HDD top cover assembly based on our customers’specifications. We manufacture top cover assembly primarily for 3.5 inch and 2.5 inch HDDs. These are similarly customized in accordance with the needs, designs and prices specified by our customers. Our customers provide us with basic specifications for the top cover assembly and we provide input from a DFM and DFC perspective. With the exception of certain outsourced processes (such as a small proportion of FIPG applications because of different raw FIPG gasket materials and processes and also electrolysis nickel plating), our manufacturing operations for top cover assembly are fully vertically integrated. APFA . Actuator arms (together with the suspension arms) move the heads to the desired location on the surface of the platters/media. This positioning movement must be extremely precise and quick because it affects the speed of the drive. The actuator arms are designed with different number of arms to cater to the number of heads required in the HDD. We design, develop and manufacture a variety of APFA for our customers according to their specifications. As in the manufacture of base plates and top cover assembly, we also provide input from a DFM and DFC perspective to our customers. We machine the actuator arm from an extruded bar. We then assemble the actuator arm with components such as pivot, flex circuit and coil flex bracket to form the APFA. Our manufacturing operations for actuator arms and assembly processes for the APFA are fully vertically integrated. Antidiscs The antidisc is a stationary disc separator plate used in HDDs to suppress turbulence near a disk drive read/write head. HDDs typically have multiple disks, and a separator plate is placed between each pair of adjacent disks. Our engineering team works closely with our customers’ designers, providing customers with valuable DFM and DFC inputs. Our input is very important to the customers as it enables the customers to achieve manufacturability of the antidiscs at a competitive cost. We manufacture antidiscs from both extruded aluminium stocks/bars as well as aluminium die casting materials. 71 7. BUSINESS (cont’d)

7.6 Manufacturing Processes 7.6.1 Base Plates Process Flow for Production of Base Plates Customers …
Involvement in product DESIGN AND  design and development  DEVELOPMENT  from a DFCI DFM  perspective  …
Production Process and … Tooling Design I Quality”TOOL MAKING & PlanningEQUIPMENT I Fabrication of Jigs and I Fixtures (In-house) MANUFACTURING I
Die Casting Process Aluminum Ingols BASE PLATE QualityMANUFACTURING Check Smelting Casting Base plate Trimming Base plate Tumbling Base plate Stress Relief Debunring
T E-Coating
I I +
CNC Machining I• I I Aqueous Cleaning 9­I Finished Products I
7. BUSINESS (cont’d) We are involved in each of our customer’s product design and development efforts right from the beginning. When a customer plans to introduce a new· product, it will provide us with the design and drawing specifications. We will review the design from a DFM and DFC perspective, and upon agreement by the customer, produce a prototype for the customer. Following discussions with the customer on the design and dimensioning of the product based on the prototype, we will produce casting moulds and toolings (such as jigs and fixtures) in-house, in accordance with the new product’s specifications. During die casting, raw materials such as aluminium alloy ingots are moulded into the form of the base plate design stipulated by the customer. Every customer has several different designs for different performance and capacity requirements. The process consists mainly of smelting, casting, trimming, tumbling and secondary operations, followed by inspection processes. During smelting, the solid aluminium alloy is melted in a smelting furnace. The molten metal is then transferred to a holding furnace. A transferring device then automatically transfers the molten metal to the die casting machine, injecting it under pressure into a die. The molten metal solidifies to form the base plate with the required specifications. The castings produced are first trimmed in a press to remove excess attachments before they are transferred into tumbling machines, or shot blasted for deburring and smoothening. Secondary operations may be necessary to remove any residual burrs. This is followed by stress relief whereby the castings are baked in an oven and then pre-treated before commencement of E-coating. During E-coating, base plates are coated or primed with electrically charged paint to prevent corrosion. The base plates are first pre-treated using a chemical process that removes oil and contaminants on their surfaces followed by an alodine coating which is a RoHS compliant coating that prevents surface corrosion. The pre-treated base plates are then passed through the electro-deposit process in which they are immersed in electrically charged paint before being channelled into an oven for curing. These base plates are then brought to the machining room for further value-added work. Finally, the castings undergo a VMI for general defects before proceeding to the machining stage during which they undergo precision machining processes in which they are dimensionally shaped by machines through cutting, drilling and milling, or a combination of these processes to achieve the desired dimensions according to customers’ specifications. Precision machining is a key aspect of the production process which provides a high degree of accuracy. We have in operation CNC machining centres that have high speed, high accuracy and repeatability capabilities with multiple tool changing functions, and which allow for high volume production of base plates with tight tolerances. Our qualified engineering personnel carry out the complex programming needed to run the machining CNC machines. 7. BUSINESS (cont’d) We have a conveyor washing line that uses ultrasonic technology to remove the coolant oil and other contaminants on the surface and in the holes of the machined base plates. This process allows for washing, rinsing, blowing dry and hot air within the same line. The parts are then directly conveyed to a clean room for visual and dimensional inspection, after which they are packaged and shipped to customers. 7.6.2 HDD Top Covers Process Flow forProduction of Top Covers
Our involvement in our customers’ product design and development efforts on top cover assembly is similar to that described above for base plates. 7. BUSINESS (cont’d) Stainless steel sheets are stamped into the designed shapes by a high precision stamping machine. These top covers are visually inspected to ensure that they are free of scratches and other defects, and that they meet certain stringent tolerance controls. The stamped top covers are then either passivated or etched to remove surface oil and contaminants. The stamped top covers are then sent for plating, before being sent into a Class 10K clean room for VMI. During the VMI process, the top cover assembly is inspected for defects, such as stains, scratches or dents. The remaining top covers are then loaded into FIPG plotting machines to dispense the gasket material according to the profile of the sealing required. After application of the FIPG, the covers are baked to cure the gasket and remove all volatile gases that may harm the performance of the disk drive. The sealing capacity of the FIPG is then tested in specialised machines. The top covers are washed in a Class 100 washing line, and channelled directly to a Class 100 clean room, where certain other sub-components, such as dampers and filters, are assembled to the top covers. The top cover assembly, which is the final product, is then inspected and vacuum packed with double bags, and shipped to customers. [rhe rest of this page has been intentionally left blank]
7. BUSINESS (cont’d)
7.6.3 APFA APFA Production Process Flow

We are involved in our customers’ product design and development efforts on the APFAs. Our involvement in our customers’ product design and development efforts is similar to our services for base plates and top cover assembly, as described above. DESIGN AND DEVELOPMENT
TOOL MAKING & EQUIPMENT MANUFACTURING
ACTUATOR MANUFACTURING
SECONDARY PROCESSES
Customers Involvement in product design and development from a DFC I DFM perspective
Production Process and Tooling Design I Quality Planning
Fabrication of Jigs and Fabrication of toolings Fixtures (In-house) (In-house) ACAI APFA Process Flow Coil Actuator arm Machining Chemical Polishing Treatment ACA Bonding
ACA Secondary Processes (Arm height tweaking, coil height, FVMI) Product delivery Outgoing Quality Inspection
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7. BUSINESS (cant’d) We manufacture actuator arms by machining extruded aluminium bars using a high speed precision CNC machine, where slitting saws are used to cut the aluminium bars to produce finger-like arms. Chemical polishing technology is then used to remove the minute burrs on actuator arm, which may otherwise cause HOD failures. Copper or aluminium wire coil is then bonded onto the actuator arm to form the ACA. The ACA is then subjected to washing, coil height, fantail profile check, resistance, high-potential test and arm height inspection. The ACA is then assembled with FCOF and the other component such as the flex bracket and pivot to form the APFA. The APFAs are packed in anti-static trays and shipped to customers. [The rest of this page has been intentionally left blank] 7. BUSINESS (cont’d) 7.6.4 Antidiscs Antidiscs Production Process Flow (Machined from die casting parts) DESIGN AND DEVELOPMENT
TOOL MAKING & EQUIPMENT MANUFACTURING
ANTIDISC MANUFACTURING
Fabrication of Jigs and Fixtures (In-house)

Involvement in product design and development from a DFCI DFM perspective
Production Process and Tooling Design I Quality Planning

Product delivery

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7. BUSINESS (cant’d) DESIGN AND DEVELOPMENT
TOOL MAKING & EQUIPMENT MANUFACTURING
ANTIDISC MANUFACTURING Antidiscs Production Process Flow (Machined from extruded bars) Customers ..
Involvement in product design and development from a DFCI DFM perspective …
Production Process and Tooling Design I Quality
9­…. PlanningFabrication of Jigs and Fixtures (In-house) Slit Aluminium extruded bar L…..+ into individual pieces I CNC Machining ) 161 washing Brushing I 2nd washing I EN plating I Crest Washing I
Product Visual Mechanical Inspection delivery
I  ~ Ultrasonic Cleaning  ~  I  Finished Product I  Outgoing Quality Inspection  We machine stock/bar or  the antidiscs either from an aluminium die-casting parts  aluminium depending  extruded on the
customer’s design and requirements. In the aluminium die-casted process, the antidiscs are die-casted from multi-cavities die/mould. The parts are then trimmed, stress­relived and burrs are removed’ before being sent for E-coating. Flatness is then checked by fixtures to ensure the specifications are met before machining. The antidiscs are then ultrasonically washed, followed by a VMI before being packed for shipment. 79 7. BUSINESS (cont’d) The aluminium extruded antidiscs are machined from extruded aluminium stocks/bars. The machined antidiscs are then washed, brushed and sent for EN plating. Plated parts are further washed and finally double vacuumed packed for shipment.

