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IQ GROUP HOLDINGS BERHAD HOLDINGS IQ GROUP

IQ GROUP HOLDINGS BERHAD annual report 2008 (Company No: 636944-U) (Company No: (Incorporated in Malaysia under the Companies Act, 1965) under the Companies Act, in Malaysia (Incorporated IQ GROUP HOLDINGS BERHAD IQ GROUP Fasa 1 (FTZ), Bayan Lepas, 11900 Pulau Pinang, Malaysia. Pinang, Lepas, 11900 Pulau 1 (FTZ), Bayan Fasa Tel: 04-644 6677 Fax: 04-644 9677 Web: www.iq-group.com Web: 04-644 9677 6677 Fax: 04-644 Tel: 149 Jalan Sultan Azlan Shah, Taman Perindustrian Bayan Lepas, Bayan Perindustrian Taman Azlan Shah, Sultan 149 Jalan CONTENTS

2 Corporate Information

3 Corporate Structure / Group Resources

4 – 5 Chairman’s Statement

6 – 7 Directors’ Information

8 – 11 Notice of Annual General Meeting

12 Statement Accompanying Notice of Annual General Meeting

13 – 17 Statement in relation to Proposed Share Buy-back

18 – 22 Statement On Corporate Governance

23 – 24 Statement Of Internal Control

25 Corporate Social Responsibility Statement

26 – 29 Audit Committee Report

30 – 32 Nomination Committee Report

33 – 35 Remuneration Committee Report

36 – 37 Additional Compliance Information

38 – 89 Financial Statements

90 List of Properties

91 – 92 Shareholdings Statistics

Proxy Form BOARD OF DIRECTORS HEAD/MANAGEMENT OFFICE

Chen, Wen-Chin Plot 149, Jalan Sultan Azlan Shah also known as Kent Chen Taman Perindustrian Bayan Lepas Executive Chairman Fasa 1 (FTZ), Bayan Lepas 11900 Penang Daniel John Beasley Telephone: 604-644 6677 Managing Director / Chief Executive Offi cer Facsimile: 604-644 9677 Email: headoffi [email protected] Ng Hai Suan @ Ooi Hoay Seng Website: www.iq-group.com Senior Independent Non-Executive Director PRINCIPAL BANKERS Charlie Ong Chye Lee Independent Non-Executive Director HSBC Bank Malaysia Berhad (127776-V) CORPORATE 1, Downing Street Yoon Chon Leong 10300 Penang INFORMATION Non-Independent Non-Executive Director Telephone: 604-262 9441 AUDIT COMMITTEE RHB Bank Berhad (6171-M) Commercial Banking Business Centre Ng Hai Suan @ Ooi Hoay Seng 1st Floor, No. 44, Lebuh Pantai Chairman Georgetown 10300 Penang Charlie Ong Chye Lee Telephone: 604-263 0291 Yoon Chon Leong Members Public Bank Berhad (6463-H) 5,7,9 & 11, Lorong Kampung Jawa REMUNERATION COMMITTEE Bandar Bayan Baru 11900 Bayan Lepas, Penang Charlie Ong Chye Lee Telephone: 604-643 8200 Chairman AUDITORS Ng Hai Suan @ Ooi Hoay Seng Daniel John Beasley Deloitte KassimChan (AF0080) Members 4th Floor, Wisma Wang 251-A, Jalan Burma NOMINATION COMMITTEE 10350 Penang Telephone: 604-228 8255 Ng Hai Suan @ Ooi Hoay Seng Chairman SHARE REGISTRAR Charlie Ong Chye Lee PFA Registration Services Sdn Bhd (19234-W) Yoon Chon Leong Level 17, Th e Gardens North Tower Members Mid Valley City Lingkaran Syed Putra ESOS COMMITTEE 59200 Kuala Lumpur Telephone: 603-2264 3883 Loo Weng Keong Facsimile: 603-2282 1886 Chairman Daniel John Beasley STOCK EXCHANGE LISTING Chee Ting Ting Members Main Board of Bursa Malaysia Securities Berhad COMPANY SECRETARY (Listed on 10 October 2005) Tan Choong Khiang (MAICSA 7018448) Stock Name : IQGROUP

Stock Code : 5107 REGISTERED OFFICE

3rd Floor, Wisma Wang 251-A, Jalan Burma 10350 Penang Telephone: 604-228 8155 Facsimile: 604-269 2386 Email: [email protected]

2 IQ GROUP HOLDINGS BERHAD (636944 U) CORPORATE STRUCTURE as at August 5, 2008 IQ Group Sdn. Bhd. (IQM) 100% Design & Manufacture of PIR Sensor Lighting, Motion Sensors, Wireless Video & RF products Dong Guan Zhong Jia Electronics Co. Ltd. (IQC) 100% Manufacture of PIR Sensor Lighting & Motion Sensors IQ Group (Dongguan) Ltd. (IQD) 100% Manufacture and sales of Sensor Lighting, door bells, home security system, lighting fi xtures & plastic products. IQ (Europe) Limited (IQE) 100% IQ Group Holdings Bhd. Sales, Marketing & Distribution of PIR (IQGHB) Sensor Lighting & Motion Sensors Investment Holding & provider of IQ Japan Co., Ltd. (IQJ) 100% Management Services to subsidiaries Sales, Marketing & Distribution of PIR Sensor Lighting & Motion Sensors

IQ Group Limited (IQGL) 100% Sales, Marketing & Distribution of PIR Sensor Lighting & Motion Sensors IQ Industries Limited (IQI) 100% Sales, Marketing & Distribution of PIR Sensor Lighting & Motion Sensors

GROUP RESOURCES

To help customers develop their business in these changing environments, IQ Group Holdings Berhad and its subsidiaries (“IQGHB Group”) have created an integrated resource structure comprising a broad range of specialist facilities and services including Research and Development, Manufacturing and Marketing.

Th ese services are available individually or as part of a strategically co-ordinated business / partnership programme.

Customers presenting a business opportunity are off ered the option of working with IQGHB Group’s design team to create new products on their behalf (ODM); contracting IQGHB Group to manufacture their existing products on their behalf (OEM);or simply purchasing from the existing range of IQGHB Group’s products.

IQGHB Group’s portfolio of products includes: • Stand-alone PIR Sensors and Light Controllers • PIR Controlled Security Lighting • PIR Controlled Security Lighting • General Lighting (Uncontrolled) • Hardwired Electromechanical Door Chimes • Wirefree High Fidelity Door Chimes • Wirefree Lighting and Home Controls • Wireless Video Door Entry Products

ANNUAL REPORT 2008 3 On behalf of the Board of Directors, it is “ my pleasure to present the Annual Report “of IQ Group Holdings Berhad for the fi nancial year ended 31 March 2008.

CHAIRMAN’S Corporate Developments We are also gearing towards centralised STATEMENT business coordination at the head offi ce Th e business environment has fl uctuated in order to secure the benefi ts of eff ective and signifi cantly changed during the year. resource allocations and consolidating Such dynamics and uncertainties prompt us developments to achieve global product to derive growing clarity on our corporate off erings. With the OEM/ODM business, direction, making changes to shift focus to this approach is already adopted, however, where we can generate the most value to the further eff orts are required on our own DIY business. Th ese include the introduction and multi-channel distribution type business of a market and customer orientated in achieving the same goals. business generation structure, coupled with innovations, technology and cost control to Under the leadership of the Managing materialise business that delivers sustainable Director, Daniel Beasley, the business re- margins. organisation initiatives continue. Th e ultimate objective is to bring the business to We are already seeing some initial results a new paradigm, bringing up capabilities and from the new business generation structure, motivating people within the organisation, with more people focusing on front-end thus allowing the Group to excel and grow, activities and becoming increasingly more whilst simplifying and consolidating the confi dent following associated results. business.

Th ese also include a directional approach of I believe that by seeing through the above consolidating manufacturing supply to gear initiatives, IQ-group will be well positioned up economies of scale and the simplifi cations to respond to the changing business needed to maximise our competitiveness. environment and thus, it is with confi dence Such changes are developing on a gradual that we move forward, developing a basis as we need to prioritise the continued foundation to achieve growth. supply to our customers. Th e start- up investment in our new IQ Group (Dongguan) Ltd. manufacturing facility, refl ects our commitment to this direction.

4 IQ GROUP HOLDINGS BERHAD (636944 U) Financial Overview Future Prospects

For the fi nancial year ended 31 March Th e road ahead of the Group is challenging, 2008, the Group achieved revenue of with increasing competition and uncertainties RM139.31million, a 9% decrease compared due to rising costs and foreign exchange to the previous year’s revenue of RM153.77 impact. We are however, making changes to million, mainly due to price and exchange improve directional clarity and organisational rate erosions and the reduced needs from effi ciency in order to meet current and future both OEM and direct DIY customers in market demands. Th e management team, slowing market condition. Th e Group with the Board’s guidance is looking into recorded a profi t after tax of RM1.18 million. opportunities that add value to our operations Th e fi nancial year ended 31 March 2008 was and to spearhead our future growth. more challenging than ever before for the Group. Th e lower profi t after taxation was We will continue investing in our people, attributable to the signifi cant rise in material R&D and technology to give us an edge over costs and the continued strengthening of our competition. the Ringgit Malaysia and China Renminbi against the US Dollar, coupled with the cost At the heart of everything we do is the desire of internal investment which facilitates the to create sustainable profi table growth for directional and strategic changes mentioned our shareholders, while ensuring we continue above in order to provide the foundation to meet the current and future needs of our for future fi nancial growth, including customers. the investment into our new IQ Group (Dongguan) Ltd. manufacturing facility. Appreciation As at 31 March 2008, the net assets of the Group stood at RM107.06 million. On behalf of the Board of Directors, I would CHAIRMAN’S like to thank our management and staff for STATEMENT their hard work and dedication during the cont’d Dividend past year.

Th e Board proposed no dividend for the Special thanks also to my colleagues on the fi nancial year ended 31 March 2008, Board for their strong contribution and considering changes and continued support. investments needed to fund changes, including new products, consolidated I would also like to express my sincere manufacturing supply and new business appreciation to our shareholders, customers, generations. business associates and suppliers for their valuable support.

We will continue to work hard to grow the business and look forward to enhancing our Group performance in the future.

Chen, Wen-Chin also known as Kent Chen Chairman

ANNUAL REPORT 2008 5 DIRECTORS’ PROFILE

Chen, Wen-Chin

Chen, Wen-Chin also known as Kent Chen, aged 55, Taiwanese, is the Executive Chairman of IQ Group Holdings Berhad (IQGHB) and was appointed to the Board of Directors of IQGHB on 12 April 2005. He graduated with a degree in Business Administration from Soo- Chow University in Taiwan. He is the founder of IQ Group Sdn. Bhd (IQM) and is presently the Chairman of IQM. Prior to founding IQM, he was the Director/General Manager of Sun Radar Co. Ltd and Peyco Electronics (Taiwan) Ltd. which are also involved in the design and DIRECTORS’ manufacture of PIR motion sensor devices. He is now regarded as one of the pioneers in the PIR motion and sensor devices business in Malaysia. He has more than 20 years of experience INFORMATION in the PIR motion sensors business, thus making him the driving force behind the Group’s product design and development activities.

Daniel John Beasley

Daniel John Beasley, aged 38, British, is the Managing Director of IQ Group Holdings Berhad (IQGHB) and was appointed to the Board of Directors of IQGHB on 12 April 2005. Prior to his promotion to the Managing Director on 1 December 2006, he was the Executive Director of IQGHB. He is a member of the Remuneration committee and ESOS committee. He joined IQ Group Sdn. Bhd. (IQM) in 1996 as Industrial Design Manager. During the period with the company, he has held a number of positions including Group R&D Manager, Director of Product Management and Group Business Development Director. He was appointed as a Director of IQM in April 2004 until taking up his current role. He graduated in 1991 from the University of Central England with a Bachelor of Arts (Honours) Degree in Industrial Design/Engineering. Prior to joining IQM, he worked as an Industrial Design Consultant for various companies including Friedland Limited, UK. He is now responsible for the IQGHB Group’s overall operations, business development and strategic planning.

Ng Hai Suan @ Ooi Hoay Seng

Ng Hai Suan @ Ooi Hoay Seng, aged 67, Malaysian, is the Senior Independent Non- Executive Director of IQ Group Holdings Berhad (IQGHB) and was appointed to the Board of Directors of IQGHB on 18 April 2005. He is also the Chairman of the Audit Committee and Nomination Committee, and a member of the Remuneration Committee. He is a member of the Malaysian Institute of Accountants and Malaysian Institute of Certifi ed Public Accountants. He was a partner of a Public Accountants fi rm up until his retirement from this position in year 2001. He has over thirty (30) years experience in providing auditing, tax consultation and business advisory services to various clients, which include multinational companies. He is the Senior Independent Director in Uchi Technologies Berhad and also holds directorships in a number of other private limited companies.

6 IQ GROUP HOLDINGS BERHAD (636944 U) Charlie Ong Chye Lee

Charlie Ong Chye Lee, aged 64, Malaysian, is the Independent Non-Executive Director of IQ DIRECTORS’ Group Holdings Berhad (IQGHB) and was appointed to the Board of Directors of IQGHB on 8 June 2007. He is the Chairman of the Remuneration Committee and a member of the INFORMATION Audit Committee and Nomination Committee. He obtained a Bachelor of Laws degree from cont’d the University of Singapore in 1969. He practiced law in Penang after being called to bar in 1970 in Messrs. Mustaff a bin Hussain, later Messrs. Mustaff a, Jayaraman, Ong & Co. and Further Information Messrs. Jayaraman, Ong & Co. in which he became a partner in 1971 and retired in June 1988 when he set up his own legal practice under the name and style of Messrs. Ong & Manecksha. (i) Family Relationship He was mainly involved in banking and corporate work and accasionally involved in litigation None of the Directors have any family on maritime and other miscellaneous matters. In May 2004, he retired as a partner and was relationship with any director and/or appointed as consultant in Messrs. Ong & Manecksha. Currently, he sits on the Board of substantial shareholder of IQ Group Directors of Uchi Technologies Berhad and a private limited company. Holdings Berhad

(ii) Confl ict of Interest Yoon Chon Leong None of the Directors have any confl ict of interest with IQ Group Holdings Berhad Yoon Chon Leong, aged 59, Malaysian, is the Non-Independent Non-Executive Director of IQ Group Holdings Berhad (IQGHB) and was appointed to the Board of Directors of IQGHB (iii) Convictions for Off ences on 29 May 2007. He is a member of the Audit Committee and Nomination Committee. None of the Directors have had any He obtained his degree in Electrical Engineering from Monash University, Melbourne convictions for Off ences within the past in 1973. He then spent 30 years working with Hewlett-Packard and Agilent Technologies 10 years other than traffi c off ences. in various capacities, of which 20 years were in Research & Development. Over the years, He acquired a wide spectrum of experience including high technology manufacturing, (iv) Details of Attendance at Board R&D and Information Technology. He retired from Agilent Technologies in January 2006 Meetings and started a management consulting practice focusing on strategic business development, Th ere were seven (7) Board of Directors’ Meeting held during the fi nancial R&D management and entrepreneur incubation, with clients include major multinational year ended 31 March 2008 Details companies. He is currently working with the Penang Skills Development Corporation as of attendance of the Directors are as their key consultant to support the Small and Medium Industry Development Corporations’ follows:- (SMIDEC) initiative in Malaysia, to incubate more local technology based companies. During the two years prior to his retirement, He contributed signifi cantly towards the development of Number of a government infrastructure and incentive program to improve the attractiveness for foreign Board Meetings high technology investments in Malaysia. He is currently the Managing Director of Mywave Directors Attended Held Sdn Bhd and also a Non-independent Non-executive Director in a number of other private Chen, Wen-Chin limited companies. also known as Kent Chen 6 7 Daniel John Beasley 6 7 Ng Hai Suan @ Ooi Hoay Seng 7 7 Charlie Ong Chye Lee (1) 6 7 Yoon Chon Leong (2) 6 7 Dato’ Hong Tok Hiang @ Fang Chok Seong (3) 1 7

Notes: (1) Appointed with eff ect from 8 June 2007. (2) Appointed with eff ect from 29 May 2007. (3) Resigned with eff ect from 8 June 2007

(v) Th e Board currently comprises of fi ve (5) Directors, of which two (2) are independent.

ANNUAL REPORT 2008 7 NOTICE IS HEREBY GIVEN that the Fifth Annual General Meeting of the Company will be held at the Training Room, IQ Group Holdings Berhad, 149 Jalan Sultan Azlan Shah, Taman Perindustrian Bayan Lepas, Fasa 1 (FTZ), Bayan Lepas, 11900 Penang on Friday, September 26, 2008 at 3.00 pm.

A G E N D A

NOTICE OF ANNUAL As Ordinary Business GENERAL MEETING 1. To receive the Audited Financial Statements of the Company for the Ordinary fi nancial year ended 31 March 2008 together with the Reports of the Resolution 1 Directors and of the Auditors thereon.

2. To re-elect the following Directors retiring under the provision of Article 98(1) of the Articles of Association of the Company, and who, being eligible, have off ered themselves for re-election:- Ordinary a) Mr. Ng Hai Suan @ Ooi Hoay Seng Resolution 2 Ordinary b) Mr. Daniel John Beasley Resolution 3

3. To re-appoint Messrs. Deloitte KassimChan as Auditors of the Ordinary Company and to authorise the Board of Directors to fi x their Resolution 4 remuneration.

As Special Business

To consider and if thought fi t, to pass with or without modifi cations the following resolutions: -

4. To approve the payment of Directors’ fees of RM168,000.00 for the Ordinary fi nancial year ending 31 March 2009. Resolution 5

5. Authority to Issue Shares

“Th at pursuant to Section 132D of the Companies Act, 1965 and approvals from Bursa Malaysia Securities Berhad (“Bursa Securities”) and other relevant governmental/regulatory authorities where such authority shall be necessary, the Board of Directors be authorised to issue and allot shares in the Company from time to time until the conclusion of the next Annual General Meeting and upon such terms and conditions and for such purposes as the Board of Directors may, in their absolute discretion, deem fi t provided that the aggregate number of shares to be issued shall not exceed ten per centum (10%) of the issued share capital of the Company for the time being, and that the Board of Directors be also empowered to obtain the approval for the listing of and quotation for the additional shares so issued on Ordinary Bursa Securities.” Resolution 6

8 IQ GROUP HOLDINGS BERHAD (636944 U) 6. Proposed Renewal of Share Buy-Back Authority (“Proposed Share Buy-Back Renewal”)

“Th at subject to the provisions under the Companies Act, 1965 (the “Act”), the Companies Regulations 1966, the Memorandum and Articles of Association of the Company, the Listing Requirements of Bursa Malaysia Securities Berhad (“Bursa Securities”) and the approvals of all relevant authorities (if any), the Company be and is hereby authorised to purchase such number of ordinary shares of RM1.00 each in the Company (“IQGHB Shares”) as may be determined by the Directors of the Company from time to time through Bursa Securities upon such terms and conditions as the Directors may deem fi t and expedient in the interest of the Company provided that the aggregate number of shares purchased pursuant to this resolution shall NOTICE OF ANNUAL not exceed ten per centum (10%) of the total issued and paid-up share GENERAL MEETING capital of the Company. cont’d Th at the maximum amount of funds to be utilised for the purpose of the Proposed Share Buy-Back Renewal shall not exceed the Company’s aggregate retained profi ts and/or share premium account.

Th at authority be and is hereby given to the Directors of the Company to decide at their discretion as may be permitted and prescribed by the Act and/or any prevailing laws, rules, regulations, orders, guidelines and requirements issued by the relevant authorities for the time being in force to deal with any IQGHB Shares so purchased by the Company in the following manner:-

(i) the IQGHB Shares so purchased could be cancelled; or

(ii) the IQGHB Shares so purchased could be retained as treasury shares for distribution as share dividends to the shareholders of the Company and/or resold through Bursa Securities in accordance with the relevant rules of Bursa Securities and/or be cancelled subsequently; or

(iii) combination of (i) and (ii) above;

Th at the authority conferred by this resolution will be eff ective immediately from the passing of this ordinary resolution until:-

(i) the conclusion of the next annual general meeting of the Company following the general meeting at which such resolution was passed, at which time the authority would lapse unless renewed by ordinary resolution, either unconditionally or conditionally; or

(ii) the passing of the date on which the next annual general meeting of the Company is required by law to be held; or

(iii) the authority is revoked or varied by ordinary resolution passed by the shareholders of the Company in general meeting;

whichever occurs fi rst.

And that the Directors of the Company be and are authorised to take such steps to give full eff ect to the Proposed Share Buy-Back Renewal with full power to assent to any conditions, modifi cations, variations and/or amendments as may be imposed by the relevant authorities and/or to do all such acts and things as the Directors may deem fi t and Ordinary expedient in the best interest of the Company.” Resolution 7

ANNUAL REPORT 2008 9 7. Proposed Renewal of Shareholders’ Mandate for Recurrent Related Party Transations of a Revenue or Trading Nature and Proposed New Shareholders’ Mandate for Additional Recurrent Related Party Transactions of a Revenue or Trading Nature

“Th at subject always to the provisions of the Companies Act, 1965 (“Act”), the Memorandum and Articles of Association of the Company, the Listing Requirements of Bursa Malaysia Securities Berhad or NOTICE OF ANNUAL other regulatory authorities, approval be and is hereby given to the GENERAL MEETING Company and/or its subsidiaries to enter into recurrent related party transactions with the following corporations as set out in Sections 2.4 cont’d and 2.5 of the Circular to Shareholders dated August 29, 2008 (the “Circular”), which are necessary for the day to day operations and are carried out in the ordinary course of business and are on normal commercial terms which are not more favourable to the related parties than those generally available to the public and not detrimental to the minority shareholders as set out in the Circular (“Mandate”):-

(a) Interquartz Taiwan Ltd.

(b) IQ (America) Inc.

Th at the Directors be empowered to do all such acts and things be considered necessary or expedient to give full eff ect to the Mandate with full powers to assent to any conditions, modifi cations, revaluations, variations and/or amendments as may be imposed by the relevant authorities.

