Dear Investors,

Thank you very much for the questions and the opportunity for us to respond. We hope you have a better understanding of our business through this online exchange.

Your questions will be reposted in blue followed by our replies in black

Rgds,
The Management Team
Micro-Mechanics (Holdings) Ltd.

Dear Kelvin Ong, you wrote:

I'm surprised your company has zero debt and yet was able to pay out dividend every single year. This is very rare in the semi-conductor industry. You also own the building you operate in and did not sell them to REITs to cash out for riskier investment when the property market was booming. Being debt free and using reserves to buy property are old fashion business strategy but has proven to be the right strategy to date.

How did you stick to this strategy over the years when everybody else was just doing the opposite?

By staying focused on the fundamentals of our business and understanding the need to balance risk and reward, Micro-Mechanics has built its net assets the old fashion way - through years of steady, cumulative profits. In the same manner, we have also worked hard to maintain a healthy financial position of positive cash balances and zero borrowings. This approach frees us from the burden of covering interest costs and the sometimes unhealthy pressure that debt can place on management.

We also believe that managing risk is just as important as pursuing growth. For example, we opted for a modest sized acquisition instead of a larger one to grow our CMA business. While a larger acquisition could have brought bigger revenues to the Group, it may also have involved accepting higher acquisition risks and necessitated borrowing or shareholding dilution to fund the acquisition. Instead, we financed our first acquisition with internal funds which has kept our balance sheet free of debt. This strategy also signaled to our managers throughout the Group the importance of making wise investment and spending decisions and the implications of these and other everyday decisions on our business.

Dear Francis Cheong, you wrote:

Your headcount was reduced by roughly 9% by the end of the financial year. Did the Singapore government's Job Credit Scheme helped to reduce the number of staff laid off?

You mentioned the cost of labour in Singapore is higher compared to neighbouring countries. What strategy has the company adopted to maximise the productivity and value-add services of high cost labour countries like the US and Singapore?

During FY2009, the Group received a grant of S$142,065 from the Job Credit Scheme. We saw a net decrease of around 50 people across our nine global locations during the year with about 10 leaving our Singapore operations. This was due to normal attrition and a careful process of restructuring made necessary by the economic downturn. While Singapore is the Group's headquarters, many of our customers here are gradually shifting their manufacturing operations to lower-cost locations in Asia. As Singapore's personnel costs are relatively higher than neighboring countries such as Malaysia, Thailand, the Philippines and China, our aim is to keep our headcount in Singapore to about 15% of the Group total. This strategy will help the Group to maintain a total cost structure that keeps us competitive around the world.

At our operations in Singapore, we are accelerating changes with the setting up of a 'micro-e campus'. The intention of this program is to keep our operations in Singapore focused on consumable products that involve a higher level of know-how, proprietary processes and raw materials, and a greater degree of automation. Similarly in the USA, we intend to keep a lean team there to support key customers. Our USA operations will focus on the design, process and tooling of complex components produced on a Flexible Manufacturing System (FMS) (an automated manufacturing line that requires little direct labor). At the same time, we also intend to replicate our FMS manufacturing approach at our CMA facility in Malaysia.

Dear Tan Kim Fu, you wrote:

Has your cost cutting effort affected the morale of the staff?

We believe our staff understands that the difficult business environment has affected almost all companies worldwide and that the Group's cost-cutting measures were unavoidable to ensure we remain competitive. Moreover, these cost reduction efforts were led from the top, with our CEO voluntarily taking the largest reduction of 40% in base pay, to ensure that the burden is shared in an equitable manner.

Although the difficult economy has certainly been a key factor affecting staff morale, we saw very little staff turnover during the last six months of FY2009. At the same time our attendance rate (calculated as total days missed due to illness or accident not requiring hospitalization, as a percentage of total available man days) exceeded 99% during this period.

Which areas in the semi-conductor industry do Micro-Mechanics see opportunities in times of adversity?

With semiconductor manufacturing activity increasingly centered in Asia, we envisage China will be one of the more promising markets for Micro-Mechanics in coming years. Since the start of our manufacturing facility in Suzhou, China in November 2004, we have built a good team of people, stronger capabilities and a large base of customers, all of which will provide leverage for the Group to make further progress there.

Any plans to make further acquisition or is it the same strategy of organic growth?

Having completed our first acquisition slightly over a year ago, our current goals are to bring the new operations in the USA to profitability and to continue raising the level of know-how of our CMA business. At the same time, we will continue to pursue growth opportunities for our semiconductor tooling business through organic growth initiatives.

Dear Lee Chong Meng, you wrote:

Dear Sir,

Please clarify my doubts on the following

1. There is a property in US that is classified as current asset held for sale, why are you selling it now when the property market in California is in a slump? Is it to raise cash for the cash-hungry US CMA business?

Prior to acquiring AMP 3 LLC in May 2008, Micro-Mechanics owned a property in Los Gatos, California which was used as our sales office. Following the acquisition, we shifted the sales office to our new manufacturing plant located at Morgan Hill, California, to improve operational and cost efficiencies. Although we have a strategy of owning real estate at some of our global locations as a way to reduce costs, we are reluctant to hold property that we do not require for our operations. Therefore, the property at Los Gatos has been put up for sale. This will allow us to focus on our core business and avoid any distractions that may arise from continued ownership of this unutilized property.