7.7 Quality Control Procedures or Quality Management Programmes Our Group maintains a quality control unit and laboratory at our production facilities to monitor our materials and products for compliance with contract specifications. Our Group generally relies on the product quality history of our long term suppliers. Each shipment of raw materials is typically accompanied by a certificate of compliance. For long term suppliers with established records, certain testing requirements may be reduced. All other incoming materials are controlled upon arrival for quality assurance. Materials not conforming to specified standards are either rejected or conditionally accepted. A supplier corrective action request is issued. to suppliers in the case of a rejection or conditional acceptance, which requires response within one to seven days. Materials suppliers are assessed annually. All in-process and finished products are tested and graded according to specifications. A product release slip is issued for products stating quality and grade, clearing the product for sale. A non-compliance note is issued for products not meeting specifications. Our Group’s Kulai plant in Johor, Malaysia has received the ISO 9001 quality management system certification and the ISO 14001 environmental management system. certification.
7.8 Our Customers Based on direct sales, we derived 64.9% and 21.5% of our total consolidated revenue in the financial year ended 30 September 2009 from Western Digital and Nidec, respectively. Nidec is a MBA supplier to our Key Customers, and as a MBA supplier, Nidec attaches a spindle motor to the base plate (which was typically performed by HDD manufacturers in the past) before delivering its product to Western Digital and Seagate. Since Nidec as an MBA supplier now performs the assembly function for HDD manufacturers, Nidec has been directed by Western Digital and Seagate to acquire the HDD components from the JCY Group. We also sell components to five other MBA suppliers (inclUding Nidec) at the direction of Western Digital or Seagate. As HDD vendors, Western Digital and Seagate direct their other component suppliers to buy certain of our products and direct us to deliver such· products to these suppliers. The price of the products is agreed between Western Digital or Seagate and us. While the sale and purchase of the components is between each of these five companies and us, we depend on Western Digital and Seagate for our relationships with these customers. As a result of our direct and indirect sales (through the MBAs) to Western Digital and Seagate, we consider them our key customers. Western Digital has been a customer of JCY Group’s business since 1994 and Seagate has been a customer of JCY Group’s business since 2006. We sell the full range of our products to Western Digital . and base plates and antidiscs to Seagate. Seagate has recently qualified our top cover assembly. 7. BUSINESS (cont’d) Western Digital and Seagate are leading manufacturers of HDDs and design, develop, manufacture and sell HDDs to original equipment manufacturers for inclusion in computer systems or subsystems and to distributors, resellers and retailers. According to TRENDFOCUS, Western Digital and Seagate have, in terms of the number of units of HDDs delivered in 2008, a market share of 32.0% and 44.1% respectively in 3.5 inch HDD units worldwide, 22.6% and 18.0% respectively in 2.5 inch HDD units worldwide, and 27.0% and 31.6% respectively in all HOD units worldwide. We believe that we have good relationships with our Key Customers (see Section 5.1.1 of this Prospectus). We also believe that our consistently high level of product quality also differentiates us from other manufacturers and creates a barrier to entry for potential new entrants, given the stringent qualification process enforced on component manufacturers by the HDD vendors. Further, most HDD vendors use JIT inventory management processes, which require them to work closely with their suppliers to ensure. timely delivery of supplies. .IIT delivery enables these HDD vendors to maintain low inventory levels, hence the strong reliance on incumbent suppliers, like us, to ensure smooth operations and supply. This makes it costly for vendors such as our Key Customers to switch suppliers and difficult for new entrants to enter the industry, thus strengthening our strategic ‘two-way’ relationships between us and our Key Customers. Our customer relations efforts focus on strengthening our relationships with our Key Customers. Our Group has continued to maintain our strategic business relationship with Western Digital since 1994 and had also managed to include Seagate as one of our Key Customers. The strategic business relationship is currently managed by our key management, mainly by our Strategic Accounts Management Team, comprising two of our Executive Directors, our senior business development managers and key engineers. These managers and engineers work with the design center and formulate the product road map together with our Key Customers’ design and technical team to ensure that a new product can be launched on time. They are also involved in discussions with our Key Customers on their needs and a prequalification process during which we engage in the design and building of prototypes which are tested by our Key Customers. The factory operation team will take over for the mass production of the new product and ensure that the quality as well as the timely delivery of the components manufactured meet the requirements of our Key Customers. Once the product is close to maturity/launch, our Executive Directors will work on the day-to-day volume and pricing and communicate with Seagate and Western Digital on their JIT purchases. With our Strategic Accounts Management Team, who has an in-depth understanding of the components we manufacture, we are able to provide support to our Key Customers in terms of production planning, new component designs and DFC and DFM input and continuously servicing and working closely with our Key Customers, Our Group believes that our relationship management strategy and quality manufacturing support will ensure the continuity of our Group’s business relationship with our Key Customers in the future. We are currently undergoing the prequalification process with Alphana on base plates for Hitachi and Samsung MBAs, and have recently qualified our top covers with Seagate. We believe that our customer relations efforts have been productive and consistent with our strategy to expand strategic customer relationships and support (see Section 7.4.1 of this Prospectus). 81 7. BUSINESS (cont’d) The breakdown of customers contributing 10% or more of our revenue for each of the last three financial years ended 30 September 2009 is as follows: No.  Customers  Percentage Contribution  2007  2008  2009  RM (million)  %  RM (million)  %  RM (million)  %  1  Western  1,388.4  83.7%  1,274.4  69.5%  1,141.3  64.9%  Digital  2  Nidec  204.5  12.3%  360.4  19.6%  378.4  21.5%