Th at such Mandate shall commence upon passing this ordinary resolution and to be in force until:-

(a) the conclusion of the next Annual General Meeting (“AGM”) of the Company at which time the authority shall lapse unless the authority is renewed by a resolution passed at the meeting;

(b) the expiration of the period within which the next AGM after that date it is required to be held pursuant to Section 143(1) of the Act (but shall not extend to such extension as may be allowed pursuant to Section 143(2) of the Act); or

(c) revoked or varied by ordinary resolution of the shareholders of the Company at a general meeting;

whichever is earlier.

And that the Directors of the Company be and are hereby authorised to complete and to do all such acts and things (including executing all such documents as may be required) as they may consider expedient or necessary to give eff ect to the transactions contemplated and/or Ordinary authorised by this ordinary resolution.” Resolution 8

8. To transact any other business of which due notice shall have been given in accordance with the Companies Act, 1965.

By Order of the Board,

TAN CHOONG KHIANG (MAICSA 7018448) Secretary

Penang

Date : August 29, 2008

10 IQ GROUP HOLDINGS BERHAD (636944 U) Notes: -

A Member of the Company entitled to attend and vote is entitled to appoint at least 1 proxy to attend and vote in his place. A proxy may but need not be a Member and the provisions of NOTICE OF ANNUAL Section 149(1)(b) of the Companies Act, 1965 shall not apply to the Company. If a Member GENERAL MEETING appoints more than one (1) proxy, the appointments shall be invalid unless he specifi es the proportions of his holdings to be represented by each proxy. cont’d

Th e instrument appointing the proxy shall be in writing, executed by or on behalf of the appointor. In the case of a corporate member, the instrument appointing a proxy must be either under its common seal or under the hand of its offi cer or attorney duly authorised.

Th e instrument appointing a proxy must be deposited at the Registered Offi ce, 3rd Floor, Wisma Wang, 251-A Jalan Burma, 10350 Penang at least 48 hours before the time for holding the Meeting or any adjournments thereof.

Explanatory Notes on Special Business

Directors’ Fees

Th is proposed Ordinary Resolution 5 if passed, will authorise the payment of Directors’ fees for the fi nancial year ending 31 March 2009 amounting to RM168,000.00.

Authority to Issue Shares

Th is proposed Ordinary Resolution 6 if passed, will empower the Directors of the Company to issue and allot shares in the Company up to an amount not exceeding 10% of the total issued capital of the Company for the time being for such purposes as the Directors consider would be in the best interest of the Company. Th is Authority will, unless revoked or varied by the Company in general meeting, will expire at the next Annual General Meeting of the Company.

Proposed Share Buy-Back Renewal

Th is proposed Ordinary Resolution 7 if passed, will give the Directors of the Company the authority to purchase its own shares up to 10% of the issued and paid-up capital of the Company. In order to avoid any delay and costs involved in covening a general meeting, it is thus appropriate to seek shareholders’ approval. Th is Authority will, unless revoked or varied by the Company in general meeting, will expire at the next Annual General Meeting of the Company.

Proposed Renewal of Shareholders’ Mandate for Recurrent Related Party Transactions of a Revenue or Trading Nature and Proposed New Shareholders’ Mandate for Additional Recurrent Related Party Transactions of a Revenue or Trading Nature

Th is proposed Ordinary Resolution 8 if passed, will authorise the Company and/or its subsdiaries to enter into recurrent related party transactions of a revenue or trading nature. Th is Authority will, unless revoked or varied by the Company in general meeting, expire at the next Annual General Meeting of the Company. Please refer to the Circular to Shareholders dated August 29, 2008 for more information.

ANNUAL REPORT 2008 11 Statement Accompanying Notice of Annual General Meeting pursuant to Paragraph 8.28(2) of the Listing Requirements of Bursa Malaysia Securities Berhad

STATEMENT Pursuant to Paragraph 8.28(2) of the Listing Requirements of Bursa Malaysia Securities ACCOMPANYING Berhad:- NOTICE OF ANNUAL (i) Th e details of the two (2) Directors seeking re-election are set out in their respective GENERAL MEETING profi les which appear in the Board of Directors’ Profi le on pages 6 & 7 of the Annual Report.

(ii) Th e details of their respective interests in the securities of the Company are set out in the Analysis of Shareholdings which appear on page 91 of the Annual Report.

12 IQ GROUP HOLDINGS BERHAD (636944 U) Statement to shareholders in relation to the Proposed Renewal of Authority for the purchase by IQ Group Holdings Berhad (the “Company” or “IQGHB”) of its Own Shares

1. Introduction

On July 9, 2008, PFA Malaysia Sdn Bhd had, on behalf of IQGHB, announced that IQGHB is proposing to seek its shareholders’ approval at its Fifth Annual General Meeting (“AGM”) of IQGHB (“IQGHB Fifth AGM”) to be convened in 2008 for the renewal of the authority for the purchase by IQGHB of its own shares of up to ten percentage (10%) of the issued and paid-up capital of IQGHB. (the “Proposed Share Statement in Buy-Back Authority”). relation to Th e purpose of this Statement is to provide you with information on the Proposed Share Proposed Share Buy-Back Authority together with your Directors’ recommendation on the Proposed Share Buy-Back Authority, and to seek your approval of the ordinary resolution on the Buy-Back Proposed Share Buy-Back Authority to be tabled at the forthcoming IQGHB Fifth AGM to be held at the Training Room, IQ Group Holdings Berhad, 149 Jalan Sultan Azlan Shah, Taman Perindustrian Bayan Lepas, Fasa 1 (FTZ), Bayan Lepas, 11900 Penang on Friday, September 26, 2008 at 3.00 p.m.

Th e notice of IQGHB Fifth AGM and the Form of Proxy are enclosed with IQGHB 2008 Annual Report.

2. Details of the Proposed Share Buy-Back Authority

At the Fourth Annual General Meeting of IQGHB held on September 17, 2007, shareholders had, inter alia, approved the existing authority for the purchase by IQGHB of its own shares of up to ten percent (10%) of the issued and fully paid-up share capital of the Company (“Share Buy-Back Authority”). In compliance with the Listing Requirements of Bursa Malaysia Securities Berhad (“Bursa Securities”) (“Listing Requirements”) and the resolution passed by the shareholders on September 17, 2007, Share Buy-Back Authority will expire at the conclusion of IQGHB Fifth AGM to be held on September 26, 2008, unless renewed by an ordinary resolution passed by the shareholders.

Th e maximum number of shares that may be bought back of up to ten percent (10%) of the issued and fully paid-up share capital of the Company would include all shares which have been previously bought back and cancelled or retained as treasury shares. Th e renewal of the authority from the shareholders for the purchase by IQGHB of its own shares will be eff ective immediately upon the passing of the ordinary resolution on the Proposed Share Buy-Back Authority at IQGHB Fifth AGM, to be held on September 26, 2008 until:-

(i) the conclusion of the next AGM of the Company, at which time all it will lapse, unless renewed by an ordinary resolution passed by the shareholders of the Company in general meeting; or

(ii) revoked or varied by an ordinary resolution passed by the shareholders of the Company in a general meeting;

whichever is earlier.

ANNUAL REPORT 2008 13 3. Source of Funds

Th e Listing Requirements stipulates that the proposed purchase by a listed company of its own shares must be made wholly out of retained profi ts and/or share premium account of the listed company. IQGHB therefore proposes to allocate an amount not exceeding the audited retained profi ts and share premium account of IQGHB for the purpose of the Proposed Share Buy-Back Authority. Based on the latest audited fi nancial statements of IQGHB as at March 31, 2008, the retained profi ts of IQGHB amounted to RM1,190,408.00. Th e funding for the purchase by IQGHB of its own shares is expected to be internally generated.

Th e actual number of ordinary shares of RM1.00 each in IQGHB (“IQGHB Shares”) to be purchased, the total amount of funds involved for each purchase and timing of the purchase would depend on market conditions and the amount of retained profi ts and share premium account, if any, of IQGHB. Statement in 4. Rationale for the Proposed Share Buy-Back Authority relation to Proposed Share Buy-Back Authority will provide IQGHB with another option to Proposed Share utilise its fi nancial resources more effi ciently. Th e Proposed Share Buy-Back Authority is expected to stabilise the supply and demand of IQGHB Shares as well as the price Buy-Back of IQGHB Shares. All things being equal, the Proposed Share Buy-Back Authority, cont’d irrespective of whether IQGHB Shares that have been previously bought-back pursuant to previous or the existing Share Buy-Back Authority (“Purchased IQGHB Shares”) are held as treasury shares or cancelled, will result in a lower number of IQGHB Shares being taken into account for the purpose of computing the earnings per share (“EPS”) of IQGHB Shares. Th e cost of the Purchased IQGHB Shares, whether held as treasury shares or cancelled, will be excluded from the shareholders’ funds of IQGHB and its subsidiaries (“IQGHB Group”) in the computation of return on equity (“ROE”) of IQGHB, which in turn is expected to have a positive impact on the price of IQGHB Shares.

5. Potential advantages and disadvantages of the Proposed Share Buy-Back Authority

Th e Proposed Share Buy-Back Authority, if exercised, is expected to potentially benefi t IQGHB and its shareholders as follows:-

(i) the EPS of IQGHB Shares and the ROE of IQGHB (all other things being equal) would be enhanced. Th is is expected to have a positive impact on the market price of IQGHB Shares which will benefi t shareholders of IQGHB; and

(ii) if the Purchased IQGHB Shares are retained as treasury shares, it will provide the Directors with the option to sell the Purchased IQGHB Shares at a higher price and generate profi ts for IQGHB. Alternatively, the Purchased IQGHB Shares retained as treasury shares may be distributed as share dividend to shareholders.

Th e potential disadvantages of the Proposed Share Buy-Back Authority, if exercised, will be the reduction in the fi nancial resources of IQGHB or loss generated in the event that the price of IQGHB Shares is below the purchase price. Th is may result in IQGHB foregoing other investment opportunities that may emerge in the future. However, the fi nancial resources of IQGHB will increase upon the resale of the Purchased IQGHB Shares which are held as treasury shares in the open market.

14 IQ GROUP HOLDINGS BERHAD (636944 U) 6. Eff ects of the Proposed Share Buy-Back Authority

Th e eff ects of the Proposed Share Buy-Back Authority on the share capital, net assets and working capital and earnings of IQGHB, shareholdings of the Directors and substantial shareholders of IQGHB, assuming IQGHB purchases IQGHB Shares up to the maximum ten percent (10%) of the issued and paid-up share capital of IQGHB, are set out as follows:-

6.1 Share Capital

In the event that all the Purchased IQGHB Shares are cancelled and on the assumption that the Proposed Share Buy-Back Authority is exercised in full, the proforma eff ects of the Proposed Share Buy-Back Authority on the issued and paid-up share capital of IQGHB as at August 5, 2008, are as follows:- Number of IQGHB Shares of RM RM1.00 each As at August 5, 2008 85,000,000 85,000,000 Cancellation of Purchased IQGHB Shares 8,500,000 8,500,000 After the Proposed Share Buy-Back Authority 76,500,000 76,500,000

However, in the event that all IQGHB Shares bought-back are retained as treasury shares, the Proposed Share Buy-Back Authority will not have any eff ect on the issued and paid-up share capital of IQGHB.

6.2 Net Assets (“NA”)

Th e Proposed Share Buy-Back Authority may increase or decrease the NA per IQGHB Share depending on the purchase price(s) of IQGHB Shares bought-back pursuant to the Proposed Share Buy-Back Authority. Th e NA per IQGHB Share will increase if the purchase price is less than the NA per IQGHB Share and will decrease if the purchase price exceeds the NA per IQGHB Share at the time when IQGHB Shares are purchased. Statement in In the event the Purchased IQGHB Shares which are retained as treasury shares are relation to resold, the NA of IQGHB Shares will increase or decrease depending on whether a gain or loss is realised upon the resale. Th e quantum of the increase or decrease in NA Proposed Share will depend on the actual disposal price and the number of the Purchased IQGHB Buy-Back Shares, retained as treasury shares, which are resold. cont’d

6.3 Working Capital

Th e Proposed Share Buy-Back Authority will reduce the working capital of IQGHB Group, the quantum of which will depend on the number of IQGHB Shares purchased and the purchase price(s) of IQGHB Shares.

6.4 Earnings

Th e eff ect of the Proposed Share Buy-Back Authority on the earnings of IQGHB will depend on, inter alia, the number of IQGHB Shares purchased and the purchase price(s) of IQGHB Shares.

ANNUAL REPORT 2008 15 6.5 Shareholding of the Directors and Substantial Shareholders

(i) Shareholding of Directors

Th e proforma eff ects of the Proposed Share Buy-Back Authority on the shareholding of the Directors of IQGHB based on the Record of Depositors as at August 5, 2008 are as follows:- Directors As at August 5, 2008 After the Proposed Share Buy Back Authority Direct % Indirect % Direct % Indirect % Chen, Wen-Chin 12,346,101 14.52 41,079,451 48.33 12,346,101 16.14 41,079,451 53.70 also known as Kent Chen (a) (a) Daniel John Beasley 15,000 0.02 - - 15,000 0.02 - - Ng Hai Suan @ Ooi Hoay Seng 40,000 0.05 500,000 0.59 40,000 0.05 500,000 0.65 (b) (b) Charlie Ong Chye Lee ------Yoon Chon Leong ------

(a) By virtue of his substantial interest in Sensorlite Limited and Sensorlite Investments Limited and interest of spouse by virtue of Section 134(12)(c) of the Companies Act, 1965 (b) By virtue of his substantial interest in Richwell Sdn. Bhd., Winful Sdn. Bhd. and Richfi eld Sdn. Bhd.

(ii) Shareholding of Substantial Shareholders

Th e proforma eff ects of the Proposed Share Buy-Back Authority on the shareholding of the Directors of IQGHB based on the Register of Substantial Shareholders as at August 5, 2008 are as follows:- Shareholders As at August 5, 2008 After the Proposed Share Buy Back Authority Direct % Indirect % Direct % Indirect % Chen, Wen-Chin 12,346,101 14.52 39,584,867 46.57 12,346,101 16.14 39,584,867 51.74 also known as Kent Chen (c) (c) Sensorlite Limited 35,659,240 41.95 - - 35,659,240 46.61 - -

(c) By virtue of his substantial interest in Sensorlite Limited and Sensorlite Investments Limited

7. Public Shareholding Spread

Th e Proposed Share Buy-Back Authority shall be in compliance with Section 67A of the Companies Act, 1965 and any prevailing laws, orders, requirements, guidelines, Statement in rules and regulations issued by the relevant authorities at the time of purchase relation to including compliance with the twenty fi ve percent (25%) public shareholding as Proposed Share required by Bursa Securities. Based on the public shareholding spread of IQGHB as at August 5, 2008 of 36.48%, assuming that the Proposed Share Buy-Back Authority Buy-Back is implemented up to ten percent (10%) of the issued and paid-up share capital of cont’d IQGHB and that the number of IQGHB Shares held directly and indirectly by the substantial shareholders and the Directors of IQGHB remain unchanged, the public shareholding spread of IQGHB is expected to be 29.42%.

16 IQ GROUP HOLDINGS BERHAD (636944 U) 8. Implications of the Proposed Share Buy-Back Authority in relation to the Malaysian Code On Take-Overs And Mergers, 1998 (“the Code”)

Th e Proposed Share Buy-Back, if carried out in full (whether shares are cancelled or Statement in treated as treasury shares), may result in a substantial shareholder and/or parties acting relation to in concert with it incurring a mandatory general off er obligation. In this respect, the Board is mindful of the provision under Practice Note 2.7 of the Code. Proposed Share Buy-Back cont’d 9. Purchases and resale of IQGHB Shares made in the previous twelve (12) months

Th ere were no shares being bought back during the fi nancial year ended March 31, 2008.

10. Directors’, Major Shareholders’, persons connected with Directors’ and Major Shareholders’ Interests

None of the Directors, Major Shareholders, persons connected with Directors and Major Shareholders have any interest, direct or indirect, in the Proposed Share Buy- Back Authority.

11. Directors’ recommendation

Your Board of Directors (the “Board”), having considered all aspects of the Proposed Share Buy-Back Authority, is of the opinion that the Proposed Share Buy-Back Authority is in the best interest of IQGHB.

Accordingly, your Board recommends that you vote in favour of the ordinary resolution on the Proposed Share Buy-Back Authority to be tabled at IQGHB Fifth AGM to be held on September 26, 2008.

12. Bursa Securities’ disclaimer liability

Bursa Securities has not perused this Statement prior to its issuance and takes no responsibility for the contents of this Statement, and makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or reliance upon the whole or any part of the contents of this Statement.

ANNUAL REPORT 2008 17 STATEMENT Th e Board of Directors of IQ Group Holdings Berhad (“the Board”) recognises the ON CORPORATE importance of maintaining a good standard of corporate governance to protect and enhance GOVERNANCE shareholder value and the fi nancial performance of the Group. cont’d Th e Board is pleased to disclose the company’s application of the Principles and the extent to which it has been complied with the Best Practices as set out in the Malaysian Code of Corporate Governance during the fi nancial year ended 31 March 2008.

A. DIRECTORS

Th e Board and Board Balance

Th e Company is headed by the Board, which assumes the overall responsibility for corporate governance, strategic direction, development and control of the Group. Th e Board duties include regular review of Group’s business operations and performance and ensuring that proper internal controls and risk management processes are in place.

Th e Board currently comprises of fi ve (5) Directors, of which two (2) are Executive Directors and three (3) are Non-Executive Directors, two (2) of whom are independent.

Th e Independent Directors play an important role in ensuring impartiality of the Board’s deliberations and decision-making process.

Collectively, the Board members have suffi ciently diverse background in business, fi nance, technology and general management, to ensure that there is a considerable depth of knowledge, expertise and experience on the Board of IQ Group Holdings Berhad.

Board Committees

Th e Board has delegated certain responsibilities to Board Committees, which operate within clearly defi ned terms of references.

Th e following committees are established to assist the Board in the discharge of its duties.

(i) Th e Audit Committee

Th e members and terms of reference of this committee together with its report are presented in pages 26 to 29 of this Annual Report.

(ii) Th e Nomination Committee

Th e Nomination Committee comprising exclusively of Non-Executive Directors where majority of whom are independent.

Th e committee was set up with the responsibility of recommending the appointment of new Board members and to assist the Board on reviewing the required mix of skills, experience and other qualities, include core competencies, which Non-Executive Directors should bring to the Board.

Th e members and terms of reference of this committee are presented in pages 30 to 32 of this Annual Report.

18 IQ GROUP HOLDINGS BERHAD (636944 U) (iii) Th e Remuneration Committee

Th e Remuneration Committee was established to assist the Board in reviewing the remuneration framework and packages of the directors and senior executives of the Group.

Th e members and terms of reference of this committee are presented in pages 33 to 35 of this Annual Report.

(iv) Employee Share Option Scheme (“ESOS”) Committee.

Th e ESOS Committee was established on 9 September 2005 and has the power to administer the ESOS in such manner, as it shall in its discretion deem fi t, including power and duties conferred upon under the By-laws of the ESOS.

Supply of Information

Th e Board and its committees have full and unrestricted access to all information pertaining to the Group’s business and aff airs.

Board Meetings are structured with a pre-set agenda. Th e Board papers are circulated to all Board members in advance of each Board Meeting to enable the Directors to consider and deliberate knowledgeably on issues and to facilitate informed decision- making.

Th e Directors also have access to the advice and services of the company’s secretary and senior management and in addition may seek independent professional advice at the expense of the company, should the need arise.

Members of the senior management team are also invited to attend Board Meeting from time to time to provide operational insight and to brief the Board on matters being deliberated.

Directors’ Training

All the Directors have completed the Mandatory Accreditation Programme (MAP) as required by Bursa Malaysia Securities Berhad for all directors of listed companies.

Directors are encouraged to attend talks, seminars, workshops, conferences and other STATEMENT training programmes to update themselves on developments in the business community as ON CORPORATE well as changes in laws and regulations. GOVERNANCE Th e training programmes and seminars attended by the members of the Board during the cont’d fi nancial year are on areas related to marketing & management.

New Directors will be briefed on company’s history, business and plant visit to enable them to have in-depth understanding of the company’s operation.

ANNUAL REPORT 2008 19 Appointments and Re-elections to the Board

Th e Nomination Committee was set up on 26 July 2005 to ensure that the process of nominating and appointing new members to the Board is fair and transparent.

Th e Nomination Committee reviews the suitability, competency and contribution of Director for re-election before recommending to the Board for submission to shareholders for approval at the company’s Annual General Meeting (“AGM”)

Th e Articles of Association of the company provide that at least one-third of the Directors are subject to retirement by rotation at each AGM and that all Directors shall retire once in every three (3) years but shall be eligible for re-election.

Newly appointed Directors shall hold offi ce until the next following AGM and shall then be eligible for re-election by shareholders.

B. DIRECTORS REMUNERATIONS

Th e Level and Make-Up of Remuneration, Procedure and Disclosure

Th e Remuneration committee was set up to review and then recommend to the Board the remuneration package for Executive and Non-Executive Directors.

Th e fees of Directors are recommended by the Board for approval by the shareholders at its Annual General Meeting.

Details of Directors’ remuneration for the fi nancial year ended 31 March 2008 are shown below.

Category Executive Director Non-Executive Director Total Salaries & other emoluments (RM) 1,329,013 1,329,013 EPF and Pension cost (RM) 149,394 149,394 Fees (RM) 48,000 117,500 165,500 STATEMENT Benefi ts-in-kind (RM) 36,717 36,717 ON CORPORATE Equity-settled GOVERNANCE Share-based payment (RM) 7,416 7,416 cont’d Total (RM) 1,570,540 117,500 1,688,040

Directors’ Remuneration in bands of RM50,000 Range of Remuneration Executive Director Non-Executive Director Total RM0 - RM50,000 3 3 RM50,001 -RM100,000 1 1 RM450,001 - RM500,000 1 1 RM1,050,000 – RM1,100,000 1 1 Total 2 4 6

20 IQ GROUP HOLDINGS BERHAD (636944 U) C. SHAREHOLDERS

Investor Relations STATEMENT Th e Board values dialogue with investors and recognises the importance of accurate, useful ON CORPORATE and timely dissemination of information to its shareholders, investors and the public. Th ese GOVERNANCE include the Annual Report and announcements made through Bursa Malaysia. cont’d Th e Company shall hold dialogue session with investors, fund managers and analysts upon request.

Th e Group also maintains a website at www.iq-group.com to enable easy and convenient access to the Group’s information.