2. In the bal. sheet,it is stated that 3.5 million of loan has been capitalised into equity in the CMA business of US. There is also a significant write-off in inventory in US. Will there be more cash injection and inventory write off in the CMA business in the future? How long do you expect CMA business in US to turn around?

Immediately after the acquisition in May 2008, we initiated programs aimed at enhancing the quality, cost and cycle-time performance of our CMA operations in the USA. By October 2008, monthly sales had doubled to S$1.2 million to almost break even. However, the subsequent global financial crisis quickly erased these gains and led to our USA operations incurring an operating loss of about S$3 million in FY2009. While the sales performance was disappointing but inevitable due to the weak business environment, we are encouraged by the progress of our initiatives at our CMA facility in the USA which will help to improve both cost and inventory management.

When we made the acquisition, we were prepared to invest in necessary equipment upgrades and inject additional working capital to bring the new operations to profitability. In the interim, we may need to continue financing the new factory with internal funds until a sustainable recovery takes place in the capital equipment market. Although we cannot say accurately when the CMA business in the USA will definitely turn around, we believe the situation is beginning to stabilise.

3. How do you compare yourself to SPT (Asia) in terms of market share, production cost, cycle time, quality, know-how and GPM?

There are few, if any, third-party statistics available on the market share of companies operating in this segment of the industry. SPT is a privately-owned company and details of its financial and operating performance are not publicly available. Hence, we are unable to comment on the comparisons requested.

4. What are you doing that your competitors are not doing yet?

We are unable to comment on the operations of our competitors, the majority of whom are privately-owned companies. However, to the best of our knowledge, we currently do not have any single direct rival who competes with us on our full range of products and technical services in all our current geographical markets. We have a continuous focus on cost, quality and cycle time improvements and believe our competitive position in the industry is due to our ability to offer customers with a well-engineered product of superior quality at a fair price and short lead time.

Thank you for your time in answering these questions.

Dear Lee Hai Seng, you wrote:

1) Care to explain the coming $1.2 million property sale in USA?

Prior to acquiring AMP 3 LLC in May 2008, Micro-Mechanics owned a property in Los Gatos, California which was used as our sales office. Following the acquisition, we shifted the sales office to our new manufacturing plant located at Morgan Hill, California, to improve operational and cost efficiencies. Although we have a strategy of owning real estate at some of our global locations as a way to reduce costs, we are reluctant to hold property that we do not require for our operations. Therefore, the property at Los Gatos has been put up for sale. This will allow us to focus on our core business and avoid any distractions that may arise from continued ownership of this unutilized property.

2) The reason for targeting depreciation expenses at 10%?

Keeping a low fixed cost structure is something that we have worked hard to do over the years. Excluding raw materials and rental cost, our cost of sales comprises two major items - personnel and depreciation. People are important assets to the company and we believe our Asia-centric personnel structure enables us to be competitive globally. With a target gross profit margin of 50% at Group level, it is also critical for us to efficiently manage our production assets. Our aim is to keep depreciation expenses below 10% of sales, which we assess to be a reasonable target for a manufacturing-centric operation.

3) Micro-e campus. Care to explain on this

At our operations in Singapore, we are accelerating changes with the setting up of a 'micro-e campus'. The intention is to keep our operations in Singapore focused on consumable products that involve higher levels of know-how, proprietary processes and raw materials, and greater degree of automation.

4) Can MM make lemonade out of lemon? Referring to AMP. Is AMP profitable if depreciation is being added back?

Within the first four months from commencing operations, monthly sales of the new USA factory doubled to S$1.2 million in October 2008 to nearly break even. However, sales subsequently declined significantly due to the global financial crisis. With the sharp and sudden slowdown in business volumes, it was difficult for our USA operations to be profitable, even if non-cash depreciation expense is excluded, due to the combined effects of low capacity utilization rate and other fixed manufacturing overheads.

5) The chances of CMA becoming another semiconductor tooling business with the same kind of competitive advantage? E.g customer depending more on MM going forward.

The acquisition of AMP 3 LLC has brought great know-how to the Group, especially in the design, processing and tooling of complex components produced on a Flexible Manufacturing System. It has also provided us with immediate access to new customers and industries. We remain excited about the potential of our CMA business and are looking for areas in the vast capital equipment markets where we can build a niche to compete more effectively as well as operate more efficiently to enhance our CMA profit margins.

6) No intention for giving forecast CAPEX in the future?

We estimate our capex budget for FY2010 to be about S$3 million, which is the same level as in FY2009.

7) I believe MM is comfortable with the current cash holding. What is the min cash level that the management wants to maintain?

The consumable nature of our products provides Micro-Mechanics with relatively steady and recurring income streams, compared to other suppliers in the semiconductor industry. However, the Group is not entirely immune to the volatility that is typical of this sector. As such, we have always kept a sufficient level of cash holdings for any unexpected events. Since our public listing in 2003, our year-end cash balances have been between S$10 million and S$13 million from FY2005 to FY2008. In FY2009, our cash balance declined to S$7.5 million due to the sharp downturn in the business environment. With zero borrowing and positive cash flow from operating activities, we are comfortable with our current cash position.

Dear Investors,

Thank you for all your questions and interest in Micro-Mechanics (Holdings) Ltd.. We have come to the end of this Q&A session and hope that you have a better insight of our company and our operations.

Rgds,
The Management Team
Micro-Mechanics (Holdings) Ltd.