7.9 Customer Contracts Our dealings with our Key Customers are generally based on our customers’ purchase orders. The sale and purchase of our products are made pursuant to individual purchase orders, usually issued on a quarterly basis (as adjusted on a weekly basis). Our custom~rs .typically provide advance guidance of their requirements for the following quarter, so that we can plan our production schedule accordingly. The quantity of components set forth in the quarterly advance forecast only provides an estimate of our customer’s quarterly requirements of certain components, and are subject to adjustment by our customers on a weekly basis. The actual quantity of components that we sell to any customer in a given period may be less than, or may exceed, the quantity stated in the purchase orders. The prices of the various components are negotiated and agreed between us and our customers prior to the issue of the purchase orders by such customers, and will apply to all components sold within the agreed period. The initial prices of our various components are driven by the manufacturing processes required for such components, and are largely determined after discussions between the appropriate representatives of our customers, who provide the initial component design specifications and volume estimates, and our senior business development managers and key engineers, who provide input from a DFM and DFC perspective. After agreeing on the final component prices with our customers, we may adjust the initial prices to reflect fluctuations in raw material prices, manufacturing processes or design modifications. We may also agree to provide pre-agreed quantity or bulk discounts under certain circumstances. The terms and conditions of the arrangements under which we supply our products to our customers generally favour our customers. Each purchase order sets forth the general terms and conditions governing the sale of our products and the quantity and price in respect of each component. Generally, we are required to warrant that our products are free of defects in materials, workmanship and design, and that our products will be fit for the purposes of our customers for the duration set forth in the purchase order. During the warranty period, we are also obliged at the option of our customers, to replace any defective products or to refund the purchase price of any rejected products. We may also be required to indemnify our customers against all claims, suits, liabilities, damages, costs and expenses under certain circumstances. We do not have insurance covering us against product liability claims, and if any of our products are defective, our customers could make claims against us for such defective products or for consequential damage arising from such defective products (see Section 5.1.8 of this Prospectus). Certain of our purchase orders state that we should maintain employer’s liability and general commercial liability insurance with coverage of which may be higher than the coverage we maintain. 7. BUSINESS (cont’d) Our manufactured products are transported to logistics hubs located in Petaling Jaya, Malaysia or Bangkok, Thailand for collection by our customers on a JIT basis. These hubs are managed either by our customers or by independent third parties. We bear the risks relating to any loss or damage to our products during the period of their storage at such logistics hubs, although the operators are required to obtain insurance in relation to all property stored within the hubs. The risks relating to loss or damage to our products pass to our customers upon their taking delivery of such products by taking our products out of the logistics hub. We usually receive payment for our products within 45 to 60 days after our customers take delivery. Payments for our products are usually made in batches, typically on a fortnightly basis.
7.10 Supply Arrangements Our manufacturing operations require us to use raw materials such as aluminium ingots, aluminium. extruded bars, stainless steel as well as HDD sub-components, including FCBs, chips and pivots. We have established strategic relationships with our key suppliers of raw materials such as aluminium ingots, aluminium extruded bars and stainless steel, which are commodity products. The prices at which we purchase such raw materials are generally dependent on their prevailing market prices and we do not enjoy any quantity or bulk discounts. However, our relationship with our suppliers generally affords us priority in obtaining supplies of raw materials, even in instances where such materials may be in short supply. We have similarly established strategic relationships with our key suppliers of manufacturing and other equipment. As a result, we enjoy competitive pricing terms and favourable credit terms in respect of the manufacturing equipment we purchase, as well as priority access to certain new machinery and technology. We purchase our HDD sub-components for the manufacture of APFA (such as FCBs) from approved third party vendors selected by our Key Customers, with the pricing and other key terms predetermined by such Key Customers. The cost of such sub­components is generally passed through to our customers and we do not bear any significant risk of price fluctuations. We order raw materials and HDD sub-components from our suppliers through purchase orders on an as-needed basis, based on our customers’ purchase orders and forecasts. Our purchase orders typically specify the type and quantity of raw materials or sub-components required and the price of such raw materials or sub­components, which is arrived at in the manner described above. We do· not have long-term contracts with any of our suppliers. In general, we have not encountered any problems with our suppliers with respect to the delivery or quality of raw materials or HDD sub-components. We believe that we have good relationships with our suppliers. 7. BUSINESS (cont’d) Based on the aggregate value of our purchases, none of our suppliers of raw materials accounted for more than 10.0% of such purchases during each of the past three financial years ended 30 September 2009. Our top three suppliers of raw materials are Sumitomo Electric Interconnect, NSK Micro Precision Co., Ltd and Ye Chiu Metal Smelting Sdn. Bhd. We believe that we are not dependant on these suppliers of raw materials as the raw materials supplied are commodities which we can source from alternative suppliers. Our major suppliers of manufacturing and other equipment that accounted for more than 10.0% of such purchases, based on the aggregate value of our purchases of plant, machinery and equipment during each of the past three financial years ended 30 September 2009, are set forth below: Name of Manufacturing and Other Percentage value of purchases Duration of Equipment Supplier 2007 2008 2009 Relationship Shinapex Co., Ltd 46.0% 47.6% 37.1% 12 years Toshiba Machine S.E. Asia Pte. Ltd. -* -* 18.5% 12 years Note: Less than 10.0% We also rely on public utilities, primarily in the form of electricity and water in Johor, Malacca and Penang which are supplied by Tenaga Nasional Berhad (in respect of electricity in Johor, Malacca and Penang), Jabatan Bekalan Air, Johor (the Johor Water Supply Department, in respect of water in Johor), the Public Works Department of Melaka (in respect of water in Malacca) and Perbadanan Bekalan Air Pulau Pinang Sdn Bhd (the Penang Water Supply Corporation, in respect of water in Penang), electricity in Thailand, which is supplied by Provincial Electricity Authority of Thailand and electricity in Suzhou, PRC, which is supplied by Suzhou Electricity Supply Co. (see Section 5.1.13 of this Prospectus).
7.11 Manufacturing Facilities and Properties Our operational strategy is to provide production facilities in close proximity to our customer base. See Annexure A for a summary of properties owned, leased or occupied by our Group. Our manufacturing process is vertically integrated and utilises modern equipment, thus lowering costs and making operations more efficient and allOWing it to have better control over the design, production and quality of its components. [The rest of this page has been intentionally left blank]
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7. BUSINESS (cont’d) The following table sets forth a summary of our production facilities as of 30 September 2009: Gross  Number of  Components  Gross Factory  Administrative  employees/  manufactured/  Floor Area  Area  contract  Location  Plant  Process  (sq ft)  (sg ft)  workers  Malaysia:  Johor  Tebrau  Base plates, top  667,312  26,628  8,678  cover, actuators  Pasir Gudang  Plating  30,699  2,497  161  Kulai  Base plates,  92,368  10,172  3,100  actuators  Malacca  Jasin  Base plates  64,036  10,333  629  (VMI/HUB)  Penang  Prai 1 and 2  Actuators  126.600  20.400  4,009  Subtotal  981,015  70,030  16,577  Thailand  Saraburi P1  Base plates  96,783  6,398  2,090  & P2  PRC Total  Suzhou P1 (1)  Machining  78.577 1,156375  5.382 81.810  952 19.61912}
Notes.’ (1) The existing plant has not been qualified by Western Digital. Products manufactured at this facility are shipped to our plants in Johor Bahru and Penang to complete the manufacturing process. Western Digital will be invited to carry out its qualification test on our new Suzhou plant in the PRC once the plant is set up and fully operational.
(2) The total number of employees does not include the number of employees in Singapore as we have no production facilities in Singapore.

The capacity of our manufacturing facilities varies with changes in the product mix. Based on the product mix for the quarter ended 30 September 2009, our total capacity was approximately 98.0 million components for the quarter and our utilisation for the same period was approximately 86.0%. The utilisation rate was affected by the shortage of labour at that point in time. The following table sets forth a summary of our production facilities that we expect will be completed in the first half of 2010: Gross Gross Factory Administrative Components Floor Area Area Location Plant manufactured/Process (s9 ft) (sg ft) Malaysia Prai, Penang Actuator Assembly 100,200 800 PRe Suzhou Actuators (Machining) 215,500 85,000 Guangzhou(1) Actuators (Machining) (2)’156,700 (2)’25,000 Total 472,500 110.800 Notes: (1) The land on which the Guangzhou plant will be situated is leased from YK Technology (Foshan) Co. Ltd, a company wholly-owned indirectly by YKY Investments.
(2) The factory is currently being constructed. These estimates are based on gross area only.

7. BUSINESS (cont’d) Once fully operational, we expect that our operations at our current Suzhou plant (together with all of the workers) will be entirely transferred to our new Suzhou plant. Our rationale for setting up the new Suzhou plant is to cater to the expected demand growth of our Key Customers. Our Guangzhou plant is to be set up to take advantage of lower labour costs, to cater for the potential customers in the region, as well as to cost effectively transport manufactured products back to Malaysia due to the close proximity of a port to the said Guangzhou facility. The new plants will have to be qualified by our Key Customers. In the event the qualification by our Key Customers is not obtained in a timely manner, the timing of commencement of operations may be affected. We have Class 100, Class 10K clean rooms and Class 100 washing lines which are required for the manufacture and production of our various HDD mechanical components, in most of our manufacturing facilities. Our facilities are laid out to enable flexible production and ability to add capacity quickly. Facilities are located within the same locations or geographically proximate locations; therefore, reducing transportation and packaging Costs. Our manufacturing facilities generally operate on the basis of two 12-hour shifts per day, and we schedule regular preventative maintenance work. Production/operating capacities are, among others, constrained by the size of the production facilities and availability of workers.
7.12 Employees I Contract Workers As of 30 September 2009, we employed 4,117 permanent employees worldwide, comprising a total of 1,048 permanent employees in Malaysia and 3,069 permanent . employees in the PRC and elsewhere. In addition, we engage contract workers . through our sub-contractors, aggregating a total of 15,529 contract workers in Malaysia as of 30 September 2009. Our management, supervisory and administrative staff are permanent employees, and our machine operators are primarily contract workers. All the requisite documentary and other legal requirements for the engagement of contract workers, including the application for work permits, are obtained by our sub-contractors, who assume the role of employers to such contract workers. Our operating subsidiaries render payment of service fees to these sub­contractors on a monthly basis, which are calculated based on the number of contract workers supplied and their respective man-hours for such period. We consider our qualified and motivated employees to be a key factor in our business success. Our future success will depend on our continued ability to attract, retain and motivate highly qualified engineering personnel, for whom competition is intense. Our employees are not represented by any collective bargaining organisation and our operating subsidiaries have never experienced a work stoppage except as disclosed in’ Section 5.1.15 of this Prospectus. We believe that our relations with our employees are good. 7. BUSINESS (cant’d) The following table shows the number of our permanent employees and contract workers as of the dates indicated: As of 30 September 2007 2008 2009 Operations (Employees) 988 2,550 3,618 Operations (Contract Worker.s) 14,958 17,715 15,529 General and administration (Employees) 395 428 499 Total 16,341 20,693 19,646 As of 30 September 2007 2008 2009 Total employees in Malaysia 668 690 1,048 Total contract workers in Malaysia 14,958 17,715 15,529 Total employees in Singapore 32 29 27 Total employees in Thailand 2 1,602 2,090 Total employees in PRe 681 657 952 Total 16,341 20,693 19,646 Other than contributions made to the Employees Provident Fund as required under Malaysian law, our Group does no.t have in place any pension, retirement or similar benefits for our employees. We are regulated by, and are in compliance with all Malaysian employment regulations, including the Employment Act 1981 of Malaysia and the Employment Regulations 1957. Our subsidiary in the PRC is regulated by the major labour laws and regulations in the PRC including the Labour Contract Law, the Implementing Regulations of the PRC on Labour Contract Law, the Labour Law of the PRC, the Law of the PRC on Mediation and Arbitration of Labour Disputes and the Trade Union Law. Our sUbsidiary in Thailand is similarly regulated in this area by laws and regulations such as the Labour Protection Act BE 2541 (1998), Labour Relations Act B.E. 2518 (AD. 1975) and Workmen’s Compensation Act B.E. 2537 (AD. 1994). Our Directors are not aware of the existence of any breach of any of the above mentioned regulations by us that would have a material adverse effect on us.
7.13 Training and Development Programmes The Human Resource Department provides a structured approach for the training and development of our Group’s employees by aiming to link the capabilities required to implement our Group’s business strategies to individual training needs to ensure that the employees have the requisite skills and knowledge. Some of the training and development programmes attended by our Group’s employees in the year 2008 and on-going for the year 2009 include: • 5S for Quality Environment training in relation to good house-keeping and workplace organisation;
• 7QC Toots training in relation to efficient and effective problem solving methods;
• LEAN Manufacturing in relation to tools and techniques to achieve effective results; and
• Understanding &Implementing an effective OHSAS 18001 Management System in relation to implementing and integrating such management system into daily business activities.