Th e Board has identifi ed Mr. Ng. Hai Suan @ Ooi Hoay Seng as the Senior Independent Non-Executive Director to whom concerns from other member of the Board, Senior Management and the public may be conveyed. Mr. Ng. Hai Suan @ Ooi Hoay Seng can be contracted via e-mail [email protected]

Annual General Meeting

Th e Board recognises that the Annual General Meeting (“AGM”) is a platform for shareholders to meet and exchange views with the Board.

Th e AGM of the company provides shareholders with the opportunity to raise questions on various matters relating to the Group’s business and aff airs.

D. ACCOUNTABILITY AND AUDIT

Financial Reporting

Th e Board aims to ensure that the quarterly reports, annual fi nancial statements and annual report refl ect balanced, fair and accurate reporting of the Group’s fi nancial and business information.

Th e Audit Committee assists the Board by reviewing the information to be disclosed, to ensure completeness, accuracy and adequacy.

Director’s Responsibility Statement

Th e Directors are required by the Company Act, 1965 to prepare fi nancial statements for each fi nancial year which have been made out in accordance with the applicable approved accounting standards and give a true and fair view of the state of aff airs of the Group and company at the end of the fi nancial year and of the results and cash fl ow of the Group and company for the fi nancial year.

Th e Directors are satisfi ed that in preparing the fi nancial statement of the Group and the company for the fi nancial year ended 31 March 2008, the Group has used the appropriate accounting policies and applied them consistently. Th e Directors are also of the opinion that the fi nancial statements are prepared in accordance with the approved accounting standards, the provisions of the Companies Act, 1965 and the Listing Requirements of the Bursa Securities.

ANNUAL REPORT 2008 21 Internal Control

Th e Board recognises the importance of internal control systems whereby shareholders’ investments and the company assets can be safeguarded. A sound system of internal control also provides reasonable assurance of the reliability of the fi nancial statement.

While the internal control system is derived to cater for the particular needs of the Group and the risks, such controls by their nature can only provide reasonable assurance but not absolute assurance against unintended material misstatement or loss.

Th e Group is continuously looking into the adequacy and integrity of its system of internal STATEMENT control to ensure the eff ectiveness of the system. ON CORPORATE GOVERNANCE Th e statement of Internal Control, which provides an overview of the state of internal controls of the Group is set out in pages 23 to 24 of this Annual Reports. cont’d Relationship with the Auditors

Th e Company maintains a formal and transparent relationship with both the Group’s internal and external auditors.

Th e role of the Audit Committee in relation to the auditors is described in the Audit Committee Report set out in pages 26 to 29 of this Annual Report.

Th is statement is made at the Board of Directors’ Meeting held on July 9, 2008.

22 IQ GROUP HOLDINGS BERHAD (636944 U) INTRODUCTION

Th e Malaysian Code on Corporate Governance requires listed companies to maintain a sound system of internal control to safeguard shareholders’ investment and the Group’s assets. Paragraph 15.27(b) of the Listing Requirements of Bursa Malaysia Securities Berhad (“Bursa Securities”) requires Directors of the listed companies to include a statement in their annual reports on the state of their internal controls.

Th e Board of Directors of IQ Group Holdings Berhad (‘Th e Board’) is pleased to issue the following statement on the state of internal control of the Group, which has been prepared STATEMENT in accordance with the “Statement on Internal Control - Guidance for Directors of Public Listed Companies” issued by the Institute of Internal Auditors Malaysia and adopted by OF INTERNAL Bursa Securities. CONTROL

RESPONSIBILITY

Th e Board recognises the importance of sound system of internal control and risk management practices in good corporate governance. Accordingly the Board acknowledges its responsibility for: -

• Identifying principal risks and ensuring the implementation of appropriate systems to mitigate these risks; and • Reviewing the adequacy and the integrity of the Group’s internal control system and management information system, including systems for compliance with applicable laws, regulations, rules, directives and guidelines.

It should be noted that there are limitations inherent in any system of internal control as the system is designed to manage and control risk appropriately rather than to eliminate risks that may impede the achievement of the Group’s business objectives. In pursuing these objectives, this system can only provide reasonable but not absolute assurance against material misstatements or losses and fraud.

RISK MANAGEMENT FRAMEWORK

Th e Board has engaged an independent professional fi rm to assist the Board in establishing a structured framework and to standardize the risk management processes across the Group. Th e independent professional fi rm conducted Business Process Analysis, Risk Assessment Interviews and Workshops with the key personnel of the Group to identify the principal business risks faced by the selected pilot companies within the Group.

Th e Board confi rms that there will be an on-going process to identify, evaluate and manage signifi cant risks faced by the Group. Th is process shall be regularly reviewed by the Board.

INTERNAL AUDIT FUNCTION

Th e internal audit function of the Group was outsourced to Messrs KPMG. Th e Group does not carry out new internal audit activity during the fi nancial year ended 31 March 2008 as the Directors are of the opinion that the internal audit function performed by the outsourced internal auditor in the preceding year ended 31 March 2007 are adequate as to provide the Board the assurance its requires regarding the adequacy and integrity of the system of internal control of the Group.

Moving forward, the Board will continue to outsource the internal audit function to the independent professional fi rm as to assist the Audit Committee in discharging its duties and responsibilities..

Th e Audit Committee and management will also work closely with the external auditors to review the accounting and internal control issues to ensure that signifi cant issues are brought to the attention of the Board.

ANNUAL REPORT 2008 23 SYSTEM OF INTERNAL CONTROL

Th e key elements of the Group’s systems of internal control are as follows: -

• Th e Group has in place an organisation structure with clearly defi ned reporting lines aligned with business and operational requirements.

• Th e Audit Committee, chaired by a Senior Independent Non-Executive Director reviews the internal controls system and fi ndings of the internal and external auditors.

• Policies and procedures for key processes are documented and communicated to employees for application across the Group. Th ese are supplemented by operating procedures set by individual companies, as required for the type of business or geographical location of each company.

• A detailed Budgeting process is established requiring all operating companies in the Group to prepare a budget annually. Actual performance as compared with the Budget is reviewed monthly and a detailed explanation of any major variance is documented.

• Regular review of the Annual Budget is undertaken by management to identify, and where appropriate, to address signifi cant variance from the Budget.

• Eff ective reporting system, which ensures the timely generation of fi nancial information for management review has been put in place. Financial Results are reviewed quarterly by the Board and the Audit Committee.

• Specifi c responsibilities have been delegated to the relevant Board Committees, which including the Audit Committee, Remuneration Committee, Nomination Committee and ESOS Committee. Th ese committees have authority to examine all matters within their scope and report to the Board with their recommendations.

• Th e Group has in place continuous quality improvement initiatives to ensure accreditation such as ISO certifi cation.

WEAKNESS IN INTERNAL CONTROL THAT RESULTS IN MATERIAL LOSS

Th ere were no material losses incurred during the fi nancial year ended 31 March 2008 as a result of weaknesses in internal control.

Th e eff ectiveness of the system of internal control within the Group is subject to continuous STATEMENT assessment, review and improvement. Th e Group will continue to take measures to strengthen OF INTERNAL its internal control structure when necessary. CONTROL cont’d

Th is statement is made at the Board of Directors’ Meeting held on 9 July 2008 and had been reviewed by the external auditor in compliance with Bursa Malaysia’s Listing Requirements Paragraph 15.24

24 IQ GROUP HOLDINGS BERHAD (636944 U) Th e Board of Directors of IQ Group Workplace Holdings Berhad recognises the need for As an employer, the Group recognises and greater corporate social responsibility (CSR) accepts its responsibilities for providing and as an integral part of a business’s operations maintaining a safe and healthy workplace for CORPORATE and practices. all its employees, contractors and visitors. SOCIAL Th e CSR initiatives undertaken by the Th e Group Managing Director has the RESPONSIBILITY Group are summarized below: - ultimate responsibility for the health, safety STATEMENT and welfare for all employees, contractors Community and visitors and by delegation through Th e Group recognized the importance the individual companies’ health and of being a socially responsible and caring safety structure, to provide a safe working corporate citizen. Some community environment. activities held during the fi nancial ended 31 March 2008 are as follows:- Information on safety matters is communicated through various Health & Blood Donation Safety Committees, Safety Representatives, On June 5, 2007, there was a blood donation notice boards and regular management campaign being held in a subsidiary, IQ briefi ngs. Group Sdn. Bhd. Th is campaign was opened to all employees in IQ Group who Continuous learning and development were willing to participate and donate blood programmes were carried out to equip for the needy people. the employees with relevant skills and knowledge, which would enhance the Donation Drive employee’s competency and eventually add On May 17, 2007, a donation drive campaign value to the Group. was organized for the spouse of an employee who was suff ering from a Hematological Ethical Policy disease. In this donation activity, a total sum Th e Group adopted the following ethical of RM5,000 was collected from employees policy. at all levels. Customers Environment • Conduct business in an honest Th e Group acknowledges responsibility professional manner and with for care of the environment. Th e Group uncompromising integrity. considers safety and environmental factors • Individually or collectively, understand in all operating decisions and explores the needs of our customers and exceed feasible opportunities to minimize any their expectations. adverse impact from manufacturing operations, waste disposal, product design Employees and packaging. • Respect values and welcome diversity in employees, making equal employment To ensure best practice at all times, the opportunity available to all. Group measures environmental performance through regular assessments with internal Competitors guidelines and procedures, and external • Deal ethically; avoid unfair and regulations. disparaging comments about competitors. IQ Group Sdn. Bhd., a subsidiary of IQ Group Holdings Berhad is an ISO 14001 Communication certifi ed company in recognition of the • Talk, act and make ethical decisions to company’s commitment in preserving the earn loyalty and trust of others. environment. Th e company will continue with its paper usage reduction, recycling Teamwork plan, reduction of energy consumption and • Encourage co-operative eff orts at every reduction of Chemical Oxygen Demand level and across all activities in the (COD) to reduce water pollution. company. • Learn and share ideas and knowledge Th e Group is committed to the development continually. of energy effi cient, and reduced light pollution products. Products • Exceed customer expectations with right fi rst time and in time delivery of competitively priced, quality products.

ANNUAL REPORT 2008 25 Th e Board of Directors of IQ Group Holdings Berhad (“Th e Board”) is pleased to present the report on Audit Committee for the fi nancial year ended 31 March 2008. AUDIT INTRODUCTION COMMITTEE REPORT Th e Audit Committee was established on 26 July 2005, prior to the listing of IQ Group Holdings Berhad on the Main Board of Bursa Malaysia on 10 October 2005.

Th e purpose of the Audit Committee is to assist the Board in the eff ective discharge of its fi duciary responsibilities for corporate governance, timely & accurate fi nancial reporting and development of sound internal controls. COMPOSITION OF THE COMMITTEE AND MEETINGS

Th e Audit Committee comprises of the following members:-

Chairman: Ng Hai Suan @ Ooi Hoay Seng (Senior Independent Non-Executive Director)

Member: Charlie Ong Chye Lee (Independent Non-Executive Director)

Yoon Chon Leong (Non Independent Non-Executive Director)

During the fi nancial year ended 31 March 2008, a total of six (6) meetings were held. Th e details of attendance of each member at the committee meetings held during the fi nancial year are as follows:-

Name No of meeting attended Ng Hai Suan @ Ooi Hoay Seng 6 (Chairman of the Committee) Notes: Charlie Ong Chye Lee (1) 5 (1) Appointed with eff ect from 8 June 2007. Daniel John Beasley (2) 3 (2) Resigned with eff ect from 23 November 2007 Yoon Chon Leong(3) 2 (3) Appointed with eff ect from 23 November 2007 (4) (4) Resigned with eff ect from 8 June 2007 Dato’ Hong Tok Hiang @ Fang Chok Seong 1

TERMS OF REFERENCE OF THE COMMITTEE

Th e Audit Committee is governed by the following terms of reference:

1. Objectives

Th e principal objective of the Audit Committee is to assist the Board of Directors in discharging its statutory duties and responsibilities relating to accounting and reporting practices of the Group. In addition, the Committee shall:

• Evaluate the quality of the audit conducted by the internal and external auditors;

• Oversee the fi nancial information presented by management to ensure it is factual, reliable and timely;

• Oversee compliance with laws and regulations and observance of a proper code of conduct; and

• Determine the adequacy of the Group’s control environment.

26 IQ GROUP HOLDINGS BERHAD (636944 U) 2. Members

Th e Audit Committee shall be appointed by the Board of Directors from amongst their members and comprising not less than three (3) members, all of whom shall be Non- Executive Directors, with a majority being Independent Directors. An Independent Director shall be the one who fulfi ls the requirements as provided in the Listing Requirements of Bursa Malaysia Securities Berhad (LR).

At lease one (1) member of the Audit Committee must be a member of the Malaysian Institute of Accountants, or if he is not a member of the Malaysian Institute of Accountants, must have at least three (3) years working experience and either have passed the examinations specifi ed in Part I of the First Schedule of the Accountants Act, 1967, or fulfi ls such other requirements as prescribed or approved by Bursa Malaysia Securities Berhad.

Th e members of the Audit Committee shall elect a Chairman from amongst their number who shall be an Independent Non-Executive Director. No alternate Director shall be appointed as a member of the Committee.

If a member of the Audit Committee, for whatever reason, ceases to be a member with the result that the number of members is reduced below three (3), the Board of Directors shall, within three (3) months of the event, appoints such number of new members as may be required to make up the minimum number of three (3) members.

3. Authority

Th e Committee is authorized by the Board to investigate any activity within its terms of reference and shall have unlimited access to both the internal and external auditors, as well as the employees of the Group. All employees are directed to co-operate with any request made by the Committee.

Th e Committee shall also be able to convene meetings with the external Auditors, the internal Auditors or both, excluding the attendance of other directors and employees of the Company, whenever deemed necessary.

Th e Committee shall have unlimited access to all information and documents relevant to its activities, to the internal and external auditors, and to senior management of the Group.

Th e Committee shall have the authority to obtain independent legal or other professional advice, as it considers necessary.

It shall also have the power to establish Sub-Audit Committee(s) to carry out certain investigation on behalf of the Committee in such manner, as the Committee shall deem fi t and necessary. AUDIT 4. Meetings COMMITTEE REPORT Th e Committee is at liberty to determine the frequency of its meetings, which in any event shall not be less than four (4) times a year. cont’d

Th e quorum shall consist of two (2) members, majority of Independent Directors.

5. Attendance at meetings

Th e Group Financial Controller and a representative of the external and internal Auditors are invited to attend the meeting as and when necessary. Other Board members may attend meetings upon the invitation of the Committee. However, the Committee should meet with the external Auditors without executive Board members present at least twice a year. Th e Committee may invite any person to be in attendance to assist in its deliberations.

Th e Company Secretary shall be the Secretary of the Committee and shall be responsible for drawing up the agenda with concurrence of the chairperson and circulating it, supported by explanatory documentation to committee members prior to each meeting.

ANNUAL REPORT 2008 27 6. Duties

Th e duties of the Audit Committee include the followings: AUDIT • to consider and recommend the appointment and re-appointment of the external COMMITTEE Auditors, the audit fee and any questions of resignation or dismissal, if any; REPORT • to discuss with the external Auditors on their audit plan including the assistance given cont’d by the employees of the Company to the external Auditors;

• to review the quarterly and year-end fi nancial statements of the Company, focusing particularly on:

- any changes in accounting policies and practices;

- signifi cant adjustments arising from the audit;

- the going concern assumption;

- compliance with accounting standards and other legal requirements; and

- any Signifi cant and Unusual Events.

• to consider any related party transaction and confl ict of interest situation that may arise within the Company or the Group including any transaction, procedure or course of conduct that raises questions of management integrity;

• to review the major risk area of the Group;

• to discuss problems and reservations arising from the interim and fi nal audits, and any matter the auditors may wish to discuss (in the absence of management where necessary);

• to review evaluation by the External Auditors on the System of Internal Controls, the external Auditors’ management letter and management’s response;

• to do the following where an internal audit function exists:

- review the adequacy of the scope, functions, competency and resources of the internal audit function and that it has the necessary authority to carry out its work;

- review the internal audit programme, processes, results of the internal audit programme, processes or investigation undertaken and whether or not appropriate action is taken on the recommendations of the internal audit function;

- review any appraisal or assessment of the performance of members of the internal audit function;

- approve any appointment or termination of senior staff members of the internal audit function;

- review the resignation of internal audit staff members and provide the staff member the opportunity to submit his reasons for resigning;

• to review the allocation of options during the year under the company’s Employees’ Share Option Scheme (“ESOS”) to ensure that this is in compliance with the allocation criteria determined by the ESOS committee and in accordance with the By-Laws of the ESOS

• to consider the major fi ndings of internal investigations and management’s response;

• to consider other topics as defi ned by the Board.

28 IQ GROUP HOLDINGS BERHAD (636944 U) 7. Reporting

Th e Committee is authorized to regulate its own procedures and in particular the calling of meetings, the notice to be given of such meetings, the voting and proceeding thereat, the keeping of minutes and the custody, production and inspection of such meetings.

Th e minutes of meetings shall be circulated by the Secretary of the Committee to the Committee members and all the other Board members.

SUMMARY OF ACTIVITIES FOR THE FINANCIAL YEAR

During the fi nancial year under review, the activities of the Audit Committee include the following:- a) Reviewed the reappointment of the external auditors and their remuneration; b) Reviewed the external auditor’s audit plan and the adequacy of the scope of work for the year; c) Reviewed the unaudited quarterly fi nancial results and recommend the same to members of the Board for approval prior to the announcement to Bursa Malaysia Securities Berhad. d) Reviewed of the audited report for the year ended 31st March 2007 and the management letter in relation thereto. e) Reviewed the Audit Committee Report and Statement of Internal Control for inclusion into the company’s Annual Report 2007. f) Received and reviewed the internal audit report for the year ended 31 March 2007 from the outsourced Internal Auditor of the Company. g) Reviewed the allocation of the Options for the fi nancial year ended 31 March 2007 under IQ Group Holdings Berhad Employee Share Option Scheme. h) Reviewed the internal control system of the subsidiary companies. i) Reviewed the proposal from outsourced internal auditor on Enterprise Risk Management of a marketing division.

STATEMENT ON EMPLOYEE’S SHARE OPTION SCHEME AUDIT BY THE COMMITTEE (“ESOS”) COMMITTEE Th e Audit Committee has reviewed and verifi ed that the allocation of options granted during REPORT the fi nancial year ended 31 March 2008 were in compliance with the criteria determined by the ESOS committee and in accordance with the By-Laws of the ESOS. cont’d

ANNUAL REPORT 2008 29 Th e Nomination Committee was established on 26 July 2005, prior to the listing of IQ Group Holdings Berhad (“IQGHB”) on the Main Board of Bursa Malaysia on 10 October NOMINATION 2005. Th e Committee comprised of the following members:- COMMITTEE Chairman: Ng Hai Suan @ Ooi Hoay Seng REPORT (Senior Independent Non-Executive Director)

Member: Charlie Ong Chye Lee (Independent Non-Executive Director)

Yoon Chun Leong (Non Independent Non-Executive Director)

One meeting was held during the fi nancial year ended 31 March 2008. Th e details of attendance of each member at the committee meetings held during the fi nancial year are as follows:-

Name No of meeting attended Ng Hai Suan @ Ooi Hoay Seng 1 Notes: Charlie Ong Chye Lee (1) 0 (1) Appointed with eff ect from 8 June 2007. Yoon Chon Leong (2) 0 (2) Appointed with eff ect from 29 May 2007. (3) (3) Resigned with eff ect from 8 June 2007. Dato’ Hong Tok Hiang @ Fang Chok Seong 1

TERMS OF REFERENCE OF NOMINATION COMMITTEE

1. Members

Th e Nomination Committee (“NC”) of IQGHB (“the Company”) shall consist of not less than 3 Directors appointed by IQGHB Board of Directors (“IQGHB Board”), all of whom should be Non-Executive Directors.

No Alternate Director shall be appointed as a Member of the Committee unless he/she is an Alternate to the NC Member.

Th e Chairman shall be elected by the members of the NC. In the absence of the Committee Chairman, the remaining members present shall elect one of their members to chair the meeting.

If a member, for any reason, ceases to be a member, IQGHB Board shall, within three (3) months of the event, appoint a new member so that the number of members does not fall below three.

A member who wishes to retire or resign from the NC shall notify IQGHB Board in writing, giving at least three (3) months’ notice.

Th e offi ce of a member shall become vacant upon the member’s resignation/retirement/ removal or disqualifi cation as a Director of the Company.

A Secretary shall be nominated by the NC.

2. Duties

Th e NC shall make recommendations to IQGHB Board on the appointment of new executive and non-executive Directors, including making recommendations to the composition of the Board generally and the balance between executive and non-executive Directors appointed to the Board.

30 IQ GROUP HOLDINGS BERHAD (636944 U) Th e NC shall regularly review the Board structure, size and composition and make recommendations to the Board with regards to any adjustment that are deemed necessary.

Th e NC shall review the suitability and eligibility of nominating candidates for the approval of the Board, to fi ll Board vacancies as and when they arise as well as put in place plans for succession, in particular for the Chairman and Chief Executive of IQGHB.

Th e NC shall make recommendations to the Board for the continuation (or not) in services of any Director who has reached the age of 70 (seventy).

Th e NC shall recommend Directors who are retiring by rotation under the Articles of Association to be put forward for re-election.

Th e NC shall decide whether or not a Director is able to and has been adequately carrying out his/her duties as a Director, particularly when he/she has multiple board representatives.

Th e NC shall have due regard to the principles of governance and code of best practice.

Th e NC shall liaise with IQGHB Board in relation to the preparation of the NC’s report to shareholders (in the annual report) as required.

Th e NC shall keep under review the leadership needs of the organization with a view of ensuring the continued ability to compete eff ectively in the organization’s marketplace.

Th e NC shall review the performance of the Board of Directors.

3. Meetings

Th e meetings of the NC may be conducted by means of telephone conferencing or other methods of simultaneous communication by electronic or telegraphic means and the minutes of such a meeting signed by the Chairman shall be conclusive of any meeting conducted as foresaid.

A resolution in writing signed or approved by letter or facsimile by a majority of members (of whom at least one must be an independent Director) shall be eff ective for all purposes as if it were a resolution passed at a meeting of the Committee duly convened, held and constituted. Any such resolution may consist of a single document or several documents all in like form each signed by one or more members. NOMINATION Meetings of the NC will be held as the NC deems to be appropriate; however, the NC COMMITTEE should meet at least once each year. Meetings should be organized so that attendance is maximized. A meeting may be called, at any other time, by the Chairman of the NC or any REPORT member of the NC. Any Director or management may be invited to the meetings. cont’d

Th e notice of each meeting of the NC, confi rming the venue, time and date and enclosing an agenda of items to be discussed, shall other than under exceptional circumstances, be forwarded to each member of the NC not fewer than three (3) working days prior to the date of the meeting.

Th e quorum for decisions of the NC shall be any two members, including at least one independent Director, present and voting on the matter for decision.

Each member present shall have one vote. All resolutions passed in the meeting shall be by majority votes. If the votes for and against a resolution are equal, the Chairman of the meeting shall have a casting vote.

Th e Chairman (or in his absence, an alternate to the member of the NC) of the NC shall attend the Annual General Meeting and be prepared to answer questions concerning the appointment of executive and non-executive Directors. ANNUAL REPORT 2008 31 Minutes of meetings shall be taken by the NC Secretary. Minutes of all meetings shall be confi rmed by the Chairman of the meeting and circulated to all the members of the NC.

NOMINATION If the Chairman of the NC so decides the minutes shall be circulated to other members of COMMITTEE IQGHB Board, any Director may, provided that there is no confl ict of interest and with the REPORT agreement of the Chairman, obtain copies of the NC’s minutes. cont’d 4. General

Th e NC in carrying out its tasks under these terms of reference may obtain such external or other independent professional advice as it considers necessary to carry out its duties.

IQGHB Board will ensure that the NC will have access to professional advice both internally and externally at the Company’s expense in order for it to perform its duties.

Th ese terms of reference may from time to time be amended as required, subject to the approval of IQGHB Board.

5. Reporting

Th e NC is authorized to regulate its own procedures and in particular the calling of meetings, the notice to be given of such meetings, the voting and proceeding thereat, the keeping of minutes and the custody, production and inspection of such meetings.

Th e minutes of meetings shall be circulated by the Secretary of the Committee to the Committee members and all the other Board members.

SUMMARY OF ACTIVITIES FOR THE FINANCIAL YEAR

During the fi nancial year under review, the activities of the Nomination Committee include the followings:-

a) Review the required mix of skills, experience and other qualities of the Board and to assess the eff ectiveness of the Board.

b) Discuss and recommend the re-election of Directors retiring in accordance with the company’s Articles of Association.

c) Review the composition of the Board of Directors.

d) Recommend to the Board the appointment of Non Independent and Non-Executive Director of the company.

32 IQ GROUP HOLDINGS BERHAD (636944 U) Th e Remuneration Committee was established on 26 July 2005, prior to the listing of IQ Group Holdings Berhad (“IQGHB”) on the Main Board of Bursa Malaysia on 10 October 2005. Th e Committee comprises of the following members:-

Chairman: Charlie Ong Chye Lee (Independent Non-Executive Director)

Member: Ng Hai Suan @ Ooi Hoay Seng (Senior Independent Non-Executive Director)

Daniel John Beasley (Managing Director) REMUNERATION COMMITTEE During the fi nancial year ended 31 March 2008, a total of fi ve (5) meetings were held. Th e REPORT details of attendance of each member at the committee meetings held during the fi nancial year are as follows:-

Name No of meeting attended Daniel John Beasley 4 Ng Hai Suan @ Ooi Hoay Seng 5 Notes: Charlie Ong Chye Lee (1) 4 (1) Appointed with eff ect from 8 June 2007. (2) Dato’ Hong Tok Hiang @ Fang Chok Seong 1 (2) Resigned with eff ect from 8 June 2007.

TERMS OF REFERENCE OF REMUNERATION COMMITTEE

1. Members

Th e Remuneration Committee (the “RC”) of IQGHB (“the Company”) shall be appointed by IQGHB Board of Directors (“IQGHB Board”) from amongst its members, and shall comprise of not fewer than 3 members, at least one member who shall be independent.

No Alternate Director shall be appointed as a Member of the Committee unless he/she is an Alternate to a RC Member.

Th e Chairman shall be elected by members of the RC. In the absence of the committee Chairman, the remaining members present shall elect one of their members to chair the meeting.

A Secretary shall be nominated by the RC.

If a member, for any reason, ceases to be a member, IQGHB Board shall, within three (3) months of the event, appoint a new member so that the number of members does not fall below three.

A member who wishes to retire or resign from the RC shall notify IQGHB Board in writing, giving at least three (3) month’s notice.

Th e offi ce of a member shall become vacant upon the member’s resignation/retirement/ removal or disqualifi cation as a Director of the Company.

2. Meetings

Th e meetings of the RC may be conducted by means of telephone conferencing or other methods of simultaneous communication by electronic or telegraphic means and the minutes of such a meeting signed by the Chairman shall be conclusive of any meeting conducted as aforesaid.

ANNUAL REPORT 2008 33 A resolution in writing signed or approved by letter or facsimile by a majority of members (of whom must be Non-executive Directors and at least one must be an independent Director) shall be eff ective for all purposes as if it were a resolution passed at a meeting of the Committee duly convened, held and constituted. Any such resolution may consist of a single document or several documents all in like form each signed by one or more members.

Th e meetings shall be held at least once a year. Additional meetings may also be held by the RC to discuss other issues, which the RC considers necessary.

Th e RC shall have full discretion with regard to the calling of the meetings and the proceedings thereat and may invite any Director or management to its meetings.

Th e RC shall appoint a secretary who shall attend all meetings and minute the proceedings and resolutions of all committee meetings, including the names of those present and in attendance. Th e minutes shall be confi rmed by the Chairman of the meeting and circulated to all members of the RC.

Th e quorum necessary for the transaction of business shall be two, the majority of whom must be Non-Executive Directors. A duly convened meeting of the committee at which a quorum is present shall be competent to exercise all or any of the authorities, power and discretion vested or exercisable by the Committee.

Notice Th e notice of each meeting of the RC, confi rming the venue, time and date and enclosing an agenda of items to be discussed, shall other than under exceptional circumstances, be forwarded to each member of the RC not fewer than three (3) working days prior to the date of the meeting.

Voting Each member present shall have one vote. All resolutions passed in the meeting shall be by majority votes. If the votes for and against a resolution are equal, the Chairman of the meeting shall have a casting vote. REMUNERATION COMMITTEE 3. Duties REPORT Th e duties of the RC shall be (on an annual basis): cont’d (i) to review and recommend to IQGHB Board of Directors in consultation with Management and the Chairman of the Board, a framework of remuneration and to determine the specifi c remuneration packages and terms of employment for each of the executive Directors and senior executives/divisional Directors those reporting directly to the Chairman and/or the Group Managing Director/CEO of the Group including those employees related to the executive Directors and controlling shareholders of the Group.

(ii) to recommend to IQGHB Board in consultation with Management and the Chairman of the Board, any long term incentive schemes which may be set up from time to time and to do all acts necessary in connection herewith.

(iii) to carry out its duties in the manner that it deemed expedient, subject always to any regulations or restrictions that may be imposed upon the RC by IQGHB Board from time to time.

(iv) the RC shall have full discretion with regard to the calling of the meetings and the proceedings thereat and may invite any Director or management to its meetings.

(v) to review the remuneration for Non-executive Directors and Independent Directors are linked to their level of responsibilities undertaken and contribution to the eff ective functioning of the Board.

34 IQ GROUP HOLDINGS BERHAD (636944 U) 4. General REMUNERATION COMMITTEE Th e RC in carrying out its tasks under these terms of reference may obtain such external or other independent professional advice, as it considers necessary to carry out its duties. REPORT cont’d IQGHB Board will ensure that the RC has access to professional advice both internally and externally at the Company’s expense in order for it to perform its duties.

Th ese terms of reference may from time to time be amended as required, subject to the approval of the Board.

5. Reporting

Th e RC is authorized to regulate its own procedures and in particular the calling of meetings, the notice to be given of such meetings, the voting and proceeding thereat, the keeping of minutes and the custody, production and inspection of such meetings.

Th e minutes of meetings shall be circulated by the Secretary of the Committee to the Committee members and all the other Board members.

SUMMARY OF ACTIVITIES FOR THE FINANCIAL YEAR

During the fi nancial year under review, the activities of the Nomination Committee include the followings:- a) Review and discuss the payment of Directors’ Fees for the fi nancial year ended 31 March 2008. b) Review and discuss the Directors’ Remuneration and remunerations for Senior Executives of the Group. c) Review and discuss the profi t sharing and bonus for Directors and Senior Executives of the Group. d) Discuss and review the Service Agreement of the Chief Executive Offi cer of the Group.

ANNUAL REPORT 2008 35 ADDITIONAL Th e information set out below is disclosed in compliance with the Listing Requirements COMPLIANCE of Bursa Malaysia.

INFORMATION 1. Status of utilization of proceeds from the Initial Public Off erings (“IPO”)

Th e IPO proceeds were received on 11 October 2005. Th e amount of RM23.411million was derived from the issuance of 13,006,000 new ordinary shares of RM1.00 each at an issue price of RM1.80 per share to Malaysian Public, eligible Directors, employees and persons who have contributed to the success of the Group.

As of August 15, 2008, the following are the details of the utilization of the IPO Proceeds.

Purpose Proposed Actual Intended Deviation Explanations utilisation utilisation Timeframe RM’000 RM’000 for Utilisation RM’000 % i. Investment in the application of new technology/developing new products and enhancing existing products:- (a) Purchase of plant and equipment 11,405 4,532 by Sep 2009 6,873 62.2 R&D projects in-progress (b) R& D expenditure 3,595 3,670 (75) ii. Working capital 5,711 5,711 - iii. Estimated Listing expenses 2,700 2,901 (201) Total 23,411 16,814 6,597

2. Share Buy-back

At the Annual General Meeting of the Company held on 17 September 2007, the shareholders of the Company had granted a mandate for the Company to purchase its own ordinary shares of RM1.00 each as may be determined by the Directors of the Company up to a maximum of 10% of the issued and paid up capital of the Company. Th e mandate expired upon the conclusion of the next Annual General Meeting of the Company.

Th e Company did not undertake any share buy-backs during the fi nancial year ended March 31, 2008.

3. Options, Warrants or Convertible Securities

During the fi nancial year ended 31 March 2008, the Company granted share options of 891,000 ordinary shares of RM1.00 each to eligible employees. No share options were exercised during the fi nancial year in respect of the Company’s employee share option scheme.

Th e Company did not issued any convertible securities or warrants during the fi nancial year ended March 31, 2008.

4. American Depository Receipt (ADR)/ Global Depository Receipt (GDR)

Th e Company did not sponsor any ADR or GDR programme during the fi nancial year ended March 31, 2008.

5. Sanctions and/ or Penalties

Th ere were no material sanctions and /or penalties imposed on the Company and its subsidiaries, directors or management by the relevant regulatory bodies during the fi nancial year ended March 31, 2008.

6. Non-Audit Fee

Th e amount of non-audit fees paid and payable to the external auditors and a company affi liated to the external auditors of the Company by the Group for the fi nancial year ended 31 March 2008 amounted to RM26,350.

36 IQ GROUP HOLDINGS BERHAD (636944 U) 7. Profi t Estimate, forecast or projection

Th e Company did not release any profi t estimate, forecast and projection during the fi nancial year ended 31 March 2008.

8. Profi t Guarantee

Th ere is no profi t guarantee given by the Company during the fi nancial year ended 31 March 2008.

9. Material Contracts Involving Directors and Substantial Shareholders.

Th ere were no material contracts entered into by the Company and its subsidiaries involving the interests of directors and substantial shareholders, either still subsisting as at 31 March 2008 or since the end of previous fi nancial year ended 31 March 2007.

10. Revaluation Policy on Landed Properties

Property, plant and equipment of the Group are stated at cost less accumulated depreciation. Th ere was no revaluation of property, plant and equipment for the fi nancial year ended 31 March 2008.

11. Recurrent related party transactions (“RRPT”)

Signifi cant transactions between the Group and its related parties during the fi nancial year were as follows:-

Interquartz Taiwan Ltd. RM Purchase of raw materials 4,419,667 Rental payables 747,224 Sales commission paid/ payables 175,479 Purchase of goods-in-transit 4,502 Purchase of consumables tools 123 Miscellaneous purchases 249,845

IQ (America) Inc. Sales of fi nished goods 4,462,088 Sales commission payable 446,248

Th e relationships between IQ Group Holdings Berhad (“IQGHB”) and the related parties are as follows:-

Interquartz Taiwan Ltd. Chen, Wen-Chin also known as Kent Chen, the Group Executive Chairman and Substantial Shareholder of IQGHB is also the Director and Substantial Shareholder of Interquartz Taiwan Ltd.

IQ ( America) Inc. Chen, Wen-Chin also known as Kent Chen, is the Director and Substantial Shareholder of Sensorlite Limited. Sensorlite Limited is the Substantial Shareholder of IQGHB and the ADDITIONAL holding Company of IQ (America) Inc. COMPLIANCE Th e directors are of the opinion that the above transactions have been entered into in the INFORMATION normal course of business and have been established under terms that are no less favorable than those arranged with independent third parties. cont’d

12. Accounts

Th e Group Financial Controller of IQ Group Holdings Berhad signed the statutory declaration in relations to the fi nancial statements for the year ended 31 March 2008. She is a member of the Malaysian Institute of Accountant and thus fulfi lls the requirement of Para 9.27 of the Listing Requirements.

ANNUAL REPORT 2008 37 FINANCIAL STATEMENTS

39 - 43 Directors’ report

44 - 45 Report of the auditors

46 Income statements

47 - 48 Balance sheets

49 - 51 Statements of changes in equity

52 - 53 Cash fl ow statements

54 - 88 Notes to the fi nancial statements

89 Statement by directors

89 Declaration by the offi cer primarily responsible for the fi nancial management of the Company

38 IQ GROUP HOLDINGS BERHAD (636944 U) DIRECTORS’ REPORT

Th e directors of IQ GROUP HOLDINGS BERHAD have pleasure in submitting their report and the audited fi nancial statements of the Group and of the Company for the fi nancial year ended March 31, 2008.

PRINCIPAL ACTIVITIES

Th e Company is principally involved in investment holding and providing management services. Th e principal activities of the subsidiary companies are disclosed in Note 13 to the Financial Statements. Th ere have been no signifi cant changes in the nature of the activities of the Group and of the Company during the fi nancial year.

RESULTS OF OPERATIONS Th e Group Th e Company RM RM

Profi t for the year 1,179,251 144,504

In the opinion of the directors, the results of operations of the Group and of the Company during the fi nancial year have not been substantially aff ected by any item, transaction or event of a material and unusual nature.

DIVIDENDS

A fi nal dividend of 4 sen per ordinary share, tax exempt, amounting to RM3,400,000 in respect of the fi nancial year ended March 31, 2007 which was proposed and dealt with in the previous directors’ report was declared and paid by the Company during the current fi nancial year.

RESERVES AND PROVISIONS

Th ere were no material transfers to or from reserves or provisions during the fi nancial year other than those disclosed in the fi nancial statements.

ISSUE OF SHARES AND DEBENTURES

Th e Company has not issued any new shares or debentures during the fi nancial year.

EMPLOYEES’ SHARE OPTION SCHEME

Th e Company implemented an Employees’ Share Option Scheme (“ESOS”) on September 9, 2005 for a period of 5 years. Th e ESOS is governed by the by-laws which were approved by the shareholders at an Extraordinary General Meeting held on September 15, 2005.

Under the Company’s ESOS, options to subscribe for unissued new ordinary shares of RM1.00 each in the Company were granted to eligible directors and employees of the Company and its subsidiary companies.

Details of the ESOS are set out in Note 19 to the Financial Statements.

ANNUAL REPORT 2008 39 DIRECTORS’ REPORT (Cont’d)

EMPLOYEES’ SHARE OPTION SCHEME (Cont’d)

According to Section 169(11) of the Companies Act, 1965, the Company is required to disclose the name of persons to whom any option has been granted during the fi nancial year. Pursuant to Section 169A of the Companies Act, 1965, the Company has applied and has been granted exemption by the Companies Commission of Malaysia from having to disclose the name of employees who have been granted less than 30,000 options. Th e grantees with number of options granted for 30,000 and above during the fi nancial year are as follows:

No. of options over ordinary shares Exercise price per ordinary Balance as Balance as Name of grantee Exercisable from share of 1.4.2007 Granted Exercised of 31.3.2008 RM

Chee Ting Ting October 30, 2007 1.23 112,000 56,000 - 168,000 Loo Weng Keong October 30, 2007 1.23 112,000 56,000 - 168,000 Foong Kin Wah October 30, 2007 1.23 79,000 56,000 - 135,000

Details of options granted to directors are disclosed in the Section on Directors’ Interest in this report.

OTHER FINANCIAL INFORMATION

Before the income statements and balance sheets of the Group and of the Company were made out, the directors took reasonable steps:

(a) to ascertain that proper action had been taken in relation to the writing off of bad debts and the making of allowance for doubtful debts, and have satisfi ed themselves that there are no known bad debts to be written off and that no allowance for doubtful debts is required; and

(b) to ensure that any current assets which were unlikely to realise their book values in the ordinary course of business have been written down to their estimated realisable values.

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

(a) which would require the writing off of bad debts or the setting up of allowance for doubtful debts in the fi nancial statements of the Group and of the Company; or

(b) which would render the values attributed to current assets in the fi nancial statements of the Group and of the Company misleading; or

(c) which have arisen which render adherence to the existing method of valuation of assets or liabilities of the Group and of the Company misleading or inappropriate; or

(d) not otherwise dealt with in this report or fi nancial statements which would render any amount stated in the fi nancial statements of the Group and of the Company misleading.

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

(a) any charge on the assets of the Group and of the Company which has arisen since the end of the fi nancial year which secures the liability of any other person; or

40 IQ GROUP HOLDINGS BERHAD (636944 U) DIRECTORS’ REPORT (Cont’d)

OTHER FINANCIAL INFORMATION (Cont’d)

(b) any contingent liability of the Group and of the Company which has arisen since the end of the fi nancial year.

No contingent or other liability has become enforceable or is likely to become enforceable within the period of twelve months after the end of the fi nancial year which, in the opinion of the directors, will or may substantially aff ect the ability of the Group and of the Company to meet their obligations as and when they fall due.

In the opinion of the directors, no item, transaction or event of a material and unusual nature has arisen in the interval between the end of the fi nancial year and the date of this report which is likely to aff ect substantially the results of operations of the Group and of the Company for the succeeding fi nancial year.

SIGNIFICANT EVENTS DURING THE FINANCIAL YEAR

On August 7, 2007, the Company had incorporated a new wholly-owned subsidiary company known as IQ Group (Dongguan) Ltd. in the People’s Republic of China with a registered capital of USD1,000,000. On February 22, 2008, IQ Group (Dongguan) Ltd. has increased its registered capital from USD1,000,000 to USD1,750,000. As of March 31, 2008, the Company has invested a total sum of USD960,000 (equivalent to RM3,194,560) in IQ Group (Dongguan) Ltd..

DIRECTORS

Th e following directors served on the Board of the Company since the date of the last report:

Chen, Wen-Chin also known as Kent Chen Daniel John Beasley Ng Hai Suan @ Ooi Hoay Seng Yoon Chon Leong Charlie Ong Chye Lee (appointed on June 8, 2007) Dato’ Hong Tok Hiang @ Fang Chok Seong (resigned on June 8, 2007)

DIRECTORS’ INTEREST

Th e shareholdings in the Company of those who were directors at the end of the fi nancial year, as recorded in the Register of Directors’ Shareholdings kept by the Company under Section 134 of the Companies Act, 1965, are as follows:

No. of ordinary shares of RM1.00 each Balance as of Balance as of Shares in the Company 1.4.2007 Bought Sold 31.3.2008

Direct interest: Chen, Wen-Chin also known as Kent Chen 12,299,101 47,000 - 12,346,101 Daniel John Beasley 15,000 - - 15,000 Ng Hai Suan @ Ooi Hoay Seng 40,000 - - 40,000 Indirect interest: Chen, Wen-Chin also known as Kent Chen (through his spouse, Sensorlite Limited and Sensorlite Investments Limited) 37,153,824 3,925,627 - 41,079,451

ANNUAL REPORT 2008 41 DIRECTORS’ REPORT (Cont’d)

DIRECTORS’ INTEREST (Cont’d)

No. of ordinary shares of RM1.00 each Balance as of Balance as of Shares in the Company 1.4.2007 Bought Sold 31.3.2008 Indirect interest: Ng Hai Suan @ Ooi Hoay Seng (through Winful Sdn. Bhd., Richwell Sdn. Bhd. and Richfi eld Sdn. Bhd.) 500,000 - - 500,000

In addition to the above, the following directors are deemed to have interest in the shares of the Company to the extent of the options granted to them pursuant to the ESOS of the Company:

No. of options over ordinary shares Balance as of Balance as of 1.4.2007 Granted Exercised 31.3.2008

Chen, Wen-Chin also known as Kent Chen 56,000 56,000 - 112,000 Daniel John Beasley 56,000 56,000 - 112,000

By virtue of his interests in the shares of the Company, Mr. Chen, Wen-Chin also known as Kent Chen is also deemed to have benefi cial interests in the shares of all the subsidiary companies of IQ Group Holdings Berhad to the extent that IQ Group Holdings Berhad has an interest.

DIRECTORS’ BENEFITS

Since the end of the previous fi nancial year, none of the directors of the Company has received or become entitled to receive any benefi t (other than those disclosed as directors’ remuneration and benefi t-in-kind in the fi nancial statements) by reason of a contract made by the Company or a related corporation with the director or with a fi rm of which he is a member, or with a company in which he has a substantial fi nancial interest except for any benefi ts that may be deemed to have arisen by virtue of the transactions mentioned in Note 26 to the Financial Statements.

During and at the end of the fi nancial year, no arrangement subsisted to which the Company was a party whereby directors of the Company might acquire benefi ts by means of the acquisition of shares in, or debentures of, the Company or any other body corporate except for options granted to certain directors pursuant to the Company’s ESOS as disclosed above.