7. BUSINESS (cont’d)
7.14 Insurance We. maintain all risks industrial insurance for our manufacturing facilities, equipment and inventories. The insurance for our manufacturing facilities and our equipment covers physical damage and consequential losses from certain other risks up to our respective policy limits except for exclusions as defined in the policy. We also maintain public liability insurance for losses to others arising from our business operations and actions by our employees. In addition, we also maintain burglary policy and workmen’s compensation insurance. Significant damage to any of our manufacturing facilities, whether as a result of fire or other causes,could materially and adversely affect us. We do not insure against the loss of key personnel (see Section 5.1.9 of this Prospectus).
7.15 Design and Development Our design and development activities started in 1997 in connection with .the manufacture of HDD mechanical components: Ourde’sign and· development program is focused on the development of new and enhanced DFM and DFC processes, which seek to support emerging technologies and designs in the HDD industry. Details of the technologies, software and tools used as part of our design and development activities are as follows: • Magma mould flow simulation software -simulates the molten materials flow in mold during high temperature operating conditions. This software enables us to optimise mold flow design;
• Solid works premium software -which we use to assist us in optimising our design in fixtures and automation;
• Anca and Rollermatic cutter grinder -optimisation of customised cutter design;
• Scanning Electron Microscope (“SEM”) -analyses the plating quality ena.bling us to optimise our plating operations; and
• Higher precision CNC machine -tool which we use to produce new product prototyping through co-design and development with our customers.