42 IQ GROUP HOLDINGS BERHAD (636944 U) DIRECTORS’ REPORT (Cont’d)

AUDITORS

Th e auditors, Messrs. Deloitte KassimChan, have indicated their willingness to continue in offi ce.

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

CHEN, WEN-CHIN ALSO KNOWN AS KENT CHEN

DANIEL JOHN BEASLEY

Penang,

July 29, 2008

ANNUAL REPORT 2008 43 INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF IQ GROUP HOLDINGS BERHAD (Incorporated in Malaysia)

Report on the Financial Statements

We have audited the fi nancial statements of IQ Group Holdings Berhad, which comprise the balance sheets as of March 31, 2008 of the Group and of the Company, and the income statements, statements of changes in equity and cash fl ow statements of the Group and of the Company for the year then ended, and a summary of signifi cant accounting policies and other explanatory notes, as set out on pages 46 to 88.

Directors’ Responsibility for the Financial Statements

Th e directors of the Company are responsible for the preparation and fair presentation of these fi nancial statements in accordance with the applicable Malaysian Accounting Standards Board approved accounting standards in Malaysia and the Companies Act, 1965 in Malaysia. Th is responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of fi nancial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditors’ Responsibility

Our responsibility is to express an opinion on these fi nancial statements based on our audit and to report our opinion to you, as a body, in accordance with Section 174 of the Companies Act, 1965 and for no other purpose. We do not assume responsibility towards any other person for the contents of this report.

We conducted our audit in accordance with approved standards on auditing in Malaysia. Th ose standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the fi nancial statements are free from material misstatement.

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

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

Opinion

In our opinion, the fi nancial statements have been properly drawn up in accordance with the applicable Malaysian Accounting Standards Board approved accounting standards in Malaysia and the Companies Act, 1965 in Malaysia so as to give a true and fair view of the fi nancial position of the Group and of the Company as of March 31, 2008 and their fi nancial performance and cash fl ows for the year then ended.

(FORWARD)

44 IQ GROUP HOLDINGS BERHAD (636944 U) INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF IQ GROUP HOLDINGS BERHAD (Incorporated in Malaysia) (Cont’d)

Report on Other Legal and Regulatory Requirements

In accordance with the requirements of the Companies Act, 1965 in Malaysia, we also report the following: a) In our opinion, the accounting and other records and the registers required by the Act to be kept by the Company and its subsidiary companies of which we have acted as auditors have been properly kept in accordance with the provisions of the Act. b) We have considered the fi nancial statements and auditors’ reports of the subsidiary companies, IQ (Europe) Limited, IQ Japan Co. Ltd. and IQ Group (Dongguan) Ltd. of which we have not acted as auditors. c) We are satisfi ed that the fi nancial statements of the subsidiary companies that have been consolidated with the fi nancial statements of the Company are in form and content appropriate and proper for the purposes of the preparation of the fi nancial statements of the Group, and we have received satisfactory information and explanations as required by us for those purposes. d) Th e auditors’ reports on the fi nancial statements of the subsidiary companies did not contain any qualifi cation or any adverse comment made under Section 174(3) of the Act.

DELOITTE KASSIMCHAN AF 0080 Chartered Accountants

LEE CHENG HEOH 2225/04/10 (J) Chartered Accountant

Penang,

July 29, 2008

ANNUAL REPORT 2008 45 INCOME STATEMENTS FOR THE YEAR ENDED MARCH 31, 2008

Th e Group Th e Company Note 2008 2007 2008 2007 RM RM RM RM

Revenue 5 139,312,222 153,765,093 6,331,914 13,941,408

Investment revenue 730,043 1,132,050 378,935 505,829

Other gains and losses (1,002,059) 1,191,805 (581,562) (292,051)

Changes in inventories of fi nished goods and work-in-progress 3,465,792 5,457,081 - -

Raw materials and consumables used (63,089,232) (72,273,023) - -

Purchase of trading goods (9,036,836) (9,738,352) - -

Employee benefi ts expense 6 (24,440,108) (23,789,345) (3,543,562) (3,544,388)

Depreciation of property, plant and equipment (5,027,853) (5,024,092) (15,834) (11,692)

Amortisation of prepaid lease payments (48,454) (48,454) - -

Amortisation of development costs (2,357,842) (1,845,838) - -

Finance costs (98,411) - - -

Other operating expenses (36,218,898) (33,302,026) (2,196,890) (2,173,093)

Profi t before tax 7 2,188,364 15,524,899 373,001 8,426,013

Income tax expense 8 (1,009,113) (2,926,458) (228,497) (235,209)

Profi t for the year 1,179,251 12,598,441 144,504 8,190,804

Earnings per share Basic/ diluted 9 1.39 sen 14.82 sen

Th e accompanying notes form an integral part of the fi nancial statements.

46 IQ GROUP HOLDINGS BERHAD (636944 U) BALANCE SHEETS AS OF MARCH 31, 2008

Th e Group Th e Company Note 2008 2007 2008 2007 RM RM RM RM

ASSETS

Non-current assets Property, plant and equipment 10 25,213,605 22,168,942 227,306 132,530 Prepaid lease payments 11 1,996,626 2,045,080 - - Product development costs 12 7,277,991 7,322,470 - - Investment in subsidiary companies 13 - - 75,261,197 72,036,697 Deferred tax assets 14 107,581 145,308 - -

Total non-current assets 34,595,803 31,681,800 75,488,503 72,169,227

Current assets Inventories 15 35,828,803 38,185,813 - - Trade and other receivables 16 30,874,789 35,795,934 16,937,865 12,003,448 Other assets 17 2,025,928 1,526,271 2,000 2,000 Current tax assets 2,121,583 2,394,051 - - Short-term deposits with licensed banks 18 15,839,000 26,875,000 7,800,000 14,200,000 Cash and bank balances 18 15,942,319 9,756,497 809,165 263,296

Total current assets 102,632,422 114,533,566 25,549,030 26,468,744

Total assets 137,228,225 146,215,366 101,037,533 98,637,971

(FORWARD)

ANNUAL REPORT 2008 47 BALANCE SHEETS AS OF MARCH 31, 2008 (Cont’d)

Th e Group Th e Company Note 2008 2007 2008 2007 RM RM RM RM

EQUITY AND LIABILITIES

Capital and reserves attributable to equity holders of the Company Share capital 19 85,000,000 85,000,000 85,000,000 85,000,000 Reserves 20 4,522,904 5,511,606 7,698,373 7,652,380 Retained earnings 21 17,541,275 19,762,024 1,190,408 4,445,904

Total equity 107,064,179 110,273,630 93,888,781 97,098,284

Non-current liabilities Deferred tax liabilities 22 1,480,035 1,843,379 38,000 - Long-term loan 23 1,763,651 - - -

Total non-current liabilities 3,243,686 1,843,379 38,000 -

Current liabilities Trade and other payables 24 25,403,454 33,119,485 7,108,071 1,524,918 Long-term loan 23 419,348 - - - Current tax liabilities 1,097,558 978,872 2,681 14,769

Total current liabilities 26,920,360 34,098,357 7,110,752 1,539,687

Total liabilities 30,164,046 35,941,736 7,148,752 1,539,687

Total equity and liabilities 137,228,225 146,215,366 101,037,533 98,637,971

Th e accompanying notes form an integral part of the fi nancial statements.

48 IQ GROUP HOLDINGS BERHAD (636944 U) STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED MARCH 31, 2008

Th e Group

Share Share Share Translation Option Retained Capital Premium Reserve Reserve Earnings Total RM RM RM RM RM RM

Balance as of April 1, 2006 85,000,000 7,503,952 (89,761) 65,719 14,813,583 107,293,493

Net loss recognised directly in equity: Exchange diff erence on translation of net assets of foreign subsidiary companies - - (2,051,013) - - (2,051,013)

Profi t for the year - - - - 12,598,441 12,598,441

Total recognised income and expense - - (2,051,013) - 12,598,441 10,547,428

Recognition of share-based payment - - - 82,709 - 82,709

Dividends (Note 25) - - - - (7,650,000) (7,650,000)

Balance as of March 31, 2007 85,000,000 7,503,952 (2,140,774) 148,428 19,762,024 110,273,630

(FORWARD)

ANNUAL REPORT 2008 49 STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED MARCH 31, 2008 (Cont’d)

Th e Group (Cont’d)

Share Share Share Translation Option Retained Capital Premium Reserve Reserve Earnings Total RM RM RM RM RM RM

Balance as of April 1, 2007 85,000,000 7,503,952 (2,140,774) 148,428 19,762,024 110,273,630

Net loss recognised directly in equity: Exchange diff erence on translation of net assets of foreign subsidiary companies - - (1,034,695) - - (1,034,695)

Profi t for the year - - - - 1,179,251 1,179,251

Total recognised income and expense - - (1,034,695) - 1,179,251 144,556

Recognition of share-based payment - - - 45,993 - 45,993

Dividends (Note 25) - - - - (3,400,000) (3,400,000)

Balance as of March 31, 2008 85,000,000 7,503,952 (3,175,469) 194,421 17,541,275 107,064,179

Th e accompanying notes form an integral part of the fi nancial statements.

50 IQ GROUP HOLDINGS BERHAD (636944 U) STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED MARCH 31, 2008 (Cont’d)

Th e Company

Share Share Share Option Retained Capital Premium Reserve Earnings Total RM RM RM RM RM

Balance as of April 1, 2006 85,000,000 7,503,952 65,719 3,905,100 96,474,771

Profi t for the year, representing total recognised income and expense - - - 8,190,804 8,190,804

Recognition of share-based payment: Recognised in profi t and loss - - 43,687 - 43,687 Included in investment in subsidiary companies - - 39,022 - 39,022

Dividends (Note 25) - - - (7,650,000) (7,650,000)

Balance as of March 31, 2007 85,000,000 7,503,952 148,428 4,445,904 97,098,284

Balance as of April 1, 2007 85,000,000 7,503,952 148,428 4,445,904 97,098,284

Profi t for the year, representing total recognised income and expense - - - 144,504 144,504

Recognition of share-based payment: Recognised in profi t and loss - - 16,053 - 16,053 Included in investment in subsidiary companies - - 29,940 - 29,940

Dividends (Note 25) - - - (3,400,000) (3,400,000)

Balance as of March 31, 2008 85,000,000 7,503,952 194,421 1,190,408 93,888,781

Th e accompanying notes form an integral part of the fi nancial statements.

ANNUAL REPORT 2008 51 CASH FLOW STATEMENTS FOR THE YEAR ENDED MARCH 31, 2008

Th e Group Th e Company 2008 2007 2008 2007 RM RM RM RM

CASH FLOWS FROM OPERATING ACTIVITIES Profi t for the year 1,179,251 12,598,441 144,504 8,190,804 Adjustments for: Depreciation of property, plant and equipment 5,027,853 5,024,092 15,834 11,692 Amortisation of development costs 2,357,842 1,845,838 - - Unrealised loss on foreign exchange 1,356,628 48,915 496,867 244,796 Income tax expense 1,009,113 2,926,458 228,497 235,209 Development costs written off 723,897 - - - Property, plant and equipment written off 150,931 63,632 - - Interest expenses 98,411 - - - Amortisation of prepaid lease payments 48,454 48,454 - - Expense recognised in profi t or loss in respect of equity-settled share-based payment 45,993 82,709 16,053 43,687 Interest income (730,043) (1,132,050) (378,935) (505,829) Gain on disposal of property, plant and equipment (337,318) (65,671) - - Inventories written off - 237,195 - - Gross dividend income - - - (7,623,170)

10,931,012 21,678,013 522,820 597,189 Movements in working capital: Decrease/ (Increase) in: Inventories 2,357,010 (9,991,171) - - Trade and other receivables 5,187,329 (5,502,649) (5,578,701) (970,025) Other assets (499,657) (111,258) - -

(Decrease)/ Increase in: Trade and other payables (7,578,719) 4,624,653 66,025 (19,144)

Cash generated from/ (used in) operations 10,396,975 10,697,588 (4,989,856) (391,980)

Tax refunded 1,285,495 - - - Tax paid (2,242,799) (2,734,354) (202,585) (222,782) Retirement benefi ts paid - (39,628) - - Dividend received - - - 7,623,170

Net cash generated from/ (used in) operating activities 9,439,671 7,923,606 (5,192,441) 7,008,408

(FORWARD)

52 IQ GROUP HOLDINGS BERHAD (636944 U) CASH FLOW STATEMENTS FOR THE YEAR ENDED MARCH 31, 2008 (Cont’d)

Th e Group Th e Company 2008 2007 2008 2007 Note RM RM RM RM

CASH FLOWS FROM INVESTING ACTIVITIES Interest received 788,002 1,132,050 422,759 505,829 Proceeds from disposal of property, plant and equipment 373,865 103,953 - - Purchase of property, plant and equipment (8,605,152) (4,559,454) (110,610) (144,222) Payment for capitalised development costs (3,026,192) (3,150,724) - - Acquisition of a subsidiary company 13 - - (3,194,560) (3,673)

Net cash (used in)/ generated from investing activities (10,469,477) (6,474,175) (2,882,411) 357,934

CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term loan 2,380,388 - - - Dividends paid (3,400,000) (11,900,000) (3,400,000) (11,900,000) Repayment of long-term loan (209,946) - - - Interest paid (98,411) - - - Repayment of hire-purchase payables - (3,491) - - Advances from/ (repayment to) subsidiary companies - - 5,620,721 (787,066)

Net cash (used in)/ generated from fi nancing activities (1,327,969) (11,903,491) 2,220,721 (12,687,066)

NET DECREASE IN CASH AND CASH EQUIVALENTS (2,357,775) (10,454,060) (5,854,131) (5,320,724)

Eff ect of foreign exchange rate changes (2,492,403) (2,151,672) - -

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 36,631,497 49,237,229 14,463,296 19,784,020

CASH AND CASH EQUIVALENTS AT END OF YEAR 18 31,781,319 36,631,497 8,609,165 14,463,296

Th e accompanying notes form an integral part of the fi nancial statements.

ANNUAL REPORT 2008 53 NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 2008

1. GENERAL INFORMATION

Th e Company is principally involved in investment holding and providing management services. Th e principal activities of the subsidiary companies are disclosed in Note 13. Th ere have been no signifi cant changes in the nature of the activities of the Group and of the Company during the fi nancial year.

Th e Company is a public limited liability company, incorporated and domiciled in Malaysia and is listed on the Main Board of Bursa Malaysia Securities.

Th e Company’s registered offi ce and principal place of business are at 3rd Floor, Wisma Wang, Jalan Burma, 10350 Penang and 149, Jalan Sultan Azlan Shah, Taman Perindustrian Bayan Lepas, Fasa I (FTZ) Bayan Lepas, 11900 Penang, Malaysia respectively.

Th e fi nancial statements of the Group and of the Company were authorised for issue by the Board of Directors in accordance with a resolution of the directors on July 29, 2008.

2. BASIS OF PREPARATION OF FINANCIAL STATEMENTS

Th e fi nancial statements of the Group and of the Company have been prepared in accordance with the provisions of the Companies Act, 1965 and the applicable Malaysian Accounting Standards Board (“MASB”) approved accounting standards in Malaysia.

3. SIGNIFICANT ACCOUNTING POLICIES

Basis of accounting

Th e fi nancial statements of the Group and the Company expressed in Ringgit Malaysia (“RM”) have been prepared under the historical cost convention unless otherwise stated in the accounting policies mentioned below.

During the fi nancial year, the Group and the Company adopted all the new and revised Financial Reporting Standards (“FRSs”) and Interpretations issued by the Issues Committee (“IC”) of the MASB that are relevant to their operations and eff ective for accounting periods beginning on April 1, 2007.

Th e adoption of these new and revised FRSs has no material eff ect on the fi nancial statements of the Group and of the Company except for those disclosed in Note 33.

Standards and IC Interpretations that are not yet eff ective and have not been early adopted are as follows:

(a) Revised FRS 107 Cash Flow Statements

(b) Revised FRS 112 Income Taxes

(c) Revised FRS 118 Revenue

(d) Amendments to FRS 121 Th e Eff ects of Changes in Foreign Exchange Rates – Net Investment in a Foreign Operation

(e) FRS 134 Interim Financial Reporting

(f) Revised FRS 137 Provisions, Contingent Liabilities and Contingent Assets

54 IQ GROUP HOLDINGS BERHAD (636944 U) NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 2008 (Cont’d)

3. SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

Basis of accounting (Cont’d)

(g) FRS 139 Financial Instruments: Recognition and Measurement

(h) IC Interpretation 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities

(i) IC Interpretation 8 Scope of FRS 2

FRS 107, FRS 112, FRS 118, Amendments to FRS 121, FRS 134, FRS 137, IC Interpretations 1 and 8 will be eff ective for annual periods beginning on or after July 1, 2007. Th e Group and the Company will apply these FRSs and interpretations from fi nancial periods beginning on April 1, 2008. Th ese FRSs and interpretations are expected to have no signifi cant impact on the fi nancial statements of the Group and the Company upon their initial application.

Th e eff ective date for FRS 139 is yet to be determined by MASB. Th e Group and the Company will apply this standard when eff ective. Th e impact of the adoption of FRS 139 on the eff ective date, on the fi nancial statements of the Group and the Company is not disclosed by virtue of the exemption given by this FRS.

Th ere are also other Standards and IC Interpretations that have been issued that are not yet eff ective. However, these standards and IC Interpretations are not relevant to the Group’s and the Company’s operations.

Basis of consolidation

Th e consolidated fi nancial statements incorporate the fi nancial statements of the Company and entities controlled by the Group (its subsidiary companies). Control is achieved where the Group has the power to govern the fi nancial and operating policies of an entity so as to obtain benefi ts from its activities.

Th e result of subsidiary companies acquired or disposed of during the year are included in the consolidated income statements from the eff ective date of acquisition or up to the eff ective date of disposal, as appropriate.

When necessary, adjustments are made to the fi nancial statements of subsidiary companies to bring their accounting policies into line with those used by other members of the Group.

All intra-group transactions, balances and resulting unrealised gains are eliminated on consolidation. Unrealised losses are eliminated on consolidation unless costs cannot be recovered.

Acquisition of subsidiary companies are accounted for using the purchase method. Th e cost of the business combination is measured as the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. Th e acquiree’s identifi able assets, liabilities and contingent liabilities that meet the conditions for recognition under FRS 3 Business Combinations are recognised at their fair values at the acquisition date, except for non-current assets (or disposal groups) that are classifi ed as held for sale in accordance with FRS 5 Non-current Assets Held for Sale and Discontinued Operations, which are recognised and measured at fair value less costs to sell.

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifi able assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identifi able assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profi t or loss.

ANNUAL REPORT 2008 55 NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 2008 (Cont’d)

3. SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

Revenue and revenue recognition

Revenue of the Group represents gross invoiced values of goods sold less returns, discounts and value added tax.

Revenue of the Company represents gross dividend income and gross service fees from the rendering of management services.

Revenue from sale of goods are recognised when all the following conditions have been satisfi ed:

(i) the Group has transferred to the buyer the signifi cant risks and rewards of ownership of the goods; (ii) the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor eff ective control over the goods sold; (iii) the amount of revenue can be measured reliably; (iv) it is probable that the economic benefi ts associated with the transaction will fl ow to the Group; and (v) the costs incurred or to be incurred in respect of the transaction can be measured reliably.

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

Interest income is recognised on a time proportion basis that takes into account the principal outstanding and the eff ective rate over the period to maturity, when it is determined that such income will accrue to the Group.

Revenue from the rendering of management services and other operating income are recognised on an accrual basis.

Income tax

Income tax expense represents the sum of the tax currently payable and deferred tax.

Th e tax currently payable is based on taxable profi t for the year. Taxable profi t diff ers from profi t as reported in the income statements because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. Th e Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is accounted for in respect of temporary diff erences arising from diff erences between the carrying amounts of assets and liabilities in the fi nancial statements and their corresponding tax bases used in the computation of taxable profi t.

Deferred tax liabilities are generally recognised for all taxable temporary diff erences, and deferred tax assets are generally recognised for all deductible temporary diff erences, unused tax losses and unused tax credits to the extent that it is probable that future taxable profi t will be available against which the deductible temporary diff erences, unused tax losses and unused tax credits can be utilised. Deferred tax assets and liabilities are not recognised on temporary diff erences arising from goodwill or from the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction, aff ects neither the accounting profi t nor taxable profi t.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled based on tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is recognised in the income statements, except when it arises from a transaction which is recognised directly in equity, in which case the deferred tax is also recognised directly in equity, or when it arises from a business combination that is an acquisition, in which case the deferred tax is included in the resulting goodwill.

56 IQ GROUP HOLDINGS BERHAD (636944 U) NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 2008 (Cont’d)

3. SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

Foreign currency conversion

Th e individual fi nancial statements of each group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the consolidated fi nancial statements, the results and fi nancial position of each entity are expressed in Ringgit Malaysia, which is the functional currency of the Company, and the presentation currency of the consolidated fi nancial statements.

In preparing the fi nancial statements of the Group and of the Company, transactions in currencies other than the Group’s and the Company’s functional currency (foreign currencies) are recorded at the rates of exchange prevailing at the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the balance sheet date.

Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange diff erences arising on the settlement of monetary items are included in profi t or loss for the period. For non-monetary items that are measured in terms of historical cost in foreign currency, any exchange component of that gain or loss is recognised directly in equity.

For the purpose of presenting consolidated fi nancial statements, the assets and liabilities of the Group’s foreign operations (including comparatives) are expressed in Ringgit Malaysia using exchange rates prevailing on the balance sheet date. Income and expense items (including comparatives) are translated at the average exchange rates for the period, unless exchange rates fl uctuated signifi cantly during the period, in which case the exchange rates at the dates of the transactions are used. Exchange diff erences arising, if any, are classifi ed as equity and transferred to the Group’s translation reserve. Such translation diff erences are recognised in profi t or loss in the period in which the foreign operation is disposed of.

Employee benefi ts expense

(i) Short-term benefi ts

Wages, salaries, bonuses and social security contributions are recognised as expenses in the year in which the associated services are rendered by employees of the Group and of the Company. Short-term accumulating compensated absences such as paid annual leave are recognised when services are rendered by the employees that increase their entitlement to future compensated absences, and short-term non-accumulating compensated absences such as sick leave are recognised when the absences occur.

(ii) Defi ned contribution plans

As required by law, companies in Malaysia make contributions to the state pension scheme, the employees’ provident fund. Such contributions are recognised as expenses in the income statements as incurred. Once the contributions have been paid, the Group and the Company have no further payment obligations.

Certain subsidiary companies outside Malaysia contributed to money purchase pension schemes for employees. Pension costs represent contributions payable to the pension scheme and are recognised as expenses in the income statements as incurred.

ANNUAL REPORT 2008 57 NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 2008 (Cont’d)

3. SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

Employee benefi ts expense (Cont’d)

(iii) Share-based payment

Th e Company’s Employee Share Options Scheme (“ESOS”), an equity-settled share-based compensation plan, allows the Group’s employees to acquire ordinary shares of the Company. Th e total fair value of share options granted to the Group’s and the Company’s employees is recognised as employee benefi ts expense while the total fair value of share options granted to the subsidiary companies’ employees is included in the Company’s fi nancial statements as investment in subsidiary companies with a corresponding increase in the share option reserve within equity over the vesting period and taking into account the probability that the options will vest. Th e fair value of share options is measured at grant date by use of a binomial model. Th e expected life used in the model has been adjusted, based on management’s best estimate, for the eff ects of non-transferability, exercise restrictions and behavioral considerations.

At each balance sheet date, the Group revises its estimates of the number of options that are expected to become exercisable on vesting date. It recognises the impact of the revision of original estimates, if any, in the profi t or loss, and a corresponding adjustment to equity over the remaining vesting period.

Th e proceeds received net of any directly attributable transaction costs are credited to equity when the options are exercised.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Freehold land and assets in progress are not depreciated. Depreciation of other property, plant and equipment is computed on the straight- line method in order to write-off the cost of each asset to its residual value over its estimated useful life.

Th e annual depreciation rates are as follows:

Buildings 2% Plant and machinery 9% - 20% Factory equipment 9% - 33.3% Air conditioners 9% & 10% Furniture, fi ttings and offi ce equipment 9% - 50% Renovation 10% Motor vehicles 9% - 25% Electrical installations 10%

Gain or loss arising from the disposal of an asset is determined as the diff erence between the estimated net disposal proceeds and the carrying amount of the asset, and is recognised in the income statements.

At each balance sheet date, the residual values, useful lives and depreciation method of the property, plant and equipment are reviewed, and the eff ects of any changes are recognised prospectively.

58 IQ GROUP HOLDINGS BERHAD (636944 U) NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 2008 (Cont’d)

3. SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

Research and development costs

Research expenditure is recognised in the income statements as an expense when incurred.

Expenditure incurred on projects to develop new products is capitalised and deferred only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefi ts, the availability of resources to complete the development and the ability to measure reliably the expenditure during the development. Product development costs which do not meet these criterias are expensed off when incurred.

Product development costs, considered to have fi nite useful lives, are stated at cost less any impairment losses and are amortised using the straight-line basis over the commercial lives of the underlying products over a period not exceeding four years. Impairment is assessed whenever there is an indication of impairment and the amortisation period and method are also reviewed at least at each balance sheet date.

Investment in subsidiary companies

Subsidiary companies are those companies in which the Group has power to exercise control over their fi nancial and operating policies so as to obtain benefi ts from their activities.

Investment in subsidiary companies, which is eliminated on consolidation, is stated at cost in the Company’s fi nancial statements. Where there is an indication of impairment in the value of the assets, the carrying amount of the investment is assessed and written down immediately to its recoverable amount.

Impairment of assets

At each balance sheet date, the Group and the Company review the carrying amounts of assets (other than inventories and fi nancial assets which are dealt with in their respective policies) to determine if there is any indication that those assets may be impaired. If any such indication exists, the asset’s recoverable amount, which is the higher of fair value less cost to sell and value in use, is estimated.

Whenever the carrying amount of an asset exceeds its recoverable amount, an impairment loss is recognised in the income statements, unless the asset is carried at revalued amount, in which case, the impairment loss is treated as a revaluation decrease.

An impairment loss is only reversed to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. A reversal is recognised in the income statements, unless it reverses an impairment loss on revalued assets, in which case, the reversal is treated as a revaluation increase.

ANNUAL REPORT 2008 59 NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 2008 (Cont’d)

3. SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

Inventories

Inventories are stated at the lower of cost and net realisable value. Costs, including an appropriate portion of fi xed and variable overhead expenses, are assigned to inventories held by the method most appropriate to the particular class of inventory, with the majority being valued on a weighted average basis. Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale.

Cost of raw materials consists of purchase price plus the cost of bringing the inventories to their present location. Cost of work-in- progress and fi nished goods consists of the cost of raw materials, direct labour and an appropriate proportion of factory overheads. Goods-in-transit is stated at cost.

Receivables

Receivables are stated at nominal value as reduced by the appropriate allowances for estimated irrecoverable amounts. Allowance for doubtful debts is made based on estimates of possible losses which may arise from non-collection of certain receivables accounts.

Borrowings

Borrowings are stated at their nominal value and recorded at the proceeds received net of direct issue costs.

Payables

Payables are stated at their nominal value.

Borrowings costs

All interest and other costs incurred in connection with borrowings are expensed as incurred.

Leases

A lease is recognised as a fi nance lease if it transfers substantially to the Group all the risks and rewards incidental to ownership. Leases of land and buildings are classifi ed as operating leases in the same way as leases of other assets and the land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classifi cation. All leases that do not transfer substantially all the risks and rewards are classifi ed as operating leases.

Operating lease payments are recognised as an expense on a straight-line basis over the term of the relevant lease. Th e aggregate benefi t of incentives provided by the lessor is recognised as a reduction of rental expense over the lease term on a straight-line basis.

In the case of a lease of land and buildings, the minimum lease payments or the up-front payments made are allocated, whenever necessary, between the land and the buildings elements in proportion to the relative fair values for leasehold interests in the land element and buildings element of the lease at the inception of the lease. Th e up-front payment represents prepaid lease payments and are amortised on a straight-line basis over the lease term.

60 IQ GROUP HOLDINGS BERHAD (636944 U) NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 2008 (Cont’d)

3. SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

Equity instruments

An equity instrument is a contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

Treasury Shares

Shares bought back are retained as treasury shares under the treasury stock method. Where the Company reacquires its own equity share capital, the consideration paid, including attributable transaction costs on repurchased ordinary shares of the Company that have not been cancelled, are classifi ed as treasury shares and presented as a deduction from equity. No gain or loss is recognised in profi t or loss on the sale, re-issuance or cancellation of treasury shares. When treasury shares are reissued by resale, the diff erence between the sales consideration and the carrying amount is recognised in equity.

Cash fl ow statements

Th e Group and the Company adopt the indirect method in the preparation of the cash fl ow statements.

Cash and cash equivalents consist of cash and bank balances, demand deposits and highly liquid investments which are readily convertible to known amounts of cash and which are subject to an insignifi cant risk of changes in value.

Financial instruments

Financial instruments carried on the balance sheets include short-term deposits, cash and bank balances, investments, receivables, payables and borrowings. Th e particular recognition methods adopted are disclosed in the individual accounting policy statements associated with each item.

Financial instruments are classifi ed as liabilities or equity in accordance with the substance of the contractual arrangement. Interests, dividends, gains and losses relating to a fi nancial instrument classifi ed as liability are reported as expense or income. Distributions to holders of fi nancial instruments classifi ed as equity are charged directly to equity. Financial instruments are off set when the Group and the Company have a legally enforceable right to set off the recognised amounts and intend either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Group’s accounting policies, which are described in Note 3, management is required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Th e estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may diff er from these estimates.

Th e estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision aff ects only that period, or in the period of the revision and future periods if the revision aff ects both current and future periods.

Th e key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a signifi cant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next fi nancial year are in respect of the recoverability of product development costs.

ANNUAL REPORT 2008 61 NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 2008 (Cont’d)

4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (Cont’d)

During the fi nancial year, the directors reconsidered the recoverability of the Group’s product development costs which are included in the consolidated balance sheet as of March 31, 2008 at RM7,277,991 (2007: RM7,322,470). Th e product development projects continue to progress in a satisfactory manner, and customer reaction has reconfi rmed the directors’ previous estimates of anticipated revenues from the product development projects and the directors are confi dent that the carrying amount of the asset will be recovered in full. Th is situation will be closely monitored, and adjustments made in future periods if future market activity indicates that such adjustments are appropriate.

5. REVENUE

An analysis of revenue is as follows:

Th e Group Th e Company 2008 2007 2008 2007 RM RM RM RM

Sales of goods 139,312,222 153,765,093 - - Management fee - - 6,331,914 6,318,238 Gross dividend from a subsidiary company - - - 7,623,170

139,312,222 153,765,093 6,331,914 13,941,408

6. EMPLOYEE BENEFITS EXPENSE

Th e Group Th e Company 2008 2007 2008 2007 RM RM RM RM

Defi ned contribution plans 1,297,705 1,330,441 329,005 332,302 Equity-settled share-based payment 45,993 82,709 16,053 43,687 Other employee benefi ts expense 23,096,410 22,376,195 3,198,504 3,168,399

24,440,108 23,789,345 3,543,562 3,544,388

Employee benefi ts expense include directors’ remuneration, salaries, bonuses, contributions to employees’ provident fund, pension costs, equity-settled share-based payment and all other staff related expenses.

62 IQ GROUP HOLDINGS BERHAD (636944 U) NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 2008 (Cont’d)

6. EMPLOYEE BENEFITS EXPENSE (Cont’d)

Details of remuneration of executive directors and offi cers who are the key management of the Group and of the Company, are as follows:

Th e Group Th e Company 2008 2007 2008 2007 RM RM RM RM

Directors of the Company: Directors’ fee 48,000 66,000 48,000 66,000 Defi ned contribution plans 149,394 197,237 149,394 197,237 Equity-settled share-based payment 7,416 9,275 7,416 9,275 Other emoluments 1,329,013 1,804,109 1,329,013 1,804,109 Directors of subsidiary companies: Defi ned contribution plans 140,807 146,629 - - Equity-settled share-based payment 6,123 21,077 700 15,554 Other emoluments 3,264,149 2,227,811 - - Offi cers of the Company: Defi ned contribution plans 71,880 67,620 71,880 67,620 Equity-settled share-based payment 7,415 12,589 7,415 12,589 Other emoluments 602,071 562,402 602,071 562,402

5,626,268 5,114,749 2,215,889 2,734,786

7. PROFIT BEFORE TAX

Profi t before tax is arrived at:

Th e Group Th e Company 2008 2007 2008 2007 RM RM RM RM

After charging: Directors’ remuneration: Directors of the Company: Fees 165,500 187,000 165,500 187,000 Defi ned contribution plans 149,394 197,237 149,394 197,237 Equity-settled share-based payment 7,416 9,275 7,416 9,275 Other emoluments 1,329,013 1,804,109 1,329,013 1,804,109 Directors of subsidiary companies: Defi ned contribution plans 140,807 146,629 - - Equity-settled share-based payment 6,123 21,077 700 15,554 Other emoluments 3,264,149 2,227,811 - -

ANNUAL REPORT 2008 63 NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 2008 (Cont’d)

7. PROFIT BEFORE TAX (Cont’d)

Th e Group Th e Company 2008 2007 2008 2007 RM RM RM RM Research and development expenses: Amortisation of development costs 2,357,842 1,845,838 - - Employee benefi ts expense 1,854,734 1,233,819 - - Development costs written off 723,897 - - - Depreciation of property, plant and equipment 322,669 342,251 - - Rental of premises 229,655 268,170 - - Others 382,704 880,549 - - Unrealised loss on foreign exchange 1,356,628 48,915 496,867 244,796 Rental of: Premises 1,104,088 718,725 228,000 228,000 Land and building 380,025 622,677 - - Offi ce equipment 6,634 3,704 - - Car - - 162,000 - Realised loss on foreign exchange 874,577 - 84,754 47,315 Audit fee: Current year 400,143 270,744 20,000 20,000 Underprovision in prior years 413 47 - - Property, plant and equipment written off 150,931 63,632 - - Interest on long-term loan 98,411 - - - Inventories written off - 237,195 - -

And crediting: Interest income 730,043 1,132,050 378,935 505,829 Gain on disposal of property, plant and equipment 337,318 65,671 - - Realised gain on foreign exchange - 1,346,493 - -

8. INCOME TAX EXPENSE

Th e Group Th e Company 2008 2007 2008 2007 RM RM RM RM

Current tax expense: Malaysian tax 587,000 2,485,000 172,000 229,000 Foreign tax 306,216 188,563 - - Deferred tax (Notes 14 & 22): Deferred tax relating to origination and reversal of temporary diff erences (227,780) (106,087) 38,000 - Change in tax rate (105,000) (93,000) - -

560,436 2,474,476 210,000 229,000

64 IQ GROUP HOLDINGS BERHAD (636944 U) NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 2008 (Cont’d)

8. INCOME TAX EXPENSE (Cont’d)

Th e Group Th e Company 2008 2007 2008 2007 RM RM RM RM

Under/ (Over) provision of current tax expense in prior years: Malaysian tax 455,696 441,625 18,497 6,209 Foreign tax (7,019) 10,357 - -

448,677 451,982 18,497 6,209

Income tax expense 1,009,113 2,926,458 228,497 235,209

Th e numerical reconciliations between income tax expense applicable to profi t before tax at the statutory tax rate to income tax expense at the eff ective tax rate are as follows:

Th e Group Th e Company 2008 2007 2008 2007 RM RM RM RM

Profi t before tax 2,188,364 15,524,899 373,001 8,426,013

Tax amount at the statutory income tax rate of 26% (2007: 27%) 569,000 4,192,000 97,000 2,275,000 Eff ect of diff erent tax rates of subsidiary companies (51,559) 3,033 - - Tax eff ects on: Non-deductible expenses 1,501,995 1,141,443 280,000 234,000 Non-taxable items (3,086,000) (2,853,000) (167,000) (2,280,000) Change in tax rate 105,000 93,000 - - Net deferred tax assets not recognised 1,522,000 40,000 - - Tax eff ect on claim of reinvestment allowances - (142,000) - -

560,436 2,474,476 210,000 229,000 Underprovision of current tax expense in prior years 448,677 451,982 18,497 6,209

Income tax expense 1,009,113 2,926,458 228,497 235,209

Th e Group is operating in the jurisdictions of Malaysia, United Kingdom, Japan, British Virgin Islands and People’s Republic of China. Th e applicable domestic statutory income tax rates are 26% for Malaysia, 30% for United Kingdom, 42% for Japan, tax exempted for British Virgin Islands and 25% for People’s Republic of China.

ANNUAL REPORT 2008 65 NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 2008 (Cont’d)

8. INCOME TAX EXPENSE (Cont’d)

In September 2007, the Malaysian government proposed in the yearly budget a reduction in the corporate income tax rate from 27% for the year of assessment 2007 to 26% for the year of assessment 2008 and 25% for the year of assessment 2009.

Th e applicable tax rate of 26% (2007: 27%) used in the above numerical reconciliations of tax of the Group and of the Company is determined based on the statutory income tax rate prevailing for the Company.

Th e Company has been granted Operational Headquarters (“OHQ”) status and OHQ tax exemption under Section 127, Income Tax Act 1967 from the Malaysian Industrial Development Authority (“MIDA”) for a period of 10 years, from the year of assessment 2005 to the year of assessment 2014 for undertaking OHQ activities in Malaysia, which involve the provision of qualifying services to related companies outside Malaysia. MIDA granted the Company approval for income tax exemption, not exceeding 20% of the total income of the OHQ operations in relation to qualifying service provided to related companies in Malaysia.

Th e applicable statutory income tax rate of foreign subsidiary companies incorporated in the People’s Republic of China is 25% (2007: 27%). Th ese subsidiary companies fall under the scope of “Income tax of the People’s Republic of China for Enterprises with Foreign Investment Zones opened to foreign investment” and their profi t will be exempted from income tax for two years commencing from the fi rst cumulative profi t-making year and will be subject to income tax at a reduction of 50% of the statutory income tax rate for the following three years.

As of March 31, 2008, the approximate amount of unused tax losses of the Group which is subject to agreement by the tax authorities is RM13,035,000 (2007: RM8,071,000). Th e unused tax losses are available for set-off against future taxable income of the subsidiary companies in the People’s Republic of China of not exceeding 5 years for which RM8,010,000, RM212,000 and RM4,813,000 will be expiring in 2011, 2012 and 2013 respectively.

9. EARNINGS PER SHARE

Basic/ diluted earnings per share are calculated by dividing profi t for the year attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares in issue during the fi nancial year.

Th e Group 2008 2007

Profi t attributable to ordinary equityholders of the Company (RM) 1,179,251 12,598,441

Weighted average number of ordinary shares in issue (units) 85,000,000 85,000,000

Basic/ diluted earnings per ordinary share (sen) 1.39 14.82

66 IQ GROUP HOLDINGS BERHAD (636944 U) NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 2008 (Cont’d)

10. PROPERTY, PLANT AND EQUIPMENT

Th e Group

Cost Beginning Translation End of year Additions eff ect Disposals Transfer of year RM RM RM RM RM RM 2008: Freehold land - 1,228,439 - - - 1,228,439 Buildings 6,779,396 2,259,781 (1,379) (18,396) - 9,019,402 Plant and machinery 3,292,108 1,799,496 (236,344) (32,959) - 4,822,301 Factory equipment 11,491,202 1,059,287 104,840 (178,078) 621,096 13,098,347 Air conditioners 672,711 71,948 2,389 (12,982) 20,055 754,121 Furniture, fi ttings and offi ce equipment 4,074,039 755,762 (139,657) (99,900) - 4,590,244 Renovation 1,574,010 639,686 (27,872) (81,377) - 2,104,447 Motor vehicles 1,439,858 264,523 (197,512) (216,544) - 1,290,325 Electrical installations 364,061 67,326 - - - 431,387 Assets in progress 404,300 458,904 7,594 - (641,151) 229,647

30,091,685 8,605,152 (487,941) (640,236) - 37,568,660

2007: Buildings 6,779,396 - - - - 6,779,396 Plant and machinery 3,404,961 54,558 (87,411) (80,000) - 3,292,108 Factory equipment 10,500,717 1,834,409 (1,318,674) (201,820) 676,570 11,491,202 Air conditioners 342,779 331,398 (1,466) - - 672,711 Furniture, fi ttings and offi ce equipment 3,616,300 565,071 12,559 (119,891) - 4,074,039 Renovation 1,160,855 302,849 (13,400) - 123,706 1,574,010 Motor vehicles 1,519,427 308,063 19,265 (406,897) - 1,439,858 Electrical installations 281,303 82,758 - - - 364,061 Assets in progress 127,869 1,080,348 (3,641) - (800,276) 404,300

27,733,607 4,559,454 (1,392,768) (808,608) - 30,091,685

Accumulated Beginning Charge for Translation End Depreciation of year the year eff ect Disposals of year RM RM RM RM RM 2008: Buildings 321,902 188,900 (3,056) - 507,746 Plant and machinery 1,241,360 789,057 (261,793) - 1,768,624 Factory equipment 4,175,438 2,529,068 54,443 - 6,758,949 Air conditioners 171,727 94,193 (1,153) (1,677) 263,090 Furniture, fi ttings and offi ce equipment 1,257,183 672,647 (145,438) (8,022) 1,776,370 Renovation 391,934 281,673 (29,764) (5,914) 637,929 Motor vehicles 264,548 411,936 (193,167) - 483,317 Electrical installations 98,651 60,379 - - 159,030

7,922,743 5,027,853 (579,928) (15,613) 12,355,055

ANNUAL REPORT 2008 67 NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 2008 (Cont’d)

10. PROPERTY, PLANT AND EQUIPMENT (Cont’d)

Accumulated Beginning Charge for Translation End Depreciation of year the year eff ect Disposals of year RM RM RM RM RM 2007: Buildings 160,951 160,951 - - 321,902 Plant and machinery 676,405 688,322 (43,374) (79,993) 1,241,360 Factory equipment 2,984,556 2,682,470 (1,308,876) (182,712) 4,175,438 Air conditioners 80,653 91,835 (761) - 171,727 Furniture, fi ttings and offi ce equipment 612,773 699,078 21,141 (75,809) 1,257,183 Renovation 185,585 214,582 (8,233) - 391,934 Motor vehicles 190,545 434,376 8,803 (369,176) 264,548 Electrical installations 46,173 52,478 - - 98,651

4,937,641 5,024,092 (1,331,300) (707,690) 7,922,743

Th e Company Beginning End Cost of year Additions Disposals of year RM RM RM RM 2008: Offi ce equipment 144,222 110,610 - 254,832

2007: Offi ce equipment - 144,222 - 144,222

Accumulated Beginning Charge for End Depreciation of year the year Disposals of year RM RM RM RM

2008: Offi ce equipment 11,692 15,834 - 27,526

2007: Offi ce equipment - 11,692 - 11,692

68 IQ GROUP HOLDINGS BERHAD (636944 U) NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 2008 (Cont’d)

10. PROPERTY, PLANT AND EQUIPMENT (Cont’d)

Th e Group Th e Company 2008 2007 2008 2007 RM RM RM RM

Net Book Value: Freehold land 1,228,439 - - - Buildings 8,511,656 6,457,494 - - Plant and machinery 3,053,677 2,050,748 - - Factory equipment 6,339,398 7,315,764 - - Air conditioners 491,031 500,984 - - Furniture, fi ttings and offi ce equipment 2,813,874 2,816,856 227,306 132,530 Renovation 1,466,518 1,182,076 - - Motor vehicles 807,008 1,175,310 - - Electrical installations 272,357 265,410 - - Assets in progress 229,647 404,300 - -

25,213,605 22,168,942 227,306 132,530

Th e property, plant and equipment of a subsidiary company with a total carrying value of RM3,918,359 (2007: RM491,640) are charged to a foreign licensed bank as securities for banking facilities granted to the subsidiary company as mentioned in Notes 23 and 27.

11. PREPAID LEASE PAYMENTS

Th e Group 2008 2007 RM RM

Short leasehold land At beginning of year 2,045,080 2,093,534 Amortisation during the year (48,454) (48,454)

At end of year 1,996,626 2,045,080

As of March 31, 2008, the unexpired lease period of the two short leasehold land of the Group are 41 years (2007: 42 years).