We currently carry out our design and development activities in Johor and Penang, Malaysia. Through our experience, we have developed new conceptual designs and processes for manufacturing that complement our customers’ core needs and objectives, with the primary intention of enhancing the specifications of our customers’ products to enable their integration with other components during the assembly of a HDp unit. In the past, we have undertaken significant design and development efforts each year, in addition to a number of smaller design and development projects. We review the status of all of our active design and development projects annually and make adjustments to the investment levels of these projects as needed. The amount spent on the design and development activities was approximately 1% of revenue for each of the three financial years ended 30 September 2009. 7. BUSINESS (cont’d) We believe that our future success will depend in part on our ability to continue to deliver efficient DFM and DFC processes to our Key Customers. We maintain close long-term relationships with leading companies in the HDD industry, including our Key Customers and suppliers, in order to develop our manufacturing processes to meet specific customer requirements. 7.16 Intellectual Property We have documented internal processes for the management and protection of our customers’ intellectual property. These include employee and contractor supplier agreements and non-disclosure agreements. We sell the majority of our components to Western Digital and Seagate, who incorporate them into their own branded HDDs. As a result, branding is not an important aspect of our business. We currently trade under the”JCY” and “PCA” names and marks, but have not and do not intend to register these names and marks. Save as discussed above, there are no brand names, patents, trade marks, licenses, technical assistance agreements, franchises and other intellectual property rights pertaining to, or licensed by or from the JCY Group. 7.17 Safety We employ extensive safety procedures designed to ensure the safety of our workers, our assets, the public and the environment. We have in place safety procedures to minimise the occurrence of accidents and to emphasise work place safety. It is our corporate policy that in the event of any conflict between the progress of work and safety or environmental concerns, the safety of our employees and workers, equipment and third parties and preservation of the environment are paramount. We provide our employees and workers with comprehensive training in safety and environmental related matters. Government officials make both scheduled and random checks at our operating facilities to ensure that safety procedures are being followed. Our activities are regulated by Malaysian laws and regulations, including the Factories and Machineries Act 1967 of Malaysia and the Occupational Safety and Health Act 1994 of Malaysia. We are also regulated by the occupational safety laws and regulations of the PRC including the Production Safety Law, the Regulations on the Reporting, Investigation and Disposition of Work Safety Accidents, the Measures for Reporting and Dealing with the Production Safety Incidents, the Regulation on Work-Related Injury Insurances and the Occupational Disease Prevention Law. In Thailand, we are regUlated by laws and regulations which include the Factory Act B.E. 2535 (1993), Labour Protection Act BE 2541 (1998) and the Public Health Act BE 2535 (1992). Our Directors are not aware of the existence of any breach of any such regulations by our Company and its subsidiaries that would have a material adverse effect on us. 7. BUSINESS (cont’d)
7.18 Environmental Matters We have in place procedures designed to protect and preserve the environment and to minimise pollution. We subject all our waste products (such as waste water) to treatment and processing. We also engage accredited waste disposal sub­contractors, such as Kualiti Alam Sdn. Bhd. (in respect of our waste products in Malaysia) to process and dispose of all waste products that we are unable to adequately treat. From time to time, there may be incidents of violations of environmental regulations (see Section 5.1.13 of this Prospectus). In April 2001, our Kulai plant in Johor, Malaysia was awarded the ISO 14001 environmental management system certification. Our Malaysian operations are subject to Malaysian laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection, including the Environmental Quality Act 1974 of Malaysia. We have one waste treatment plant for our manufacturing operations in Tebrau, Johor Bahru, and are currently in the midst of constructing a second waste treatment plant. The second waste treatment plant is expected to be completed by April 2010 and we believe that the second plant would be sufficient to mitigate any environmental issues in respect of the waste from our plant, subject to the confirmation of the DOE. We are also subject to environmental laws and regulations in the PRC in respect of our operations in Suzhou, PRC. The major environmental laws and regulations applicable include the Environmental Protection Law, the Water Pollution Prevention Law, the Atmospheric Pollution Prevention Law, the Environmental Noise Pollution Prevention and the Environmental Impact Assessment Law. To date, we have not breached any environmental laws in the PRC. We will continue to monitor and ensure full compliance with the environmental laws. Our operations in Saraburi, Thailand are subject to environmental laws and regulations such as the Environment Protection and Conservation Act B.E.2535. The Saraburi Industrial Park, where our subsidiary, JCY HDD Thailand currently operates, has an existing waste treatment facility which treats the waste water of the manufacturing facilities within the aforesaid industrial park. We are also currently planning the construction of our own waste treatment plant for our manufacturing facility there. Our Directors are not aware of the existence of any breach of any such regulations by our Company and its subsidiaries that would have a material adverse effect on us.
7.19 Competition The HDD industry is a capital intensive industry with significant price competition. New entrants to this industry would require significant investment in specialised tooling and manufacturing equipment, as well as a skilled labour force. Furthermore, the pre-qualification process that new entrants would need to undergo to be awarded orders from HDD companies is time-consuming. In many instances, the qualification process could take up to six to 10 months, and part of the cost of such process would have to be borne by the entrant (see Section 5.1.11 and Section 8 of this Prospectus on the HDD Value Chain Overview). 7. BUSINESS (cant’d) 7.20 Legal Proceedings From time to time, we may become involved in legal proceedings relating to claims arising out of our operations in the normal course of business. Neither we nor our subsidiaries, at the date of this Prospectus, are engaged in any material litigation, whether as plaintiff or defendant, and our Directors do not know of any proceedings pending or threatened or of any fact likely to give rise to any proceedings which might materially and adversely affect the financial position or business of our Group. 7.21 Interruptions to Business for the Past 12 months There was no interruption to our Company’s business and operations which had a significant effect on our operations in the 12 months preceding the LPD (see Section 5.1.16 of this Prospectus). 7.22 Approvals, Major Licenses and Permits of Our Group 7.22.1 JCY The table below sets forth the approvals, major licenses and permits of our Company as at the LPD. Nature of Date of Issuel approvals, Issuing Effective Date licence and Equity and other material terms Status of Authority and Expiry permits and conditions imposed compliance MDC Date of issue: MSC status Complete business registration Complied 12 January certificate as a locally incorporated 2006 company within a month from date of letter, Le., 12 January 2006. Establish HDD Design & Noted~ Development Centre in Designated Cybercity with office space requirement of 10,000 sq ft within six (6) months from 12 January 2006. Minimum 15% of total Complied employees (excluding support staff) of our Company shall be knowledge workers. Products produced are original Complied and not in infringement/violation of intellectual property or proprietary rights. Submit to MDC copy of our Complied Company’s Annual Report and Audited Statement in parallel with submission to the Companies Commission of Malaysia. 7. BUSINESS (cont’d) Nature of Date of Issue/ approvals, Issuing Effective Date licence and Equity and other material terms Status of Authority and Expiry permits and conditions imposed compliance To inform MDC of any change Noted in equity/shareholding structure prior to making such changes. To obtain the prior approval for Noted proposed change in name. Compliance with all statutory, Noted regulatory and/or licensing requirements. Note: MDC granted an extension on 17 May 2006 to JCY to locate in an MSC designated Cybercity by 1 September 2006 and noted via its letter on 24 July 2006 thatJCY intends to take up an office space of 5,000 square feet. MDC further stated that upon receipt of the tenancy agreement MDC will be able to confirm that JCY has met its MSC Malaysia relocation requirements. We have notified MDC on 18 August 2006 that we have entered into a tenancy agreement for an office space of 7,306 sq ft in a Designated Cybercity. We have received a response from MDC on 7 September 2007 . acknowledging the tenancy and reminding JCY that the implementation and operation of the company’s principal MSC qualifying activities should be located at and undertaken from the MSC designated Cybercity or Cybercentre at all times. 7.22.2 JCY HOD Malaysia The table below sets forth the approvals, major licenses and permits of JCY HDD Malaysia as at the LPD. Nature of Date of Issue/ approvals, Issuing Effective Date licence and Equity and other material terms Status of Authority and Expiry permits and conditions imposed compliance MIDA Issue date: Exemption Total additional investment in Complied 28 November from taxation fixed assets (excluding land) of at 2005 least RM240 million in a period of three  years commencing  on  or  Expiry date:  before 30 June 2006;  For 10 years  effective on the  – JCY  HDD  Malaysia  has  to  Complied  date to be  manufacture  components,  parts  fixed by MITI  and  modules for HDD including  HDD  with  capacities  above  60  GB and 80 GB; and  Complied  – The ratio of staff with qualifications  in  degrees  in  the  science  and  technical fields,  or  diploma with  experience of at least five years  in related fields, has to be at least  7% of the total labour force.
7. BUSINESS (cont’d) Nature of  Date of Issuel  approvals,  Issuing  Effective Date  licence and  Equity and  other  material  terms  Status of  Authority  and Expiry  permits  and conditions imposed  compliance  MITI  Issue date:  Manufacturing  – Sales  of  JCY  HDD  Malaysia’s  Noted  28 April 2006  licences  shares must be notified to MITI;  Effective date :  -. JCY HDD Malaysia is required to  Complied  19 October  train residents of Malaysia so that  2005  the  transfer  of  technology  and  skills  can  be  channelled  to  all  position levels; and  -JCY  HDD  Malaysia  has  to  Complied  implement  the  project  as  approved and in accordance with  the  laws,  and  the  rules  and  regulations in Malaysia.  7.22.3  QB Technology (Malaysia)
The table below sets forth the approvals, major licenses and permits of as Technology (Malaysia) as at the LPD. Nature of Date of Issuel approvals, Issuing Effective Date licence and Equity and other material terms Status of Authority and Expiry permits and conditions imposed compliance MITI Issue date: Manufacturing The composition of the board Complied 13 December licence of directors of OS Technology 2001 (Malaysia) shall in general reflect the equity structure of Effective Date: OS Technology (Malaysia). 10 October MITI shall be informed in 2001 respect of any appointment of director or any change in the board of directors. OS Technology (Malaysia) Noted shall appoint or train Malaysian citizens in order to reflect the composition of the different races in every level of employee structure. Should OS Technology Noted (Malaysia) decide to purchase used machineries, prior written approval has to be obtained from MITI and valuation has to be conducted by independent valuer approved by MITI. In addition, MITI has to grant the approval prior to any intention to change, increase or reduce those machineries which will result in significant change on the workforce and/or production. 7. BUSINESS (cant’d) Nature of  Date of Issuel  approvals,  Issuing  Effective Date  licence and  Equity and other material terms  Status of  Authority  and Expiry  permits  and conditions imposed  compliance  as Technology (Malaysia)  Noted  shall as far as practicable, use  services which are locally  owned by Malaysian  entrepreneurs in the National  Development Policy.  as Technology (Malaysia) is  Noted  required to obtain prior written  approval from MITI before  signing any agreement on the  technology transfer from  foreigners for the following:  (i) Joint venture  agreements;  (ii) Technical assistance  and know how  agreements;  (iii) Licensing agreements;  (iv) Trademark and patents  agreements;  (v) Turnkey contract  agreements; and  (vi) Management  agreements.  The above condition is not  applicable for the purchase of  machineries which requires  technical services from  manufacturers to supervise  and ensure full commissioning  of the machineries.  The goods manufactured by  Complied  as Technology (Malaysia) are  required to achieve the quality  accepted by the Malaysian  Government.  as Technology (Malaysia) is  Complied  required to manage the  projects in accordance to all  the above-mentioned  conditions and to comply with  the laws and other regulations  in Malaysia  MITI  Issue dates:  Manufacturing  MITI has to be informed  Noted  20 October  licences  Inotified in relation to any sale  2006 and 2  of as Technology (Malaysia)’s  August 2007  shares.  Effective Date:  as Technology (Malaysia)  Complied  2 August 2006  must give training to Malaysian  and 17 May  workers so that there would be  2007  technology and expertise  transfer.
7. BUSINESS (cont’d) Nature of  Date of Issuel  approvals,  Issuing  Effective Date  licence and  Equity  and  other  material  terms  Status of  Authority  and Expiry  permits  and conditions imposed  compliance
7.22.4 Issuing Authority QB Technology (Malaysia) Complied must execute and carry out its projects as approved and in accordance with the laws and regulations in Malaysia In addition to the above, certain approvals, certificates and registrations have been issued in the name of the Predecessor Group in relation to assets acquired by our Group under the restructuring exercise in 2006.
JCY HDD Thailand The table below sets forth the approvals, major licenses and permits of JCY HDD Thailand as at the LPD. Nature of  Date of Issuel  approvals,  Effective Date  licence and  Equity  and  other  material terms Status of  and Expiry  permits  and conditions imposed  compliance
Board of  28 March 2007  Promotional  Investment  Certificate  (00801″)  issued by BOI  to grant tax  privileges and  non-tax  benefits for  promoted  businesses
Registered capital shall be not  Complied  less Thai Baht 200,000,000  The business operation shall  Complied  be conformed with the approval  of promoted business as  follows  ~) Type of product: metal part  for HDD i.e. base plate  (ii) Size of business: metal  manufacturing for HDD i.e.  base plate 60,000,000  pieces per annum Working  hour: 24 hours per day: 360  days per year) By-product is  disposal or waste from the  production process  The investment capital  Complied  excluding cost of land and  working capital shall not less  than Thai Baht 1,000,000.  The corporate income tax  Complied  which is exempted under  Section 31 paragraph 1 and 3  shall not exceed amount of  Thai Baht 691,113,000.00.  However such amount shall be  amended upon the investment  capital excluding cost of land  and working capital calculated  as of the commenced date of  operation.
7. BUSINESS (cont’d) 7. BUSINESS (cant’d) 7. BUSINESS (cont’d) Nature of  Date of Issue/  approvals,  Issuing  Effective Date  licence and  Equity and other material terms  Status of  Authority  and Expiry  permits  and conditions imposed  compliance  The promoted person shall  Complied  obtain ISO 9000 certification or  other equivalent international  standards within 2 years after  commencing operations. If the  promoted person cannot  perform such obligation within  specified period, the rights and  benefits of corporate income  tax’s exemption shall be  revoked for 1 year.  The factory must be located at  Complied  the industrial area of the SIL  Industrial Co., Ltd., Saraburi  province.  Subject to Sections 25 and 26  Complied  of the BOI Act, the promoted  person shall not allow such  foreign skilled workers and  experts to perform or  undertake any duty other than  positions as approved by the  Board of Investment Office (the  “Office”)  When any skilled worker or  Noted  expert vacates his/her position,  the Office shall be notified  thereof within 15 days as from  the date of his/her vacancy  The promoted person shall  Noted  urgently train and support Thai  employees to perform their  duties on the promoted project  to replace the foreign skilled  workers and experts within the  period provided by the Office  The promoted. person shall  Noted  report the performance of the  training provided by the foreign  skilled workers and experts to  Thai employees in accordance  with the form and procedure  specified by the Office  Subject to Section 27 of the  Complied  BOI Act, the land on which a  title is granted shall be used  only for an engagement of the  promoted activity
Nature of  Date of Issuel  approvals,  Issuing  Effective Date  licence and  Equity and other material terms  Status of  Authority  and Expiry  permits  and conditions imposed  compliance  The rights under sections 28  n.a.  and 29 of the 801 Act shall be  exercised as follows:  (i) With regard to imported  machineries subject to  bank guarantee, the  promoted person shall  submit to the Office the list  of machineries for which  exemption from import  duties is applied in  accordance with the form,  procedures and conditions  specified by the Office for  ~  approval within one year  following the expiry date of  the period of importation.  Upon expiration the of said  one year period, the Office  will revoke the rights and  benefits of such exemption  from import duties on the  imported machines and  subject to the bank  guarantee against such  imports;  (ii) The machineries  Complied  exempted or reduced from  import duties shall be used  only for the promoted  activity specified herein;  and  (iii) The machineries  exempted from import  duties shall not be  mortgaged, disposed of,  transferred, leased, or  allowed other persons to  use.  • In case that there is  Noted  any claim for  enforcement of  mortgage against the  machineries, the  promoted person shall  inform the Office  within 15 days from  the date of the court  accepts the complaint.  If the duty on  mortgaged  machineries tax  cannot be fully paid in  accordance with  Section 42 of the 801  Act, the promoted  person shall be liable  for the mortgaged
Nature of  Date of Issuel  approvals,  Issuing  Effective Date  licence and  Equity and other material terms  Status of  Authority  and Expiry  permits  and conditions imposed  compliance  machineries tax until  completion in  accordance with the  law on customs tariff.  • To transfer any  Noted  machinery for the  purpose of leasing or  hire-purchase  agreement, the  promoted person shall  perform in compliance  with the regulations  specified by the  Office.  Subject to Section 30 of the BOI  Complied  Act, raw or essential material  must only use for the promoted  activity and shall be filed for an  approval for importation of not  less than two months prior to  import of such raw or essential  material  Subject to Section 31 of the BOI  Complied  Act, the income and expense  accounts of the promoted  business shall be separated  from all other businesses in  order to properly calculate the  net profit which is exempted  from corporate income tax  derived from the promoted  activity  Subject to Section 36 (1) of the  Complied  BOI Act, raw material or  necessary material must be  used for producing, mixing, or  assembling for exporting  purpose and for the promoted  activity  The promoted person shall  Complied  notify the operation of Project to  the Office due at 6 months, one  year, and two years from the  BOI certificate being issued  Once the Project starts  operating, the promoted person  shall report the result of  business activity of the Project  and business procedure to the  Office as follows:  (i) For every change of ratio of  Complied  shareholdings between Thai  and foreign shareholders
7. BUSINESS (cont’d) 7. BUSINESS (cont’d) Nature of  Date of Issuel  approvals,  Issuing  Effective Date  licence and  Equity and other material terms  Status of  Authority  and Expiry  permits  and conditions imposed  compliance  and changing of  shareholding among  foreigner of different  nationalities;  (ii) Financial status and  Complied  performance of the business  activity as required by the  Office as of 31st July  annually; and  (iii) Any other business from time  Noted  to time as required by the  Office within specified  period.  The promoted person shall  Complied  incorporate appropriate  measures for the prevention and  control of harmful effects to the  quality of the environment or to  prevent harmful effects which  may affect to neighbourhood  with an approval and consent  from the related authorities  The promoted person shall  Complied  perform in compliance with other  relevant laws  Ceasing of business operation  Noted  exceeding two months shall  require a written permission  from the Office  The promoted person shall  Complied  facilitate the BOI’s inspector  officer  The manufacturing procedure or  Complied  services shall conform with the  approved project which is  proposed to the Office.  Department  1 April 2008  Certificate of  Quality of the wastewater shall  Complied  of Industrial  Engaging in  have to comply with standard  Works, of  the Factory  criteria as stipulated by the  Ministry of  Operation in  industrial zone.  Industry  the Industrial  Zone  If the company fails to comply  Complied  according to  with standard criteria, or is  the Factory Act  contaminated with chemical  B.E. 2535, as  substance, or heavy metal, a  amended  preliminary wastewater system  shall be provided to improve the  quality of water to meet the  standard first.
Nature of  Date of Issuel  approvals,  Issuing  Effective Date  licence and  Equity and  other  material  terms  Status of  Authority  and Expiry  permits  and conditions imposed  compliance  If  the  common  wastewater  Noted  system of the industrial zone is  not in service, the factory shall  have  to  provide  its  own  wastewater  treatment  system  with sufficient size and quality to  improve  the  factory’s  whole  wastewater  system  throughout  working  hours  to  meet  the  (Ministry  of  Industry  Announcement  No.2,  1992),  which is promulgated in line with  Factory Act 1992  In  case  the business operation  Not applicable  produces  air  pollutants,  a  ·.(“n.a.”)  system  for  the  elimination  of  dust  and/or  soot  and  smoke  and/or  paint  spray  and/or  vaporized  chemical  substance  and/or fumed lead incurred from  production  procedures  which  suffice in size and quality must  be provided and must shall not  cause trouble or any risk that is  detrimental to operators or local  residents in the vicinity  Sewage  or  discarded materials  Complied  shall  comply with Ministry  of  Industry Announcement  on  the  Refuse  or  Discarded  Materials  Disposal 2005  The 801  16 January  Permit to Own  n.a.  n.a  Office  2008  Land
7. BUSINESS (cant’d) 7.22.5  YK Technology Suzhou  Issuing Authority  Date of Issue! Effective Date and Expiry  Nature of approvals, licence and permits  Equity and other material terms and conditions imposed  Status of compliance  Jiangsu Suzhou Industrial and Commercial Bureau  Date of issue: 17 November 2008 Expiry date: 30 August 2054  Business License Enterprise -Registration  n.a.  The People’s Govemment of Jiangsu Province  Date of issue: 26 July 2007  Certificate of Approval Enterprise -Incorporation  n.a.  Jiangsu Suzhou Wuzhong State Taxation Bureau & Suzhou Wuzhong Local Taxation Bureau  Date of issue: 21 November 2008  Tax Registration Certificate Certificate -Taxation  n.a.  Suzhou Foreign Exchange Bureau  Date of issue: 7 July 2008  Certificate of Foreign Exchange Registration Certificate -Foreign Exchange  n.a.  Environmental Protection Bureau of Wuzhong District, Suzhou  Date of issue: 28 May 2008 Expiry date: 27 May 2010  Pollution Discharge Permit License ­Environmental Protection  n.a.  Suzhou Municipal Foreign Trade and Economic Cooperation Bureau  Date of issue: 3 July 2009 Expiry date: 31 July 2010  Approval Certificate for Processing Trade  n.a.  7.23  Regulation in Malaysia affecting Our business  7.23.1  Industrial Co-Ordination Act, 1975  Pursuant to the Industrial Co-Ordination Act, 1975 (“ICA”), a person engaged in a manufacturing activity and with shareholders’ funds in excess of RM2,500,OOO or which engages more than 75 full-time employees must acquire a manufacturing licence issued by MIT!.  The ICA defines “manufacturing activity” as “the making, altering, blending, ornamenting, finishing or otherwise treating or adapting any article or substance with a view to its use, sale, transport, delivery or disposal and includes the assembly of parts and ship repairing but shall not include any activity normally associated with retail or wholesale trade”.  102
7. BUSINESS (cont’d) MITI has issued manufacturing licences to our Group as set out in Section 7.22.2 of this Prospectus. 7.23.2 Environmental Quality Act 1974 The Environmental Quality Act, 1974 (“EQA”) and the regulations made thereunder contains provisions and regulations for the prevention, abatement, control of pollution and enhancement of the environment. Scheduled Waste Among others, under the EQA, Section 348 of the EQA prohibits a person from: (a) placing, depositing or disposing of, or causing or permitting to place, deposit or dispose of, except at prescribed premises only, any scheduled wastes on land or into Malaysian waters;
(b) receiving or sending, or causing or permitting to be received or sent any scheduled wastes in or out of Malaysia; or
(c) transiting or causing or permitting the transit of scheduled wastes,