ANNUAL REPORT 2008 69 NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 2008 (Cont’d)

12. PRODUCT DEVELOPMENT COSTS

Th e Group 2008 2007 RM RM

At cost: At beginning of year 10,519,385 7,368,661 Additions - internal development 3,026,192 3,150,724 Written off (723,897) -

At end of year 12,821,680 10,519,385

Less: Amortisation of development costs At beginning of year (3,194,434) (1,348,596) Amortisation during the year (2,357,842) (1,845,838)

At end of year (5,552,276) (3,194,434)

Translation eff ect 8,587 (2,481)

7,277,991 7,322,470

13. INVESTMENT IN SUBSIDIARY COMPANIES

Th e Company 2008 2007 RM RM

Unquoted shares, at cost 75,192,235 71,997,675 Equity-settled share-based payment 68,962 39,022

75,261,197 72,036,697

On August 7, 2007, the Company had incorporated a new wholly-owned subsidiary company known as IQ Group (Dongguan) Ltd. in the People’s Republic of China with a registered capital of USD1,000,000. On February 22, 2008, IQ Group (Dongguan) Ltd. has increased its registered capital from USD1,000,000 to USD1,750,000. As of March 31, 2008, the Company has invested a total sum of USD960,000 (equivalent to RM3,194,560) in IQ Group (Dongguan) Ltd..

In 2007, the Company had incorporated a new wholly-owned subsidiary company known as IQ Industries Limited in the British Virgin Islands with an authorised capital of USD50,000 divided into 50,000 ordinary shares of USD1.00 each and total issued and paid-up share capital of USD1,000 (equivalent to RM3,673) comprising 1,000 ordinary shares of USD1.00 each.

Included in the cost of investment in subsidiary companies is an amount of RM68,962 (2007: RM39,022) which is in recognition of equity-settled share-based payment for share options granted by the Company to the subsidiary company’s employees to acquire ordinary shares of the Company.

70 IQ GROUP HOLDINGS BERHAD (636944 U) NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 2008 (Cont’d)

13. INVESTMENT IN SUBSIDIARY COMPANIES (Cont’d)

Th e subsidiary companies are as follows:

Place of Percentage of Incorporation Ownership Principal Activity 2008 2007

IQ Group Sdn. Bhd. Malaysia 100% 100% Manufacture of passive infrared detectors, motion sensor light controllers and wireless video communication device

IQ (Europe) Limited # United Kingdom 100% 100% Distribution of security lighting systems

IQ Japan Co., Ltd. # Japan 100% 100% Distribution of security lighting systems

Dong Guan Zhong Jia People’s Republic 100% 100% Manufacture of passive infrared detectors and Electronics Co. Ltd. * of China motion sensor light controllers

IQ Group Limited * British Virgin 100% 100% Distribution of passive infrared detectors and Islands motion sensor light controllers

IQ Industries Limited * British Virgin 100% 100% Distribution of passive infrared sensor lighting, Islands motion sensors, door chimes & home control products and strategic sourcing, procurement & supplier management

IQ Group (Dongguan) Ltd. # People’s Republic 100% - Manufacturing and sales of sensor lighting, door of China bells, home security system, lighting fi xtures and plastic products

# Th e fi nancial statements of these companies were audited by member fi rms of Deloitte Touche Tohmatsu in the respective countries.

* Audited by Deloitte KassimChan for purposes of consolidation.

14. DEFERRED TAX ASSETS

Th e Group 2008 2007 RM RM

At beginning of year 145,308 177,538 Transfer from income statements (Note 8) (30,564) (41,921) Exchange reserve (7,163) 9,691

At end of year 107,581 145,308

ANNUAL REPORT 2008 71 NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 2008 (Cont’d)

14. DEFERRED TAX ASSETS (Cont’d)

Th e deferred tax assets are in respect of tax eff ect of temporary diff erences between tax capital allowances and depreciation of property, plant and equipment.

As mentioned in Note 3, the tax eff ects of temporary diff erences which would give rise to net deferred tax assets are recognised to the extent that it has become probable that future taxable profi t will allow the deferred tax assets to be recovered. As of March 31, 2008, the amount of deferred tax assets, calculated at applicable tax rate, which is not recognised in the fi nancial statements of the Group, is as follows:

Th e Group 2008 2007 RM RM

Tax eff ect in respect of: Unused tax losses 3,571,000 2,179,000 Other temporary diff erences 50,000 30,000

3,621,000 2,209,000

15. INVENTORIES

Th e Group 2008 2007 RM RM

Raw materials 14,720,600 19,502,155 Work-in-progress 3,796,038 5,415,879 Finished goods 17,307,630 12,965,217 Goods-in-transit 4,535 302,562

35,828,803 38,185,813

Th e cost of inventories recognised as an expense of the Group the year was RM100,693,990 (2007: RM109,385,611).

Th e inventories of a subsidiary company with a total carrying value of RM13,546,684 (2007: RM14,895,384) are charged to a foreign licensed bank as securities for the banking facilities granted to the subsidiary company mentioned in Notes 23 and 27.

72 IQ GROUP HOLDINGS BERHAD (636944 U) NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 2008 (Cont’d)

16. TRADE AND OTHER RECEIVABLES

Th e Group Th e Company 2008 2007 2008 2007 RM RM RM RM

Trade receivables 28,407,572 34,286,444 - - Amount owing by subsidiary companies - - 16,930,238 11,951,997 Interest receivable 15,605 73,564 7,627 51,451 Other receivables 2,451,612 1,435,926 - -

30,874,789 35,795,934 16,937,865 12,003,448

Analysis of trade and other receivables by currencies:

Th e Group Th e Company 2008 2007 2008 2007 RM RM RM RM

United States Dollar 21,775,684 22,219,434 6,233,517 7,509,113 Great Britain Pound 7,438,984 11,727,552 2,368,252 1,671,292 Japanese Yen 926,222 1,248,959 72,247 77,343 Swedish Krona 386,137 76,988 - - Ringgit Malaysia 129,450 386,152 8,263,849 2,745,700 Hong Kong Dollar 98,347 72,208 - - Euro 63,375 - - - Renminbi 56,590 64,641 - -

30,874,789 35,795,934 16,937,865 12,003,448

Th e amount owing by subsidiary companies are as follows:

Th e Company 2008 2007 RM RM

IQ Group Sdn. Bhd. 8,256,222 2,694,248 Dong Guan Zhong Jia Electronics Co. Ltd. 4,643,567 3,075,749 IQ (Europe) Limited 2,368,252 1,671,292 IQ Group Limited 1,240,749 4,360,240 IQ Industries Limited 179,424 73,125 IQ Group (Dongguan) Ltd. 169,777 - IQ Japan Co., Ltd. 72,247 77,343

16,930,238 11,951,997

Trade receivables comprise amounts receivables for the sale of goods. Th e credit periods granted by the Group on sale of goods range from 7 to 120 days (2007: 7 to 120 days).

ANNUAL REPORT 2008 73 NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 2008 (Cont’d)

16. TRADE AND OTHER RECEIVABLES (Cont’d)

Th e amount owing by subsidiary companies arose mainly from management fee receivable and advances which are unsecured, interest free and are repayable on demand.

Th e fi nancial statements of the Company refl ect the following signifi cant intercompany transactions which are based on terms negotiated between the Company and its subsidiary companies:

Th e Company 2008 2007 RM RM Management fee received/ receivable: IQ Group Sdn. Bhd. 2,590,445 2,886,813 Dong Guan Zhong Jia Electronics Co. Ltd. 1,900,686 1,786,211 IQ (Europe) Limited 861,573 838,529 IQ Group Limited 427,500 534,011 IQ Japan Co., Ltd. 278,261 236,901 IQ Industries Limited 99,184 35,773 IQ Group (Dongguan) Ltd. 174,265 -

Rental of premises paid/ payable: IQ Group Sdn. Bhd. 228,000 228,000

Rental of car payable: IQ Group Sdn. Bhd. 162,000 -

Dividend receivable: IQ Group Limited - 7,623,170

17. OTHER ASSETS

Th e Group Th e Company 2008 2007 2008 2007 RM RM RM RM

Prepaid expenses 1,822,869 1,233,920 - - Refundable deposits 203,059 292,351 2,000 2,000

2,025,928 1,526,271 2,000 2,000

74 IQ GROUP HOLDINGS BERHAD (636944 U) NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 2008 (Cont’d)

18. CASH AND CASH EQUIVALENTS

Cash and cash equivalents included in the cash fl ow statements comprise of the following balance sheets items:

Th e Group Th e Company 2008 2007 2008 2007 RM RM RM RM

Cash and bank balances 15,942,319 9,756,497 809,165 263,296 Short-term deposits with licensed banks 15,839,000 26,875,000 7,800,000 14,200,000

31,781,319 36,631,497 8,609,165 14,463,296

Th e eff ective interest rates for short-term deposits range from 2.80% to 3.69% (2007: 2.80% to 4.30%) per annum. Th e short-term deposits are maturing in April 2008.

Analysis of cash and cash equivalents by currencies:

Th e Group Th e Company 2008 2007 2008 2007 RM RM RM RM

Ringgit Malaysia 14,403,536 25,683,504 8,609,165 14,463,296 United States Dollar 6,387,040 4,954,822 - - Great Britain Pound 5,497,661 1,841,626 - - Hong Kong Dollar 3,459,299 1,762,921 - - Euro 567,059 - - - Renminbi 535,266 1,072,156 - - New Taiwan Dollar 338,452 392,813 - - Japanese Yen 312,190 580,652 - - Swedish Krona 280,816 343,003 - -

31,781,319 36,631,497 8,609,165 14,463,296

19. SHARE CAPITAL

Th e Group and the Company 2008 2007 RM RM Authorised: 150,000,000 ordinary shares of RM1.00 each 150,000,000 150,000,000

Issued and fully paid: 85,000,000 ordinary shares of RM1.00 each 85,000,000 85,000,000

ANNUAL REPORT 2008 75 NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 2008 (Cont’d)

19. SHARE CAPITAL (Cont’d)

At the Annual General Meeting held on September 17, 2007, the Company’s shareholders approved the Company’s plan to repurchase its own shares. Under the share buy-back exercise, the Company is authorised to purchase up to maximum of 10% of the total issued and paid-up share capital. During the fi nancial year, the Company did not repurchase any of its issued and fully paid ordinary shares from the open market.

Th e Company implemented an Employees’ Share Option Scheme (“ESOS”) on September 9, 2005 for a period of 5 years. Th e ESOS is governed by the by-laws which were approved by the shareholders at an Extraordinary General Meeting held on September 15, 2005.

Under the Company’s ESOS, options to subscribe for unissued new ordinary shares of RM1.00 each in the Company were granted to eligible directors and employees of the Company and its subsidiary companies.

Th e principal features of the ESOS are as follows:

(a) the maximum number of new ordinary shares to be issued pursuant to the exercise of the options which may be granted under the scheme shall not exceed fi fteen percent of the issued and paid-up share capital of the Company or such maximum percentages as may be allowed by the relevant authorities at any point of time throughout the duration of the scheme.

(b) any employee of the Group shall be eligible to participate in the scheme if, as of the date of the off er, the employee:

(i) is at least eighteen years of age; (ii) has served the Group for a minimum duration of one (1) year; and (iii) is a confi rmed executive (including Executive Director) and employed full-time by and on the payroll of any company in the Group.

(c) the actual number of options which may be off ered to an eligible employee shall be at the discretion of the Option Committee provided that the options so off ered shall be in multiples of one thousand shares subject to the maximum allowable allotment.

(d) (i) where the ESOS Options are off ered or granted before the Company is listed on Bursa Securities, the exercise price of the ESOS Options shall not be less than the issue price of RM1.80 per share; and

(ii) where the ESOS Options are off ered and granted on or after the Company is listed on Bursa Securities, the exercise price shall be determined at the discretion of the Option Committee appointed by the directors of the Company based on the following:

(a) the weighted average market price of the Shares for the fi ve (5) market days immediately preceding the date of off er with an allowance for a discount at the Option Committee’s discretion, of not more than 10% therefrom or such higher limit as may be permitted from time to time by Bursa Securities and any other relevant authorities; or

(b) such price as may be permitted from time to time by Bursa Securities and any other relevant authorities as amended from time to time. Th e exercise price of the Options shall in no event be less than the par value of the Shares.

(e) (i) not more than 50% (or such percentage as allowable by the relevant authorities) of the ESOS Shares should be allocated, in aggregate, to directors and senior management of the Group; and

(ii) not more than 10% (or such percentage as allowable by the relevant authorities) of the Shares available under the ESOS should be allocated to any individual director or employee who, either singly or collectively through persons connected with the director or employee (as defi ned in the Listing Requirements), hold 20% or more in the issued and paid-up capital of the Company.

76 IQ GROUP HOLDINGS BERHAD (636944 U) NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 2008 (Cont’d)

19. SHARE CAPITAL (Cont’d)

(f) the scheme shall be in force for a period of fi ve calendar years from the eff ective date and may be extended or renewed and the options granted may be exercised at any time within the option period.

(g) the new ordinary shares to be allotted upon any exercise of the ESOS will upon allotment rank pari passu in all respects with the then existing ordinary shares of the Company except that these new ordinary shares will not be entitled to any dividends or distributions which may be declared prior to the allotment of these shares.

Options are conditional on the employee confi rmation of service (the vesting period). Th e options are exercisable immediately from grant date and have a contractual term of fi ve years. Th e Group or the Company has no legal or constructive obligation to repurchase or settle the options in cash.

Th e persons to whom the options have been granted have no right to participate by virtue of the options in any share issue of any other company in the Group.

Movements in the share options for ordinary shares of RM1.00 each outstanding and their related weighted average exercise prices are as follows:

2008 2007 Share options Share options Average for ordinary Average for ordinary exercise price shares of exercise price shares of RM/share RM1.00 each RM/share RM1.00 each

At start of year 1.63 1,591,000 1.79 878,000

Granted 1.23 891,000 1.50 915,000 Forfeited - - - - Exercised - - - - Lapsed 1.58 (129,000) 1.74 (202,000)

At end of year 1.47 2,353,000 1.63 1,591,000

Out of the outstanding options, 1,899,000 (2007: 1,150,500) ordinary shares of RM1.00 each off ered under the ESOS scheme were exercisable at the end of year.

Th e options outstanding at year end had an exercise prices ranging from RM0.95 to RM1.80 (2007: RM1.35 to RM1.80) and a weighted average remaining contractual life of 2½ years (2007: 3½ years).

2,353,000 (2007: 1,591,000) ordinary shares of RM1.00 each off ered under ESOS scheme granted during the year will expire on September 8, 2010.

ANNUAL REPORT 2008 77 NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 2008 (Cont’d)

19. SHARE CAPITAL (Cont’d)

Th e weighted average fair value of options granted during the year determined using the binomial model was RM0.0904 (2007: RM0.1125) per ordinary share of RM1.00 each. Th e signifi cant inputs into the model were as follows:

2008 2007 Valuation assumptions: Expected volatility 23.44% - 27.94% 20.00% - 22.34% Expected dividend yield 7.4% - 10.6% 5.0% - 6.5% Expected option life 2½ years 3½ years Weighted average share price at date of grant RM1.23 per share RM1.50 per share Risk-free interest rate (per annum) 3.49% 3.3%

Th e volatility measured at the standard deviation of continuously compounded share return is based on statistical analysis of daily share prices over the last one year.

20. RESERVES

Th e Group Th e Company 2008 2007 2008 2007 RM RM RM RM Non-distributable: Share premium 7,503,952 7,503,952 7,503,952 7,503,952 Translation reserve (3,175,469) (2,140,774) - - Share option reserve 194,421 148,428 194,421 148,428

4,522,904 5,511,606 7,698,373 7,652,380

Th e share premium arose from issue of shares at premium, net of share issue expenses.

Th e translation reserve is used to record exchange diff erences arising on translation of foreign subsidiary companies.

Th e share option reserve represents the equity-settled share options granted to the Group’s employees. Th is reserve is made up of the cumulative value of services received from employees recorded on grant of share options.

21. RETAINED EARNINGS

Eff ective January 1, 2008, the Company is given the option to make an irrevocable election to move to a single tier system or continue to use its tax credit under Section 108 of the Income Tax Act, 1967 for the purpose of dividend distribution until the tax credit is fully utilised or latest by December 31, 2013.

Th e Company has not made this election. Th e Company has suffi cient tax credit under Section 108 of the Income Tax Act, 1967 and the balance in the tax exempt account to frank the payment of dividends out of its entire retained earnings as of March 31, 2008.

78 IQ GROUP HOLDINGS BERHAD (636944 U) NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 2008 (Cont’d)

22. DEFERRED TAX LIABILITIES Th e Group Th e Company 2008 2007 2008 2007 RM RM RM RM

At beginning of year 1,843,379 2,084,387 - - Transfer (to)/ from income statements (Note 8) (363,344) (241,008) 38,000 -

At end of year 1,480,035 1,843,379 38,000 -

Th e deferred tax liabilities are in respect of the following:

Deferred Tax Liabilities/ (Assets) Th e Group Th e Company 2008 2007 2008 2007 RM RM RM RM

Tax eff ect of temporary diff erences arising from: Property, plant and equipment 788,000 1,075,000 43,000 - Development costs 1,530,000 1,432,000 - - Inventories (317,965) (573,621) - - Trade receivables (130,000) (10,000) - - Trade payables (1,000) (17,000) - - Other payables (63,000) (63,000) (5,000) - Tax eff ect of unabsorbed tax capital allowance (326,000) - - -

1,480,035 1,843,379 38,000 -

23. LONG-TERM LOAN Th e Group 2008 2007 RM RM Secured: Amount outstanding 2,182,999 - Less: Portion due within one year (419,348) -

Non-current portion 1,763,651 -

Th e non-current portion of long-term loan is repayable as follows: Th e Group 2008 2007 RM RM

Later than 1 year and not later than 2 years 454,381 - Later than 2 years and not later than 5 years 1,309,270 -

1,763,651 -

ANNUAL REPORT 2008 79 NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 2008 (Cont’d)

23. LONG-TERM LOAN (Cont’d)

Th e long-term loan bears interest at a fi xed rate of 8.03% per annum for a period of 5 years from the date of drawdown. Th e long-term loan is secured by legal charges creating fi xed charges over property, plant and equipment and fl oating charges over all other undertakings and assets of a subsidiary company.

24. TRADE AND OTHER PAYABLES

Th e Group Th e Company 2008 2007 2008 2007 RM RM RM RM

Trade payables 13,528,707 18,878,340 - - Amount owing to subsidiary companies - - 6,955,801 1,438,673 Other payables 6,995,088 6,481,959 3,150 34,718 Accrued expenses 4,879,659 7,759,186 149,120 51,527

25,403,454 33,119,485 7,108,071 1,524,918

Analysis of trade and other payables by currencies:

Th e Group Th e Company 2008 2007 2008 2007 RM RM RM RM

Renminbi 5,964,329 3,122,007 - - Ringgit Malaysia 5,821,969 5,884,371 5,518,926 1,151,933 Hong Kong Dollar 5,739,542 10,736,679 - - United States Dollar 4,282,423 5,897,774 3,195 3,456 Great Britain Pound 2,729,467 6,105,698 1,585,950 369,529 Japanese Yen 645,082 676,861 - - New Taiwan Dollar 208,660 684,661 - - Euro 11,982 11,434 - -

25,403,454 33,119,485 7,108,071 1,524,918

Trade payables comprise amounts outstanding for trade purchases. Th e credit periods granted to the Group for trade purchases range from 5 to 90 days (2007: 5 to 90 days).

Th e amount owing to subsidiary companies arose mainly from interest free advances which are unsecured and are repayable on demand.

Other payables and accrued expenses comprise mainly amounts outstanding for ongoing costs.

80 IQ GROUP HOLDINGS BERHAD (636944 U) NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 2008 (Cont’d)

24. TRADE AND OTHER PAYABLES (Cont’d)

Th e amount owing to subsidiary companies are as follows: Th e Company 2008 2007 RM RM

IQ Group Sdn. Bhd. 5,366,656 1,065,688 IQ (Europe) Limited 1,585,950 369,529 IQ Industries Limited 3,195 3,456

6,955,801 1,438,673

25. DIVIDENDS

Th e Group and the Company 2008 2007 RM RM Dividends declared and paid: Final dividend of 4 sen per ordinary share, tax exempt, for 2007 and 2006 3,400,000 3,400,000 Interim dividend of 5 sen per ordinary share, tax exempt, for 2007 - 4,250,000

3,400,000 7,650,000

26. RELATED PARTY BALANCES AND TRANSACTIONS

Included in the following accounts of the Group as of March 31, 2008 are amounts owing by/ (to) the following related parties:

Th e Group 2008 2007 RM RM Trade receivables: IQ (America) Inc. # 2,875,398 2,461,279

Trade payables: Interquartz Taiwan Ltd. * 330,400 789,348

Other payables: IQ (America) Inc. # 505,970 212,272 Sensorlite (M) Sdn. Bhd. * 94,212 114,151 Interquartz Taiwan Ltd.* 1,365 9,857

# A director, Mr. Chen, Wen-Chin also known as Kent Chen has substantial interest in this company.

* A director, Mr. Chen, Wen-Chin also known as Kent Chen has substantial interest and is also a director of these companies.

ANNUAL REPORT 2008 81 NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 2008 (Cont’d)

26. RELATED PARTY BALANCES AND TRANSACTIONS (Cont’d)

Th e amount owing by/ (to) related parties, included in trade receivables and trade payables arose mainly from trade transactions. Th e credit periods granted by/ (to) related parties range from 30 to 120 days (2007: 30 to 120 days).

Th e amount owing to related parties, included in other payables arose mainly from advances which are interest free, unsecured and are repayable on demand.

Th e fi nancial statements of the Group refl ect the following signifi cant related party transactions which are based on terms negotiated between the Group and its related parties:

Th e Group 2008 2007 RM RM Interquartz Taiwan Ltd. Purchase of raw materials 4,419,667 7,993,494 Rental payables 747,224 872,960 Sales commission paid/ payables 175,479 208,773 Purchase of goods-in-transit 4,502 71,889 Purchase of consumables tools 123 75 Miscellaneous purchases 249,845 359,772 IQ (America) Inc. Sales of fi nished goods 4,462,088 2,493,471 Sales commission payable 446,248 114,371 Miscellaneous sales - 2,122

27. BANKING FACILITIES

Th e Group has bank overdraft and other banking facilities which are generally covered by a negative pledge over one of the subsidiary companies’ assets and secured by a fi xed and fl oating charge over all the assets of another subsidiary company.

Th e bank overdraft and other banking facilities bear interests at rates ranging from 1.0% to 1.5% per annum above the lending banks’ base lending rates and cost of funds.

28. DIRECTORS’ BENEFIT-IN-KIND

Th e Group Th e Company 2008 2007 2008 2007 RM RM RM RM

Estimated cash value of benefi t-in-kind provided to directors 55,655 125,305 36,717 112,713

82 IQ GROUP HOLDINGS BERHAD (636944 U) NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 2008 (Cont’d)

29. LEASE COMMITMENTS

As of March 31, 2008, non cancellable long-term lease commitments in respect of rental of premises and offi ce equipment are as follows:

Th e Group Th e Company 2008 2007 2008 2007 RM RM RM RM

Not later than 1 year 484,118 823,910 114,000 114,000 Later than 1 year and not later than 5 years 62,704 946,018 - -

546,822 1,769,928 114,000 114,000

30. CAPITAL COMMITMENT

As of March 31, 2008, capital expenditure contracted but not provided for in the fi nancial statements of the Group in respect of purchase of property, plant and equipment is approximately RM571,000 (2007: Nil).

31. FINANCIAL INSTRUMENTS

a. Financial Risk Management Objectives and Policies

Th e operations of the Group are subject to a variety of fi nancial risks, including foreign currency risk, interest rate risk, market risk, credit risk, liquidity risk and cash fl ow risk. Th e Group has formulated a fi nancial risk management framework whose principal objective is to minimise the Group’s exposure to risks and/ or costs associated with the fi nancing, investing and operating activities of the Group.

Various risk management policies are made and approved by the Board for observation in the day-to-day operations for the controlling and management of the risks associated with fi nancial instruments.

i. Foreign currency risk

Th e Group has exposure to foreign exchange risk as a result of transactions, receivables and payables in foreign currencies arising from normal operating activities. Th e Group does not speculate in foreign currencies.

ii. Interest rate risk

Th e Group’s exposure to changes in interest rates relates primarily to the Group’s short-term deposits with licensed banks and fi nancing through long-term loan. Th e short-term deposits are placed with reputable banks. Th e Group does not use derivative fi nancial instruments to hedge its risk.

ANNUAL REPORT 2008 83 NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 2008 (Cont’d)

31. FINANCIAL INSTRUMENTS (Cont’d)

a. Financial Risk Management Objectives and Policies (Cont’d)

iii. Market risk

Th e Group has in place policies to manage the Group’s exposure to fl uctuation in the prices of the key raw materials used in the operations.

iv. Credit risk

Th e Group is exposed to credit risk mainly from trade receivables. Th e Group extends credit to its customers based upon careful evaluation of the customers’ fi nancial condition and credit histories. Th e Group also ensures a number of customers so as to limit high credit concentration in a customer or customers from a particular market.

v. Liquidity risk

Th e Group practises prudent liquidity risk management to minimise the mismatch of fi nancial assets and liabilities and to maintain suffi cient credit facilities for contingent funding requirement of working capital.

vi. Cash fl ow risk

Th e Group reviews its cash fl ow position regularly to manage its exposure to fl uctuations in future cash fl ows associated with its monetary fi nancial instruments.

b. Credit Risk

Th e maximum credit risk associated with recognised fi nancial assets is the carrying amount shown in the balance sheets.

c. Fair Values

Th e fair value of long-term loan estimated using discounted cash fl ows analysis based on current borrowing rates for similar types of borrowing arrangements approximates its carrying amount.

Th e fair values of fi nancial assets and other fi nancial liabilities approximate their carrying amounts because of the short maturity of these instruments.

32. SEGMENTAL REPORTING

Business Segments

For management purposes, the Group is organised into the following operating divisions:

- investment holding (includes management services) - manufacturing of passive infrared detectors, motion sensor light controllers, wireless video communication devices, door bells, home security system, lighting fi xtures and plastic products - trading of security lighting systems, passive infrared detectors and motion sensor light controllers

Inter-segment sales are charged at cost plus a percentage of profi t mark-up.

84 IQ GROUP HOLDINGS BERHAD (636944 U) NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 2008 (Cont’d)

32. SEGMENTAL REPORTING (Cont’d)

Th e Group Investment holding Manufacturing Trading Elimination Total RM RM RM RM RM

2008 Revenue External revenue - 69,349,974 69,962,248 - 139,312,222 Inter-segment revenue 6,331,914 65,822,117 70,956,440 (143,110,471) -

Total revenue 6,331,914 135,172,091 140,918,688 (143,110,471) 139,312,222

Results Segment results (5,934) (9,654,821) 8,711,367 2,506,120 1,556,732 Investment revenue 730,043 Finance costs (98,411)

Profi t before tax 2,188,364 Income tax expense (1,009,113)

Profi t for the year 1,179,251

Other information Capital additions 110,610 7,423,094 4,097,640 - 11,631,344 Depreciation and amortisation 15,834 6,820,121 598,194 - 7,434,149 Non-cash expenses other than depreciation and amortisation 512,920 1,764,529 - - 2,277,449

Assets Segment assets 236,933 73,620,603 29,360,206 - 103,217,742 Unallocated corporate assets 34,010,483

Consolidated total assets 137,228,225

Liabilities Segment liabilities 152,270 21,939,291 3,311,893 - 25,403,454 Unallocated corporate liabilities 4,760,592

Consolidated total liabilities 30,164,046

ANNUAL REPORT 2008 85 NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 2008 (Cont’d)

32. SEGMENTAL REPORTING (Cont’d)

Th e Group (Cont’d) Investment holding Manufacturing Trading Elimination Total RM RM RM RM RM

2007 Revenue External revenue - 86,534,885 67,230,208 - 153,765,093 Inter-segment revenue 13,941,408 67,107,668 73,633,039 (154,682,115) -

Total revenue 13,941,408 153,642,553 140,863,247 (154,682,115) 153,765,093

Results Segment results 7,920,184 6,237,484 9,617,184 (9,382,003) 14,392,849 Investment revenue 1,132,050

Profi t before tax 15,524,899 Income tax expense (2,926,458)

Profi t for the year 12,598,441

Other information Capital additions 144,222 6,866,907 699,049 - 7,710,178 Depreciation and amortisation 11,692 6,383,254 523,438 - 6,918,384 Non-cash expenses other than depreciation and amortisation 288,483 143,968 - - 432,451

Assets Segment assets 185,981 79,008,960 27,849,569 - 107,044,510 Unallocated corporate liabilities 39,170,856

Consolidated total assets 146,215,366

Liabilities Segment liabilities 86,245 26,137,474 6,895,766 - 33,119,485 Unallocated corporate liabilities 2,822,251

Consolidated total liabilities 35,941,736

86 IQ GROUP HOLDINGS BERHAD (636944 U) NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 2008 (Cont’d)

32. SEGMENTAL REPORTING (Cont’d)

Geographical segments

Th e Group’s manufacturing activity is located in Malaysia and People’s Republic of China and trading activity is located in United Kingdom, Japan and Taiwan.

Th e following is an analysis of the Group’s sales by geographical market, irrespective of the origin of the goods/ services:

Sales revenue by geographical market 2008 2007 RM RM

European countries 105,787,877 121,669,019 Asia Pacifi c countries 21,567,268 21,220,860 United States 11,957,077 10,875,214

139,312,222 153,765,093

Th e following is an analysis of the carrying amount of segment assets and capital additions by the geographical area in which the assets are located. 2008 2007 Carrying Carrying amount of Capital amount of Capital segment assets additions segment assets additions RM RM RM RM

Malaysia 49,219,473 3,650,703 53,194,012 4,289,389 People’s Republic of China 25,502,301 3,915,964 26,569,258 3,191,820 United Kingdom 24,543,380 3,828,285 24,034,332 196,273 Japan 2,820,332 236,392 2,231,263 30,514 Taiwan 1,132,256 - 1,015,645 2,182

103,217,742 11,631,344 107,044,510 7,710,178

33. CHANGE IN ACCOUNTING POLICY

Th e adoption of new and revised FRSs and IC Interpretations as set out in Note 3 has no material impact on the fi nancial statements of the Group and of the Company except for the adoption of FRS 117 Leases. Prior to April 1, 2007, short leasehold land of the Group was classifi ed as property, plant and equipment and was stated at cost less accumulated depreciation and any accumulated impairment losses. Th e adoption of FRS 117 has resulted in a change in the Group’s accounting policy relating to the classifi cation of leases of land and buildings. Leases of land and buildings are classifi ed as operating or fi nance leases in the same way as leases of other assets and the land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classifi cation. Short leasehold land is now classifi ed as operating lease and where necessary, the minimum lease payments or the up-front payments made are allocated between the land and the buildings elements in proportion to the relative fair values for leasehold interests in the land element and buildings element of the lease at the inception of the lease. Th e up-front payment represents prepaid lease payments and are amortised on a straight-line basis over the lease term.

ANNUAL REPORT 2008 87 NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 2008 (Cont’d)

33. CHANGE IN ACCOUNTING POLICY (Cont’d)

Th e reclassifi cation of short leasehold land as prepaid lease payments has been accounted for retrospectively and the comparatives as of March 31, 2007 have been restated as follows:

Th e Group Eff ect of As previously adoption of reported FRS 117 As restated RM RM RM

Income statement for the year ended March 31, 2007 Depreciation of property, plant and equipment 5,072,546 (48,454) 5,024,092 Amortisation of prepaid lease payments - 48,454 48,454

Balance sheet as of March 31, 2007 Property, plant and equipment 24,214,022 (2,045,080) 22,168,942 Prepaid lease payments - 2,045,080 2,045,080

34. SUBSEQUENT EVENTS

Subsequent to March 31, 2008, the Company has invested the remaining sum of USD790,000 (equivalent to RM2,549,430) in IQ Group (Dongguan) Ltd..

88 IQ GROUP HOLDINGS BERHAD (636944 U) STATEMENT BY DIRECTORS/ DECLARATION BY THE OFFICER PRIMARILY RESPONSIBLE FOR THE FINANCIAL MANAGEMENT OF THE COMPANY

STATEMENT BY DIRECTORS

Th e directors of IQ GROUP HOLDINGS BERHAD state that, in their opinion, the accompanying balance sheets as of March 31, 2008 of the Group and of the Company, and the income statements, statements of changes in equity and cash fl ow statements of the Group and of the Company for the year then ended, and a summary of signifi cant accounting policies and other explanatory notes, as set out on pages 46 to 88, are drawn up in accordance with the provisions of the Companies Act, 1965 and the applicable Malaysian Accounting Standards Board approved accounting standards in Malaysia so as to give a true and fair view of the fi nancial position of the Group and of the Company as of March 31, 2008 and their fi nancial performance and cash fl ows for the year then ended.

Signed in accordance with a resolution of the Directors,

CHEN, WEN-CHIN ALSO KNOWN DANIEL JOHN BEASLEY AS KENT CHEN

Penang,

July 29, 2008

DECLARATION BY THE OFFICER PRIMARILY RESPONSIBLE FOR THE FINANCIAL MANAGEMENT OF THE COMPANY

I, CHEE TING TING, the offi cer primarily responsible for the fi nancial management of IQ GROUP HOLDINGS BERHAD, do solemnly and sincerely declare that the accompanying balance sheets as of March 31, 2008 of the Group and of the Company, and the income statements, statements of changes in equity and cash fl ow statements of the Group and of the Company for the year then ended, and a summary of signifi cant accounting policies and other explanatory notes, as set out on pages 46 to 88, are, in my opinion, correct and I make this solemn declaration conscientiously believing the same to be true, and by virtue of the provisions of the Statutory Declarations Act, 1960.

Subscribed and solemnly declared by ) the abovenamed CHEE TING TING at )

GEORGETOWN in the State of PENANG ) on July 29, 2008 ) CHEE TING TING

Before me,

CHINNIAH MUTHUMONEY Commissioner For Oaths

ANNUAL REPORT 2008 89 LIST OF PROPERTIES MARCH 31, 2008

Th e details of the landed properties of the Group are as follows:-

Net Approximate Book Value Description/ Land Area/ Age of as at Registered Owner/ Existing Use/ Built-up Building Tenure/ Date of 31.03.2008 Location Restriction of Interest Area (year) Encumbrances acquisition (RM’000)

Leasehold Land and Buildings

IQ Group Sdn. Bhd.

Plot 149, Jalan Sultan Azlan Shah, Description 8,136.93 18 Tenure 05.12.1988 3,050 Taman Perindustrian Bayan Lepas, 2-storey factory cum offi ce with a square metre/ Leasehold 60 Fasa 1(FTZ), Bayan Lepas 11900 mezzanine fl oor 6,091.79 years (expiring Penang held under P.T.1300 H.S. square metre 22.09.2049) (D) 12680, Mukim 12, Daerah Existing Use Barat Daya, Pulau Pinang Industry use as head offi ce, R&D Encumbrances centre and factory premises A 30 year lease of part of the Restriction of Interest land to Tenaga (a) Th e land shall not be transferred, Nasional Berhad charged, leased, sub-leased or (expiring disposed of without the written 15.09.2021) consent of the State Authority of Penang; and

(b) Th e land shall not be sub-divided or partitioned.

IQ Group Sdn. Bhd. Description 6,754.89 18 Tenure 10.07.1999 5,224 2-storey factory cum offi ce square metre/ Leasehold 60 Plot 151, Jalan Sultan Azlan Shah, 2,998.94 years (expiring Taman Perindustrian Bayan Lepas Existing Use square metre on 11.06.2049) Fasa 12(FTZ), Bayan Lepas 11900 Industry use as head offi ce, R&D Penang held under P.T. 1246 centre and factory premises Encumbrances H.S. (D) 12566, Mukim 12, A 30 year lease Daerah Barat Daya, Pulau Pinang Restriction of Interest of part of the (a) Th e land shall not be transferred, land to Tenaga charged, leased, sub-leased or Nasional Berhad disposed of without the written (expiring consent of the State Authority; 25.09.2021) and (b) Th e land shall not be sub-divided or partitioned

Freehold Land and Buildings

IQ (Europe) Limited

Gemini Grange Description 700 square 20-25 years Freehold 20.09.07 3,462 Sandbeck Way Semi-detached offi ce building metre/ Wetherby 254 square West Yorkshire metre LS22 7DN Existing Use United Kingdom Offi ce accommodation on ground and fi rst fl oors

Restriction of Interest

none

No revaluation exercise has been carried out on the land and buildings.

90 IQ GROUP HOLDINGS BERHAD (636944 U) ANALYSIS OF SHAREHOLDING (As at August 5, 2008)

Share capital

Authorised : RM150,000,000.00 Issued and paid-up : RM85,000,000.00 Class of Shares : Ordinary shares of RM1.00 each Voting Rights : One voting right for one ordinary share

Size of holding No of holders % No. of shares %

Less than 100 shares 1 0.09 50 0.00 100 – 1,000 shares 556 47.81 264,400 0.31 1,001 – 10,000 shares 465 39.98 1,964,450 2.31 10,001 -100,000 shares 114 9.80 3,694,200 4.35 100,001 – 4,249,999 25 2.15 31,071,559 36.55 4,250,000 and above 2 0.17 48,005,341 56.48

TOTAL 1,163 100.00 85,000,000 100.00

DIRECTORS’ SHAREHOLDING

Direct Indirect Name of Directors No. of shares % No. of shares %

Chen, Wen-Chin also known as Kent Chen 12,346,101 14.52 41,079,451 * 48.33 Daniel John Beasley 15,000 0.02 - - Ng Hai Suan @ Ooi Hoay Seng 40,000 0.05 500,000 ** 0.59 Yoon Chon Leong - - - - Charlie Ong Chye Lee - - - -

* By virtue of his substantial interest in Sensorlite Limited and Sensorlite Investments Limited and interest of spouse by virtue of Section 134(12)(c) of the Companies Act, 1965 ** By virtue of his substantial interest in Richwell Sdn. Bhd., Winful Sdn. Bhd. and Richfi eld Sdn. Bhd.

SUBSTANTIAL SHAREHOLDERS

Direct Indirect Name of Shareholders No. of shares % No. of shares %

Sensorlite Limited 35,659,240 41.95 - - Chen, Wen-Chin also known as Kent Chen 12,346,101 14.52 39,584,867 + 46.57

+ By virtue of his substantial interest in Sensorlite Limited and Sensorlite Investments Limited

ANNUAL REPORT 2008 91 ANALYSIS OF SHAREHOLDING (As at August 5, 2008) (Cont’d)

TOP THIRTY SECURITIES ACCOUNT HOLDERS (Without aggregating the securities from diff erent securities accounts belonging to the same depositor)

No. Name No. of shares %

1. Sensorlite Limited 35,659,240 41.95 2. Chen, Wen-Chin also known as Kent Chen 11,586,801 13.63 3. Ultra Top International Co., Ltd. 4,249,000 4.99 4. Sensorlite Investments Limited 3,925,627 4.62 5. Nestek Electronics Inc. 3,818,364 4.49 6. PRB Nominees (Tempatan) Sdn. Bhd. [Rubber Industry Smallholders Development Authority] 2,941,500 3.46 7. Yayasan Islam Terengganu 2,398,800 2.82 8. Kenanga Nominees (Tempatan) Sdn. Bhd. [Kenanga Capital Sdn. Bhd. for RME Holdings Sdn. Bhd.] 2,241,200 2.64 9. Chan, Yih-Yung 1,578,800 1.86 10. Chang, Su-Chu 1,494,584 1.76 11. Kenneth Ian Mackay 1,452,584 1.71 12. HSBC Nominees (Asing) Sdn. Bhd. [CS Zurich for Chan, Yih-Yung] 1,000,000 1.18 13. Koperasi Permodalan Felda Berhad 1,000,000 1.18 14. Jusoh Bin Ali 950,000 1.12 15. Chen, Wen-Chin also known as Kent Chen 759,300 0.89 16. Malaysia Nominees (Tempatan) Sendirian Berhad [Great Eastern Life Assurance (Malaysia) Berhad (PAR 2)] 712,300 0.84 17. Kamaruzaman Bin AB Ghani 559,000 0.66 18. Syarikat Shukor Sakam Sdn. Bhd. 500,000 0.59 19. Mayban Securities Nominees (Tempatan) Sdn. Bhd. [Pledged securities account for Labuan Reinsurance (L) Ltd. (Dealer 001)] 300,000 0.35 20. Amanah Raya Nominees (Tempatan) Sdn. Bhd. [Public Islamic Opportunities Fund] 255,300 0.30 21. Lai Chin Loy 234,600 0.28 22. Lee Yu Yong @ Lee Yuen Ying 220,200 0.26 23. Jusoh Bin Ali 211,000 0.25 24. Citigroup Nominees (Asing) Sdn. Bhd. [PLL for Robotti Global Fund LLC] 200,000 0.23 25. Richwell Sdn. Bhd. 200,000 0.23 26. Winful Sdn. Bhd. 200,000 0.23 27. Loh Yuen Kok 145,000 0.17 28. Kho Khee Wah 125,000 0.15 29. Liao, Shin-Hua 125,000 0.15 30. PRB Nominees (Tempatan) Sdn. Bhd. [Rubber Industry Smallholders Development Authority] 100,000 0.12

79,143,200 93.11

92 IQ GROUP HOLDINGS BERHAD (636944 U) IQ GROUP HOLDINGS BERHAD (Company No. : 636944 U) (Incorporated in Malaysia) PROXY FORM I/We,...... of ...... being a Member of the above Company hereby appoint ...... or failing him, ...... of ...... or failing him, the Chairman of the Meeting, as my/our proxy, to vote for me/us on my/our behalf at the FIFTH ANNUAL GENERAL MEETING of the Company to be held at the Training Room, IQ Group Holdings Berhad, 149 Jalan Sultan Azlan Shah, Taman Perindustrian Bayan Lepas, Fasa 1 (FTZ), Bayan Lepas, 11900 Penang, on Friday, September 26, 2008 at 3.00 pm and at any adjournment thereof.

I/We hereby indicate with an “X” in the spaces provided how I/we wish my/our votes to be cast. (Unless otherwise instructed, the proxy may vote, as he thinks fi t) For Against Ordinary Resolution 1 To receive and consider the Reports and Financial Statements

To re-elect the following Directors retiring in accordance with Article 98(1) of the Articles of Association of the Company :-

Ordinary Resolution 2 (a) Mr. Ng Hai Suan @ Ooi Hoay Seng

Ordinary Resolution 3 (b) Mr. Daniel John Beasley

Ordinary Resolution 4 To re-appoint Messrs. Deloitte KassimChan as Auditors

Ordinary Resolution 5 To approve the payment of Directors’ fees of RM168,000.00 for the fi nancial year ending 31 March 2009.

Ordinary Resolution 6 To authorise Directors to allot and issue shares pursuant to Section 132D of the Companies Act, 1965

Ordinary Resolution 7 To renew share buy-back authority

Ordinary Resolution 8 To renew shareholders’ mandate for recurrent related party transactions of a revenue or trading nature and to approve new shareholders’ mandate for additional recurrent related party transactions of a revenue or trading nature

Signature of Member : ...………………………………..

Date : …...... ……...... …………………...... …..

Number of shares held : …………………………….…..

Notes:- A Member of the Company entitled to attend and vote is entitled to appoint at least 1 proxy to attend and vote in his place. A proxy may but need not be a Member and the provisions of Section 149(1)(b) of the Companies Act, 1965 shall not apply to the Company. If a Member appoints more than one (1) proxy, the appointments shall be invalid unless he specifi es the proportions of his holdings to be represented by each proxy.

Th e instrument appointing the proxy shall be in writing, executed by or on behalf of the appointor. In the case of a corporate member, the instrument appointing a proxy must be either under its common seal or under the hand of its offi cer or attorney duly authorised.

Th e instrument appointing a proxy must be deposited at the Registered Offi ce, 3rd Floor, Wisma Wang, 251-A Jalan Burma, 10350 Penang at least 48 hours before the time for holding the Meeting or any adjournments thereof. FOLD THIS FLAP FOR SEALING

FOLD HERE

STAMP

IQ GROUP HOLDINGS BERHAD (Company No. : 636944 U) 3rd Floor, Wisma Wang 251-A, Jalan Burma 10350 Penang

FOLD HERE