without any prior approval of the Director General of Environmental Quality. Any person who contravenes this section shall be guilty of an offence and shall be liable to a fine not exceeding RM500,000 or to imprisonment for a period not exceeding five years or to both. Section 43 of the EQA further provides that where an offence against the EQA or any regulations made thereunder has been committed by a company, firm, society or other body of persons, any person who at the time of the commission of the offence was a director, chief executive officer, manager, or other similar officer or a partner of the company, firm, society or other body of persons or was purporting to act in such capacity shall be deemed to be gUilty of that offence unless he proves that the offence was committed without his consent or connivance and that he has exercised all such diligence as to prevent the commission of the offence as he ought to have exercised, having regard to the nature of his functions in that capacity and to all the circumstances. The Environmental Quality (Scheduled Wastes) Regulations, 2005 (“EQSWR”) requires, inter alia: (a) notification to the Director General in writing of new categories and quantities of scheduled wastes, which are generated, within 1 month of its generation;
(b) scheduled wastes to be disposed of at prescribed premises only;
(c) scheduled wastes to be treated at prescribed premises or at on-site treatment facilities only;

7. BUSINESS (cont’d) (d) every waste generator to ensure that scheduled wastes generated by him are properly stored, treated on-site, recovered on site for material or product from such scheduled wastes or delivered to and received at prescribed premises for treatment, disposal or recovery of material or product from scheduled wastes;
(e) scheduled wastes to be stored in containers which are durable and which are able to prevent spillage or leakage of the scheduled wastes into the environment and the containers of scheduled wastes to be clearly labelled for identification and warning purposes; and
(f) a waste generator to keep accurate and up-to-date inventory of the quantities and categories of scheduled wastes being generated, treated and disposed of.

Every offence which consists of any omission or neglect to comply with, or any act done or attempted to be done contrary to the EQSWR may be compounded under section 45 of the EQA. Pursuant to section 45, the Director General or any Deputy Director General of Environmental Quality or any other public officer or any local authority to which the Director General of Environmental Quality has delegated such power in writing, may compound any offence under the EQA or the regulations made thereunder which is prescribed by the Minister to be a compoundable offence by accepting from the person reasonably suspected of having committed the offence a sum of money not exceeding RM2,OOO. Regulations 9 and 10 of the EQSWR generally provides that scheduled wastes shall be stored in containers which are compatible with the scheduled wastes to be stores, durable and which are able to prevent spillage or leakage of the scheduled wastes into the environment. Incompatible scheduled wastes shall be stored in separate containers, and such containers shall be placed in separate secondary containment areas and areas for the storage of the containers shall be designed, constructed and maintained adequately in accordance with the guidelines prescribed to prevent spillage or leakage of scheduled wastes into the environment. Containers of scheduled wastes shall be clearly labelled in accordance with the types applicable to them as specified in the Third Schedule of the EQSWR and marked with the scheduled waste code as specified in the First Schedule of the EQSWR for identification and warning purposes. 7.23.3 Factories and Machineries Act, 1967 The Factories and Machineries Act, 1967 (“FMA”) regUlates factories and machineries by way of registration and examination of such machinery to ensure the maintenance of health and safety standards, including the welfare of all parties involved. Section 19(1) of the FMA prohibits a person from operating or causing or permitting to be operated any machinery in respect of which a certificate of fitness is prescribed, unless there is in force in relation to the operation of the machinery a valid certificate of fitness issued under the FMA. In the event of any contravention of Section 19(1), an Inspector of Factories and Machinery shall forthwith serve upon the person aforesaid a notice in writing prohibiting the operation of the machinery or may render the machinery inoperative until such time as a valid certificate of fitness is issued. 104 7. BUSINESS (cont’d) Regulation 10(1) of the Factories and Machinery (Notification, Certificate of Fitness and Inspection) Regulations 1970 requires the owner of every steam boiler, unfired pressure vessel or hoisting machine other than a hoisting machine driven by manual power to hold a valid certificate of fitness in respect thereof so long as such machinery remains in service. The period of validity of every certificate of fitness shall ordinarily be 15 calendar months from the date of inspection or such longer period not exceeding three years as the Chief Inspector of Factories and Machinery in his discretion may consider appropriate. Regulation 14 provides that after an initial inspection every factory and every machinery shall be inspected at regular intervals by an Inspector of Factories and Machinery so long as such factory remains in operation or such machinery remains in use. The regular interval shall ordinarily be 15 months sUbject to such extension not exceeding 36 months, and the regular inspection shall ordinarily be carried out during.the 15 months following the month in which the last inspection was made or where the interval has been extended during the month following the expiry of the extended interval. Generally, following the inspection of every steam boiler, unfired pressure vessel and hoisting machine other than a hoisting machine driven by manual power and on payment of the prescribed fee the Inspector of Factories and Machinery shall where he is satisfied that such machinery complies with the provisions of the FMA and the regulations relating thereto, issue the appropriate certificate of fitness. Any person who contravenes section 19 of the FMA shall be gUilty of an offence and on conviction to a fine not exceeding RM150,000 or to imprisonment for a term not exceeding three years or to both. Where the offence for which any person is convicted is a continuing offence, such person shall, in addition to the punishment in respect of that offence, be further liable to a fine not exceeding RM2,000 for each day or part of a day during which the offence continues after the first day in respect of which the conviction is recorded. 7.23.4 Employment Act, 1981 The Employment Act, 1981 (UEA”) regulates all labour relations including contracts of service, payment of wages, employment of women, rest days, hours of work, termination, lay-off and retirement benefits and keeping of registers. Section 61 of the EA provides that every employer shall prepare and keep one or more registers containing such information regarding each employee employed by him as may be prescribed by regulations made under EA. Section 97, inter alia provides that any employer who fails to keep a register required under section 61 EA commits an offence. Section 99A of the EA stipulates that any person who commits any offence under, or contravenes any provision of, EA or any regulations, order, or other sUbsidiary legislation whatsoever made thereunder, in respect of which no penalty is provided, shall be liable, on conviction, to a fine not exceeding RM10,000. 7. BUSINESS (cont’d) Regulation 6 of the Employment Regulations 1957 (“ER”) provides that every employer shall unless otherwise permitted by the Director General keep the Register of Employee required to be kept under ER in the office within the place of employment on which employees are employed and shall make such Register of Employees available for inspection by the Director General as and when required to do so. 7.23.5 Occupational Safety and Health Act 1994 The Occupational Safety and Health Act 1994 (“OSHA”) regulates the safety, health and welfare of persons at work. Sections 15, 16 and 17 of the OSHA require every employer and every self­employed person to: (a) ensure, so far as is practicable, the safety, health and welfare at work of all its employees, including but not limited to the following, as far as is practicable: provide and maintain the plant and systems of work that are safe and without risks to health; ensuring safety and absence of risks to health in connection with the use or operation, handling, storage and transport of plant and substances; provide such information, instruction, training and supervision as is necessary to ensure the safety and health at work of his employees; maintain any place of work in a condition that is safe and without risks to health and provide and maintain the means of access to and egress from it that are safe and without such risks; and provide and maintain a working environment for his employees that is safe, without risks to health, and adequate as regards facilities for their welfare at work. (b) prepare and as often as may be appropriate revise a written statement of its general policy with respect to the safety and health at work of its employees and the organisation and arrangements for the time being in force for carrying out that policy, and to bring the statement and any revision of it to the notice of all of its employees; and
(c) conduct its undertaking in such a manner as to ensure, so far as is practicable, that it and other persons, not being his employees, who may be affected thereby are not thereby exposed to risks to their safety or health.

Section 18 of the OSHA requires an occupier of non-domestic premises which has been made available to persons, not being his employees, as a place of work, or as a place where they may use a plant or substance provided to their use there, shall take such measures as are practicable to ensure that the premises, all means of access thereto and egress therefrom available for use by persons using the premises, and any plant or substance in the premises or provided for use there, is or are safe and without risks to health. 106 7. BUSINESS (cont’d) Section 19 of the OSHA provides that a person who contravenes the above provisions of the OSHA shall be gUilty of an offence and shall on conviction, be liable to a fine not exceeding RM50,000 or to imprisonment for a term not exceeding two years or to both. Section 20 of the OSHA requires a person who designs, manufactures, imports or supplies any plant for use at work must, as far as practicable: (a) ensure that the plant is so designed and constructed as to be safe and without risks to health when properly used;
(b) carry out or arrange for the carrying out of such testing and examination as may be necessary for the performance of the duty imposed on him by paragraph (a) above; and
(c) take such steps as are necessary to secure that there will be available in connection with the use of the plant at work adequate information about the use for which it is designated and has been tested, and about any condition necessary to ensure that, when put to that use, it will be safe and without risk to health.

Section 21 of the OSHA requires a person who formulates, manufactures, imports or supplies any substance for use at work must, as far as practicable: (a) ensure the substance is safe and without risks to health when properly used;
(b) carry out or arrange for the carrying out of such testing and examination as may be necessary for the performance of the duty imposed on him by paragraph (a) above; and

(c) take such steps as are necessary to secure that there will be available in connection with the use of the substance at work adequate information about the results of any relevant test which has been carried out on or in connection with the substance and about any condition necessary to ensure that it will be safe and without risk to health when properly used. Section 23 provides that a person who contravenes Sections 20 or 21 of the OSHA shall be gUilty of an offence and shall on conviction, be liable to a fine not exceeding RM20,OOO or to imprisonment for a term not exceeding 2 years or to both. Section 52 provides that where a body corporate contravenes any provisions of the OSHA or any regulation made thereunder, every person who at the time of the commission of the offence is a director, manager, secretary or other like officer of the body corporate shall be deemed to have contravened the provision and may be charged jointly in the same proceedings with the body corporate or severally, and every such director, manager, secretary or other like officer of the body corporate shall be deemed to be guilty of the offence. 7. BUSINESS (cont’d) 7.23.6 MSC status The MSe status certificate granted to us states the following 10 point Bill of Guarantees: (1) To provide a world-class physical and information infrastructure.
(2) To allow unrestricted employment of local and foreign knowledge workers.
(3) To ensure freedom of ownership by exempting companies with IVlSe Status from local ownership requirements.
(4) To give the freedom to source capital globally for MSe infrastructure, and the right to borrow funds globally.
(5) To provide competitive financial incentives, including Pioneer Status (100% exemption) for up to 10 years or an Investment Tax Allowance for up to 5 years and no duties on the importation of multimedia equipment.
(6) To become a regional leader in Intellectual Property Protection and eyberlaws.
(7) To ensure no censorship of the Internet.
(8) To provide globally competitive telecommunications tariffs.
(9) To tender key MSe infrastructure contracts to leading companies willing to use the MSe as their regional hub.
(10) To provide a high-powered implementation agency to act as an effective one-stop super shop.

(Sou~e:MSCSmwsCerlm~~ 7.24 Regulation in Thailand affecting Our business 7.24.1 Factory Act B.E. 2535. Normally, a company would be required to obtain a license from the Department of Industrial works, Ministry of Industry for the construction and operation of a factory. However, there are some companies whose factories are located in an industrial zone and are not required to obtain such a license, but they will still have to comply with the regulations issued under the Factory Act. The Factory Act also regulates areas such as, factory environment, type of factory and machinery used in the factory, safety, standard and control of waste etc. 7.24.2 Labour Protection Act B.E. 1998, as amended Ministerial Regulations issued thereunder, states the standards relating to safety, occupational sanitation and the working environment. In case the working environment to be implemented by employers, building, premises, machinery or equipment used by employees, create hazardous conditions for those employees, the authority could have the power to order the employer to temporally cease to operate all or part of the aforesaid machinery or equipment. 7. BUSINESS (cont’d) 7.24.3 Environment Protection and Conservation Act B.E.2535 The Act contains provisions and regulations for the protection and conservation and enhancement of environment. The Act also regulates the environmental standards, and the regulations issued thereunder may require a project owner/business operator of some projects or business operation in an environment protection area to prepare an environmental impact assessment report to be submitted to the authority. 7.25 Regulation in the PRC Affecting Our business 7.25.1 Entrance of Foreign Investment The principal regulation governing foreign ownership of companies’ production businesses in the PRC is the “Foreign Investment Industrial Guidance Catalogue (as amended in 2007)” (:7~ j@jN~f’~1~~ ~~) (2007 1f:~n) and the “Interim Measures for the Administration of Examining and Approving Foreign Investment Projects” (:7~ j@jN~19i ~ ~ffEfg1T~~jf}~). According to such regulations and the “Notice of the National Development and Reform Commission on Further Strengthening the Administration of Foreign Investment Projects”(IE~C~~i&1jt~~T:l!-t.Vt~~lUIl;ijlm:7~ j@jN~ 19i ~ ~~B9:iil9;J:l) YK Technology Suzhou’s production businesses fall into the encouraged category for foreign investment and the application of such a project with a total investment (including the increased amount of capital) of USD 100 million or more shall be sUbject to the examination and approval of the National Development and Reform Commission. 7.25.2 Dividend Distribution The principal regulations governing distribution of dividends paid by WFOE include the ‘Wholly Foreign-Owned Enterprise Law” (I=j=l~AE~JHlllE:7~~{t ~ r!), as amended in 2000; the “Wholly Foreign-Owned Enterprise Law Implementation Rules” (I=j=l~AE~JHlllE:7~~{t~~~:lilB~].i!~), as amended in 2001. Under these regulations, WFOE in the PRC may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, a WFOE in the PRC is required to set aside at least 10.0% of its after-tax profit based on PRC accounting standards each year to a general reserves until the accumulative amount of such reserves reach 50.0% of its registered capital. These reserves are not distributable as cash dividends. The board of directors of a foreign-invested enterprise has the discretion to allocate a portion of its after­tax profits to staff welfare and bonus funds, which may not be distributed to equity owners except in the event of liquidation. Furthermore, under the new Enterprise Income Tax Law (“EIT Law”), dividends payable from foreign invested enterprises to their non-PRC enterprise investors are SUbject to a withholding tax at a rate of 10.0%. Given that the new EIT Law has been promulgated only recently, its implementation has yet to be further clarified in practice. 7. BUSINESS (cont’d) 7.25.3 Business Model The business model of “processing of supplied materials” of YK Technology Suzhou, is sUbject to the “Tentative Measures for the Management of Examination and Approval of Processing Trade” (:DQI’b’U-ij’$”mrg3J.f§D’1J.¥t) and the “Customs Law of the People’s Republic of China” (~~A~;l:t~OO)j ~$). According to the Tentative Measures for the Management of Examination and Approval of Processing Trade, before engaging in the business of “processing of supplied materials”, companies shall submit the application to the competent department of foreign economic cooperation and trade for examination and approval. After examining and verifying the relevant certificates and materials in accordance with the state provisions, the competent authority shall issue the Approval Certificate for Processing Trade to the company. 7.25.4 Environmental Regulations YK Technology Suzhou is subject to a variety of governmental regulations related to the storage, use and disposal of hazardous materials. The major environmental regulations applicable to YK Technology Suzhou includes the “Environmental Protection Law of the People’s Republic of China” (r:p$A.~ fU’O ~ f.f:ll ~ jp ¥t), the “Water Pollution Prevention Law of the People’s Republic of China” (r:p $ A. ~~~ Ii 7.K 15 ~ I!1.i m¥t), the “Atmospheric Pollution Prevention Law of the People’s Republic of China” (r:p$A.~~*0 ~ *4:15~l!1.im¥t), the “Environmental Noise Pollution Prevention Law of the People’s Republic of China” (r:p $ A. ~~ *0 Ii f.f:ll ~ F 15 ~ I!1.i m¥t), the “Environmental Impact Assessment Law of the People’s RepUblic of China” ( r:p$A.~~*0 ~f.f:ll~I(ojW1fr¥t), the “Regulations Governing Environmental Protection in Construction Projects” Ot~:r9Hl f.f:ll1*jprg3J.~171J) and the “Administrative Measures for Completion Acceptance of Environmental Protection in Construction Projects” (~~:r:9t § ~ I f.f :Il1* jp ~ !& ~ 3J.1J. ¥t). According to the “Environmental Protection Law of the People’s RepUblic of China” and the “Environmental Impact Assessment Law of the People’s Republic of China” promulgated by the Standing Committee of the National People’s Congress respectively on 26 December 1989 and 28 October 2002, the “Regulations Governing Environmental Protection in Construction Projects” promulgated by the State Council of the PRC on 29 November 1998, and the “Administrative Measures for Completion Acceptance of Environmental Protection in Construction Projects” promUlgated by the Administration of Environmental Protection (the successor to which is the Ministry of Environmental Protection) on 27 December 2001, YK Technology Suzhou shall submit the Report Form on Environmental Assessment (f.f:lt~ uiOJ1R ~~) to the competent environmental protection authorities for approval and the Company shall also submit the Application Form for Acceptance of Environmental Protection in Construction Projects (~~:rjJ1 § ~If.f:ll1*jp~ !& if! i~ ~) to such authorities for approval before commencing the actual production. 110 7. BUSINESS (cont’d) According to the “Environmental Protection Law of the People’s Republic of China”, the “Water Pollution Prevention Law of the People’s Republic of China” and the “Atmospheric Pollution Prevention Law of the People’s Republic of China” promulgated by the Standing Committee of the National People’s Congress respectively on 28 February 2008 and on 29 April 2000, companies must obtain the Pollution Discharge Permit (:fjF¥5ilfPJliE) if the companies directly discharge waste water or the waste gas into the waters or the air. 7.25.5 Taxation PRC enterprise income tax is calculated based on taxable income determined under PRC accounting principles. Prior to the new Enterprise Income Tax Law and its implementation rules that became effective on 1 January 2008, in accordance with the PRC Income Tax Law for Enterprises with Foreign Investment and Foreign Enterprises, or the Income Tax Law, and the related implementing rules, foreign invested enterprises incorporated in the PRC are generally subject to an enterprise income tax rate of 33%. The Income Tax Law and the related implementing rules provide certain favourable tax treatments to foreign invested enterprises. Production-oriented foreign-invested enterprises scheduled to operate for a period of 10 years or more are entitled to exemption from income tax for two years commencing from the first profit-making year and a 50% reduction in income tax for the subsequent three years. In certain special areas such as coastal open economic areas and economic and technology development zones, foreign­invested enterprises are entitle to reduced tax rates, namely: (1) in coastal open economic zones, the tax rate applicable to production-oriented foreign­invested enterprises is 24%; and (2) certified high and new technology enterprises incorporated and operated in economic and technology development zones determined by the State Council may enjoy a 50% deduction of the applicable rate. On 16 March 2007, the National People’s Congress approved the PRC Enterprise Income Tax Law, or the new PRC tax law, or the new EIT Law, which becomes effective on 1 January 2008. The State Council subsequently promulgated the Implementation Rules for the PRC Enterprise Income Tax Law and Notice on the Implementation of the Transitional Preferential Policies in respect of the Enterprise Income Tax, respectively, on 6 and 26 December 2007. The new EIT Law adopts a uniform tax rate of 25% for all enterprises (including foreign-invested enterprises) and revokes the current tax exemption, reduction and preferential treatments applicable to foreign­invested enterprises. The new EIT Law also provides for transitional measures for enterprises established prior to the promulgation of the new EIT Law and eligible for lower tax rate preferential treatment in accordance with the then prevailing tax laws, up until 16 March 2007, and administrative regulations. These enterprises will gradually become subject to the new, unified tax rate over a five-year period beginning 1 January 2008; enterprises eligible for regular tax reductions or exemptions may continue to enjoy tax preferential treatments after the implementation of the new EIT Law and until their preferential treatments expire. The preferential treatment period for enterprises which have not enjoyed any preferential treatment for the reason of not having made any profits, however, shall be deemed as starting from the implementation of the new EIT Law. 7. BUSINESS (cont’d) In addition, under the new EIT Law, an enterprise established within the PRC in accordance with the PRC law shall be a resident enterprise and will normally be subject to the enterprise income tax at the rate of 25% on its global income. Moreover, its historical operating results may not be indicative of its operating results for future periods as a result of the expiration of the tax . holidays YK Technology Suzhou enjoys. Pursuant to the Provisional Regulations on value-added tax and their implementing rules, all entities and individuals that are engaged in the sale of goods, the provision of repairs and replacement services and the importation of goods in the PRC are generally required to pay value-added tax at a rate of 17% of the gross sales proceeds received, less any deductible value­added tax already paid or borne by the taxpayer. Furthermore, when exporting goods, the exporter is entitled to the refund of some or all of the value-added tax that it has already paid or borne. YK Technology Suzhou’s imported raw materials that are used for manufacturing export products and are deposited in bonded warehouses are exempt from import value-added tax. 7.25.6 Labour The major labor laws and regulations applicable to the Company include the “Labor Contract Law of the People’s Republic of China” (~$A.R;~~nOOjjl;l] ,*Iqj~), the “Implementing Regulations of the People’s Republic of China on Labor Contract Law” (“P$A.R;~~mjjl;l],*/iij~~OOi~f9iJ), the “Labor Law of the People’s Republic of China” (“P$A.R;~~OOjjl;l]~), the “Law of the People’s Republic of China on Mediation and Arbitration of Labor Disputes” ( “P$A.R;~~n~jjl;l]~i)(‘if.JM11f1~~), the “Trade Union Law of the People’s Republic of China” (“P$A.R;~~P~I~~). In accordance with the Labor Contract Law of the People’s Republic of China and other relevant regulations, companies shall strictly implement the labor quota standard and may not threaten or threaten the employee to work overtime in disguise. Subject to the following limitations, where companies arrange for overtime work, it shall make overtime payment to the employee: (i) employees who work on a piece-rate bas.is are entitled to overtime pay when the employer arranges them to work over time after they complete the reasonable work quotas; (ii) employees who work on accumulative working hours are entitled to overtime pay when their work hours exceed the statutory limitation; and (iii) employees who work on flexible work hours are not entitled to overtime pay according to the state provisions. [The rest of this page has been intentionally left blank]

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